Start with the right procedure
Penalty abatement can take a long time to finalize if you follow the wrong procedure. There are a few ways to request penalty relief:
- Request non-assertion of the penalty: Write a letter when you file a return to request that the IRS not assert a late filing or late payment penalty. When it comes to the estimated tax penalty, non-assertion request via Form 2210: Underpayment of Estimated Tax by Individuals, Estates, and Trusts is the proper procedure. Form 2210 is used to calculate the penalty for underpaying estimated taxes and should be filed with the return to request a penalty waiver.
- Respond to the accuracy penalty in an audit or CP2000 notice: When an accuracy penalty for making an error on your tax return (20% penalty) is proposed, provide an argument on how you made a good faith attempt to file a correct tax return. A common mistake here is to request abatement after the accuracy penalty is assessed. Audits and CP2000 underreported notices, and any proposed penalties, follow “deficiency procedures.” This means you are given the opportunity to argue the penalty BEFORE the penalty is assessed. Arguing after the penalty is assessed takes a long time because accurate penalty abatement requests are treated as a “re-do” of the audit or CP2000 investigation. A “re-do” – called an audit or CP2000 reconsideration – takes much longer as it requires the IRS to “reopen” the case. Taxpayers commonly can request audit reconsideration if they did not appear for the audit, did not receive the correspondence from the IRS, or has additional information pertinent to the penalty.
- Request abatement of the penalty: This is a common request for failure to file and pay penalties. The request is usually informal and involves a letter requesting abatement with an explanation of the circumstances that caused noncompliance, like late filing or late payment. The IRS decides if you qualify using its automated Reasonable Cause Assistant (RCA), and provides the taxpayer an answer via letter. Taxpayers can also call the IRS for abatement. If you are making a first-time abatement request, the IRS can abate any amount of late filing or payment penalties for a single period by phone if you meet certain requirements. A written request for all reasonable cause requests is usually required.
- Claim for refund: After a penalty has been paid, the taxpayer can request abatement by filing a formal claim for refund. A formal claim for refund entitles the taxpayer to sue the IRS if the refund claim is denied or goes unanswered for 6 months. That is – a timely claim for refund is required before taxpayers may file suit for a refund of taxes, penalties, and interest paid in a U.S. district court or the Court of Federal Claims. If the taxpayer and the IRS follow the proper claim for refund procedures for penalty abatement, the proceedings may not go any quicker than informal requests.
A typical scenario: requesting abatement of the failure to file or pay penalties
To understand “how long it takes for a penalty abatement,” let’s take a look at the informal written request for abatement of the failure to file and failure to pay penalties (the most common penalties assessed each year):
Time to resolve (COVID-19 has caused a recent increase in IRS processing and review times)
|Penalty abatement request- informal letter request||6-12 weeks||Initial IRS review of written penalty abatement requests are usually completed within 12 weeks of the request.|
|Service Center penalty abatement appeal||10 weeks for initial assignment
Appeals resolution time- 7.5 months
|Many penalty requests are denied, requiring the taxpayer to appeal. Informal appeals go to an IRS Service Center. Appeal requests to a Service Center Penalty Appeals Coordinator are generally scheduled 10 weeks after the request has been made. The average penalty appeal resolution time is 7.5 months.|
|Penalty abatement appeal request via Collection Due Process appeals||8-20 weeks||If a Collection Due Process hearing is available, the taxpayer can request abatement during this appeal proceeding. CDP appeal requests arguing penalty abatement are generally scheduled 8 weeks after the request has been made via Form 12153. The average total appeal resolution time for CDP hearings is 8 ½ months.|
Likely timeframes for abating failure to file/pay penalties
Unfortunately, most initial IRS penalty abatement determinations are denied by the IRS. This happens because the IRS’s automated tool- the Reasonable Cause Assistant – often does not consider the totality of the taxpayer’s circumstances. As such, if you are requesting abatement for failure to file and/or failure to pay, be prepared to spend 6-9 months with the IRS before the decision is final.
IRS appeals officers can partially settle the penalty or not allow the penalty in full, but allow some abatement (a percentage or for certain years for cases with multiple year requests). The appeals officer/initial contact will ask the taxpayer for any additional information they may have to support their request. To reduce time, taxpayers should be prepared with a summary of their facts, law, and arguments when their appeals officer contact is made.
The taxpayer should also be prepared to provide third-party evidence to support their abatement request (i.e. medical records or doctor’s letter if they are claiming long term illness). Unless you are requesting first-time abatement, be prepared to spend a few months with the IRS attempting to abate your penalties.
For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.