The IRS offers several penalty relief programs to help taxpayers who have been assessed penalties for various tax-related issues. These programs include:
- First Time Abate (FTA) Waiver: This is an administrative waiver that provides relief from certain penalties for taxpayers who have a clean compliance history for the past three years. The FTA waiver applies to penalties for failure to file, failure to pay, and failure to deposit. To qualify, the taxpayer must have filed all required returns and paid, or arranged to pay, any tax due.
- Reasonable Cause Relief: This relief is granted when a taxpayer can demonstrate that their failure to comply with tax obligations was due to reasonable cause and not willful neglect. Reasonable cause is based on all the facts and circumstances in the taxpayer's situation, including the taxpayer's efforts to comply with the law, the reasons for the noncompliance, and the length of time the taxpayer was noncompliant. Examples of reasonable cause include natural disasters, death or serious illness, and inability to obtain records.
- Administrative Waivers: These are specific waivers granted by the IRS in response to certain situations, such as natural disasters or other emergencies. For example, Notice 2022-36 provided relief from various failure-to-file and international information return penalties for tax years 2019 and 2020, provided the returns were filed on or before September 30, 2022.
- Undue Hardship: This relief may be granted if a taxpayer can show that paying the tax would cause undue hardship. The taxpayer must demonstrate that they would sustain a substantial financial loss if required to pay the tax on the due date. This type of relief is generally considered on a case-by-case basis.
- Relief for Certain Spouses of Military Personnel: Specific extensions and relief are available for spouses of military personnel under certain conditions, such as the Military Spouses Residency Relief Act of 2009.
- Pilot Programs: The IRS occasionally launches pilot programs to provide temporary relief for specific issues. For example, Rev. Proc. 2014-32 established a one-year pilot program providing relief to plan administrators who failed to timely file Form 5500 EZ.
- Correction of Service Errors: If a penalty was assessed due to an IRS error, the IRS can abate the penalty. This includes errors in computing or assessing tax, crediting accounts, or other administrative errors.
- Penalty Relief for Specific Situations: Notices such as Notice 2015-09 and Notice 2015-30 provide penalty relief for specific situations, such as issues related to the Premium Tax Credit or delayed Forms 1095-A.
To request penalty relief, taxpayers can file Form 843, Claim for Refund and Request for Abatement, or contact the IRS directly. The request should include a detailed explanation of the reasons for the noncompliance and any supporting documentation. The IRS will review the request and determine if the taxpayer qualifies for relief based on the applicable criteria.
Sources:
Notice 2022-36
Rev. Proc. 2022-9
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 1. Introduction and Penalty Relief
IRM Part 4. Examining Process. Chapter 19. Liability Determination. Section 26. Campus Backup Withholding Return Compliance Program Procedures
Rev. Proc. 2014-32
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 2. Failure To File/Failure To Pay Penalties
