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How to write a penalty abatement (reasonable cause) letter to the IRS

How to write a penalty abatement (reasonable cause) letter to the IRS
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Did you face an emergency that caused you to file or pay the IRS late? If you have an IRS penalty on your hands, you can get a waiver. To do this, you must claim reasonable cause through an IRS penalty abatement reasonable cause letter .

You can technically either call the IRS to claim for reasonable cause. But I recommend writing an IRS penalty abatement reasonable cause letter, as it provides a record of your proposition and ensures that you craft your argument exactly how you want.

In this article, you’ll get:

  1. IRS penalty abatement reasonable cause letter sample
  2. What reasonable cause is (with examples.)
  3. Examples of reasonable cause for late filing or late payment
  4. An explanation of how to successfully prove reasonable cause

Remember that the IRS also offers penalty abatement for cases other than reasonable cause.

IRS Reasonable Cause Letter Sample

Here is a simplified IRS letter template that you can use when writing to the IRS:

To: Internal Revenue Service
(use the address provided in your tax bill)

Re: Request for Penalty Abatement under Reasonable Cause

From:

[Your Name]

[Your Address]
[Your Social Security Number]

[MMM DD, YYYY]

Dear Sir/Madam:

I am writing to request an abatement of penalties in the amount of $[X,XXX.XX] as assessed in the enclosed notice that is dated [MMM DD, YYYY].

I acknowledge and deeply apologize for my [late filing/late payment]. The reason was due to [a disaster, serious medical condition, death in the family, an inability to obtain the relevant documents.]

The sequence of events that led to my [late filing/ late payment] is as follows:

On [MMM DD, YYYY] [event]. As a result, [outcome of the event]

e.g.

  1. On [MMM DD, YYYY] I met with a serious car accident that left me with severe injuries. As a result, I had to stay in hospital for the next [X] days and was did not receive my tax bill.
  2. On [MMM DD, YYYY] the hospital discharged me. Because I live alone, I needed to stay with my parents while I recuperated. My parents are elderly and live X hours away from me. As a result, we felt it was not practical for them to retrieve mail from my place.
  3. On [MMM DD, YYYY] I was well enough to return home. Upon my arrival, I sorted through my mail and noticed that my payment for the tax bill was overdue. I immediately took action to have the bill paid.

Please find the enclosed the documents enclosed that support my claim above:

[Document name]: [Proof that it provides]

 e.g.

  1. Invoice for my hospital stay: the highlighted portion shows the start and end dates of my visit.
  2. Picture of me in a wheelchair: I was reliant on my parents during this time. The timestamp of the photo shows that it was taken on [MMM DD, YYYY]
  3. Payment advice from my bank: this shows that the check cleared my bank account on [MMM DD, YYYY].

Again, I sincerely apologize and hope that you will consider the abatement of penalties owed for reasonable cause. Please also consider that I besides this one oversight on my part, I have made all my other payments promptly.

I am willing to provide any clarifications that you may require. Please feel free to contact me at [XXX-XXX-XXX].

Sincerely,

[Your name]

What is Reasonable Cause?

Here’s what reasonable cause refers to:

You have used all prudence to try and file or pay your taxes on time, but were unable to do so because of events outside of your control. In this case, you should argue for reasonable cause.

Some basic elements of claiming reasonable cause for late filing or payment:

  • Show that you attempted to meet your federal tax obligations.
  • Explain and prove that external forces prevented you from filing/paying on time.

What are some examples of Reasonable Cause?

Examples of Reasonable Cause for late filing or payment can be grouped under four broad categories:

  1. Disaster: Fire. Flood. Earthquake, or any other disaster.
  2. Personal Emergencies: Death. Medical emergencies. Physical/mental illness of yourself or immediate family.
  3. Misguidance: You had acted under incorrect information from an IRS publication or professional.
  4. Others: Any other event that caused you to miss your tax obligations despite all business care and prudence.

While these broad categories are helpful, the devil is in the details (as they say).

Many people are confused as to what makes up reasonable cause. For example, does breaking your arm constitute a physical illness? How much time can elapse between the event and your filing/payment deadline?

You should hire professionals who have successfully written IRS penalty abatement letters. This will improve your chances drastically.

How to prove Reasonable Cause for late filing or payment?

You must include the following facts in your IRS penalty abatement letter:

  1. What happened – provide the background of the case. Make sure you are clear about the key plot points in your story. Key plot points are the major developments that ultimately led you to fail to meet your tax obligations.
  2. When it happened – put your key plot points in a timeline. This helps the IRS understand how much time elapsed between each development. Importantly, show how your filing/payment due date fits into the series of events.
  3. How your circumstances affected your ability to file/pay – The IRS may not be able to infer from your story how your filing/payment ability was affected. This is where you spell it out for them.
  4. Once your circumstances changed, what actions you took to comply – here you’ll show proof of a genuine attempt to file/pay your taxes. This will show the IRS that you’re not claiming reasonable cause merely to get out of your tax obligations.

Note the last point: you should have filed or paid your taxes by the time you write your penalty abatement letter to the IRS. By doing this, you create goodwill with the IRS. They’ll then be more likely to accept your reasons.

Which documents are required?

At a minimum, you’ll need to attach the following:

  1. A copy of the tax bill in question.
  2. Facts in your IRS penalty abatement letter to back up the circumstances that you write about in your letter. For example, hospital records or a letter from a doctor with specific start and end dates. These records will prove that you were indeed incapacitated or too ill at the time to file/pay your taxes.
  3. Photographic evidence, insurance claims or news articles for disasters. Explain how the disaster prevented compliance. You may have to provide

If you’re unsure of which documents to provide, you could contact the IRS or a tax relief professional who can help guide you in the right direction. I particularly recommend using this tool by Curadebt, which will determine if you’re eligible for a free evaluation.

One more tip for a successful IRS penalty abatement letter

The IRS uses software called the Reasonable Care Assistant in evaluating whether a taxpayer is eligible for a first time penalty abatement.

Understanding how the Reasonable Care Assistant evaluates your situation can boost your chances of success. While the inner workings of the software are not widely known, some industry experts would be able to advise what it looks out for.

People have criticized the software for giving many incorrect results over the years. If the IRS rejects your penalty waiver application, a tax relief professional can persuade the IRS to amend their position.

Conclusion

In this article, I provided a sample letter for penalty abatement due to reasonable cause. You can certainly use this as a starting point for writing your letter.

However, your situation may not be as clear cut as the one we presented here. For example, how do you present and prove complex issues such as martial turbulence or a failure on the part of your tax preparer etc.?

You could always try to write the penalty abatement letter and see how the IRS responds. However, if the IRS rejects your letter, you’ll have to undergo an appeals process. If you’re like me, you’ll want to put your tax issues behind you as quickly and painlessly as possible.

Thankfully, this is a preventable headache. Hiring a tax relief company can significantly help your chance of success and reduce the time and effort required to write a penalty abatement letter.

This is largely because a tax relief company:

  • Has wide ranging experience in what situations can be considered reasonable cause
  • Can tie your situations to the relevant policies and laws to help your case
  • Know what types of documents can help to prove reasonable cause arguments
  • Follows a successful penalty abatement letter writing formula