IRS Automated Penalty Notices
The IRS automatically sends taxpayers computer generated notices that inform them that they owe a penalty, how much they owe, and why they owe the penalty. Since most penalty notices are generated by a computer without any human intervention, they are sent based on a mathematical formula rather than upon anybody’s perception of events. When responding to penalty notices it is the taxpayer who holds the upper hand, as they know what happened and not the IRS. So if a taxpayer provides a good explanation as to why the computer that sent the notice is wrong, the reader should show empathy and abate the penalty.
Some IRS Penalty Statistics
In 2009 the IRS assessed 36,228,339 penalties against individuals, partnerships, corporations, trusts, and estates. Of that number only 5,140,094 penalties were abated. The fact that fewer than 15% of all penalties were abated is disappointing to Teogatha Law because most people are honest hard working Americans who should not have been penalized. Even the IRS itself says that penalties are designed to foster a system of voluntary compliance, so if a taxpayer has a reasonable explanation of non-compliance they should not be penalized.
How Long does a Taxpayer have to Request a Penalty Abatement
There is no set time limit on how long people have to respond to penalty notices, but within a reasonable amount of time the IRS will either commence collection action or begin the process of assessing the penalty. Once the IRS receives the penalty money from the taxpayer, there is typically a two year window to file a claim for a refund.
What Modes of Communication can a Taxpayer use to Request a Penalty Abatement
A penalty can be abated over the telephone or via written correspondence with the IRS, however telephone abatements are rarely granted. If a taxpayer calls the IRS and requests a penalty abatement, typically the IRS agent will inform the taxpayer that they should mail a letter to the IRS. Tax professionals have access to IRS e-services that is a system that can be used to send electronic correspondence to the IRS and they will usually respond much faster through that system.
If an Original Penalty Abatement Request is Denied
If a taxpayer’s original request for penalty abatement is denied, they will receive what is colloquially known as a 30-day letter (sometimes the period is shorter). This gives the taxpayer 30 days to file a formal appeal of the negative determination where the matter will be forwarded to the IRS’s office of appeals. After that date, the opportunity to appeal will end and the IRS will begin collection proceedings. It is often good practice to request a manager’s meeting where the taxpayer can meet (or hold a conference call) with the agent that denied the request along with his or her manager. Just keep in mind that the meeting does not stop the clock and the 30 days continues to run.
Best Opportunity to Receive a Penalty Abatement
The taxpayer’s easiest and least expensive way of receiving a penalty abatement is to draft a strong and articulate letter responding to the IRS’s proposed penalty from the onset. Please see our article on How to Write an IRS Penalty Abatement Letter.