What Is the Process to Appeal IRS Penalties?

Receiving a notice from the IRS assessing a penalty is not the final word on the matter. The Internal Revenue Service has established formal procedures that allow taxpayers to request the removal, or abatement, of certain penalties when specific circumstances prevent them from meeting their tax obligations.

Qualifying for Penalty Relief

The possibility of having an IRS penalty waived rests on two primary justifications: First-Time Abatement and Reasonable Cause. The First-Time Abatement (FTA) policy is an administrative waiver for taxpayers with a clean compliance history. To qualify, a taxpayer must demonstrate that for the three years preceding the penalty year, they filed all required returns, have no outstanding tax liabilities, and have not received a prior penalty abatement. This relief applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties.

A more common path for penalty relief is demonstrating Reasonable Cause. This standard applies when a taxpayer can prove they exercised ordinary business care and prudence but were still unable to file their return or pay their taxes on time due to circumstances beyond their control. The IRS evaluates these claims on a case-by-case basis, and events that can qualify include:

• The death or serious illness of the taxpayer or a member of their immediate family, which directly impacted their ability to manage tax affairs.
• An unavoidable absence, such as being unexpectedly hospitalized or incarcerated around the tax deadline.
• The destruction of a taxpayer’s home, business, or records by a fire, flood, or other natural disaster.
• Reliance on incorrect advice from a competent tax professional, provided the advisor was supplied with all necessary and accurate information.

You must connect the specific event directly to the failure to comply with tax obligations.

Information and Documents for Your Appeal

Before formally requesting penalty relief, gathering the correct documentation is an important step. The first document you need is the IRS notice that assessed the penalty, such as a CP14 or similar correspondence. This notice contains the specific penalty amount, the tax year in question, and contact information for the IRS, and is necessary for any communication with the agency.

The next step involves collecting evidence to substantiate your claim, particularly for a request based on Reasonable Cause. The type of documentation required will vary depending on the reason for the appeal. For instance, if the claim is based on a serious illness, you can provide copies of dated doctor’s notes, hospital admission records, or a letter from a physician explaining the severity and timing of the medical issue. In cases of a natural disaster, insurance claims, police reports, or photos of the damage can serve as proof. If relying on incorrect advice, a letter from the tax advisor acknowledging the error, along with a copy of the advice, is needed.

The primary document for a written request is Form 843, Claim for Refund and Request for Abatement. On this form, you will need to provide your personal information and details from the penalty notice. The most important section is the explanation, where you will present a clear and concise argument for why the penalty should be removed, referencing the specific documents you have collected as evidence.

Methods for Requesting Penalty Abatement

The IRS offers two primary methods for submitting an initial abatement request. For certain straightforward situations, particularly those that might qualify for First-Time Abatement, it may be possible to resolve the issue with a phone call. The toll-free number to use is printed on the top right corner of the IRS notice you received. Before calling, have the notice, your Social Security number, and a clear explanation for your request ready, as an IRS representative may be able to grant relief directly over the phone.

For more complex cases, especially those involving a Reasonable Cause argument, a written request is the more appropriate method. This involves mailing the completed Form 843 along with copies of all your supporting documents. The mailing address for the form is dependent on the type of tax penalty and is listed in the official instructions for Form 843. It is advisable to send the package via certified mail with a return receipt to have proof of the date the IRS received your claim.

After submitting your request by phone or mail, the IRS will review your case, a process that can take several weeks or even months. You should receive a letter from the IRS acknowledging receipt of your request. Subsequently, you will receive a final determination letter that either approves the penalty abatement in full or in part, or denies your request.

The Formal IRS Appeals Process

If your initial request for penalty abatement is denied, the denial letter will explain your right to appeal the decision to the IRS Independent Office of Appeals. This office is separate from the IRS function that made the initial determination and is tasked with providing an impartial review. You have 30 days from the date on the denial letter to file a formal appeal.

To initiate this step, you must submit a formal written protest, and the denial letter will provide instructions on what to include. You must restate your disagreement with the decision, provide a detailed explanation of the facts and the law that supports your position, and sign a declaration that the statements are true under penalties of perjury.

The Office of Appeals offers different avenues for resolving disputes, such as a Collection Appeal Program (CAP) or a Collection Due Process (CDP) hearing. These hearings are informal and can be conducted by telephone, correspondence, or in person with an Appeals Officer. This officer will review the information provided by both you and the IRS office that denied your initial request. The goal of the appeals process is to reach a resolution without the need for more formal and costly tax court litigation.