Claiming Penalty Abatement with Form 843

The IRS uses the threat of penalties to make sure taxpayers submit all their taxes properly and on time. But sometimes unavoidable situations happen in life that mean we’re late filing or paying our taxes, and being hit with a penalty in those circumstances can feel utterly unfair. 

However, what many people don’t realize is that the IRS is sometimes willing to cancel or refund certain penalties in these cases.

The penalty abatement program and Form 843 is essentially the IRS’s way of acknowledging that not all penalties are deserved. So if you have a legitimate reason and a good tax compliance history, there’s every chance you’ll be able to get your penalty waived. 

You have to meet specific criteria to qualify, and only certain penalties can be waived. But if you’ve been charged an IRS penalty that you think is unfair, there’s a very good chance that the IRS will agree with you. 

What is penalty abatement?

Penalty abatement (Form 843) is the tax relief program offered by the IRS that enables you to request for certain penalties to be waived. 

The IRS recognizes that life happens, and the penalty abatement program is its way of giving you a second chance – without the additional burden of spiraling penalties – if it’s your first time getting behind on your taxes or if you have a reasonable explanation.

Penalty abatement is only available for certain IRS penalties, the most common of which are the failure-to-file (also known as the late-filing penalty) and failure-to-pay (late-paying) penalties. There are also certain criteria you must meet to qualify. 

But the penalty abatement program is open to both individuals and businesses – so whether you’re an individual facing a 1040 late-payment penalty, a business with a 1060 late-filing penalty, or any number of variations in between, if it’s your first time slipping up or you have a justifiable reason, the IRS should let you off the hook. 

Bear in mind that penalty relief doesn’t impact your tax debt. If you’re granted penalty relief while you still have an outstanding tax debt, this doesn’t mean your debt will also be forgiven. However, there are other tax debt abatement programs that you may be eligible for, so if you’re facing tax debt you can’t afford to pay, it’s always a good idea to speak to tax resolution experts such as Tax Relief Helpers to make sure you know and understand all the options available to you. 

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Types of IRS penalties that can be abated

There are several penalties that are eligible for penalty relief, but for the vast majority it comes down to the following three: 

1. Failure-to-file penalty: when you don’t file your tax return by the due date, including any extensions
2. Failure-to-pay penalty: if you don’t pay your taxes by the specified deadline
3. Failure-to-deposit penalty: businesses that fail to deposit payroll taxes on time

The IRS also charges interest on penalties, which can quickly add up and make your tax debt even more overwhelming. The good news is that if your penalty is successfully abated, any interest related to that penalty will also be automatically reduced or removed. However, it’s important to note that this only applies to the interest linked to the penalty itself; any interest on the underlying unpaid taxes will still remain in effect.

When requesting for your penalty to be waived or refunded, there are three options to choose from: 

1. First-time penalty abatement or administrative waiver
2. Reasonable cause 
3. Statutory exception

Who qualifies for first-time penalty abatement?

First-time penalty abatement is generally granted to taxpayers who have a good track record with the IRS and are facing their first slip-up with their taxes. 

The exact qualifying criteria includes: 

1. Being up-to-date on filing requirements: all of your required tax returns must have been filed for the three years prior to the year you’re requesting the penalty abatement.
2. Having no penalties in the previous three years: you must also not have been issued any penalties in the three previous years. 

While you don’t need to have already paid off your tax debt to apply for first-time penalty abatement, if your request is granted, it’s important to realize that the IRS will continue to apply a failure-to-pay penalty on your remaining tax debt from the date of the approved abatement onwards. So you will quickly start to accrue another penalty debt.  

In these cases, it is possible to apply for the first-time penalty abatement again, for that same tax year. However, by far a better option is to negotiate a payment plan with the IRS, whereby you can pay your tax debt in manageable installments without accruing additional penalties. 

Who qualifies for reasonable cause penalty abatement?

If you don’t qualify for first-time penalty abatement, you might still be eligible for penalty relief under the reasonable cause provision. 

Reasonable cause is granted when you can prove that you failed to meet your tax obligations due to circumstances out of your control. 

Common reasons that qualify as reasonable cause include:

• Serious illness that has impacted your ability to file or pay taxes
• Serious illness or death of a close family member
• Natural disasters, fires, or civil disturbances
• Inability to get records
• System issues that delayed a timely electronic filing or payment

But note that the following reasons generally won’t be accepted as reasonable cause: 

• Reliance on a tax professional
• Lack of knowledge
• Mistakes and oversights
• Lack of funds

While lack of funds isn’t considered a reasonable cause in itself, remember that you may qualify for other tax relief options in this case – such as Currently Not Collectible status or an Offer in Compromise. So even if you’re not eligible to claim for penalty relief, there may well be another tax relief program that will help you overcome your tax debt. 

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How to request penalty abatement with Form 843

If you’re requesting first-time penalty abatement, sometimes this can be approved over the phone via the toll-free number found in the top right corner of your official IRS penalty notice. 

But most of the time, you’ll need to request penalty abatement using IRS Form 843. 

Filling out Form 843 is a straightforward process, but it’s crucial to be thorough and accurate to increase your chances of success. 

The IRS provides Form 843 instructions online, but here’s a simple overview of what you’ll need to include:

1. Your personal taxpayer information 
2. The tax year you are applying for the abatement for 
3. The amount to be refunded or abated 
4. The type of tax or fee to which the penalty applies (usually income tax) 
5. The IRS penalty code (you can find this on the notice you received from the IRS)
6. The reason you are requesting the abatement (this will usually be the box entitled “reasonable cause or other reason allowed under the law”; you should also tick this option if you are applying for first-time abatement) 
7.  The original type of tax return form filed, to which the penalty relates (e.g. 1040)
8. Additional information and supporting documentation of why you are requesting the abatement

How to check the status of your Form 843 application

The IRS typically takes a few weeks to review a penalty abatement request, although sometimes it can take a few months, depending on the complexity of your case and the current IRS workload. 

There’s no way to track the status of your request, so you’ll have to simply wait until they contact you. 

When you receive your response, it might be an approval, partial abatement, or a denial of your request. But even if your request is denied, don’t be discouraged – you can appeal the decision (so long as you do it within 30 days of the rejection) or there may be other types of penalty relief you can explore, or other tax debt relief options available to you. 

Getting expert help for penalty relief

Penalty abatement is one of many IRS schemes that can provide significant relief if you’re facing spiraling tax debt, yet very few Americans claim this relief that they’re entitled to. 

Whether you qualify for first-time penalty abatement or can make a case for reasonable cause, understanding how to navigate the process is key to getting your penalties reduced or eliminated. And while we’ve explained how to complete Form 843 and submit your request above, having an expert walk you through the process is always the best way to ensure the most positive outcome. 

At Tax Relief Helpers, we specialize in helping taxpayers successfully apply for penalty abatement and other forms of tax relief. We’ll be able to explain all of your options to you clearly and simply, and if you have a case, handle the entire thing with the IRS on your behalf.  

So don’t let IRS penalties weigh you down. Contact us today to explore your options and let’s take the first step toward resolving your tax debt issues. 

Call (800) 659-6706 for immediate assistance