USE THIS LETTER TO ROLL BACK A PENALTY
(MONEY Magazine) – If you get a penalty notice from the IRS, rule one is: Don't pay up until you check into it. The facts may be on your side, as the accompanying article makes clear. If so, you can make a case for yourself in a letter like the one shown on the right. (Never talk tough in your letter. Experts attest that it only undermines your case.) In the salutation, always list the 14-digit code, known as the document locator number, on the notice next to your Social Security number. The locator number will help an IRS clerk find your file faster. Our sample letter offers you three different middle sections, depending on the type of penalty notice you receive. Tailor the appropriate one to your case and, to show you mean business, mention the section of the Internal Revenue Manual, 4562.2, that allows for penalty abatements -- IRS jargon for excusing penalties. To make sure the reason for your appeal falls among the 10 the IRS is most likely to accept, see the box on page 163. If you're not certain that your reason qualifies, consult your accountant. Then send your letter by registered mail, together with a copy of the notice and any supporting documents, to the IRS service center that sent you the notice. The IRS will usually confirm receipt of your correspondence by mail within 10 days. About a month after that, the agency will inform you whether the penalty has been rescinded. While you're appealing, the IRS can't file liens against your assets or, say, seize your savings account. If another notice arrives in your mailbox while you're waiting for the IRS to respond to your initial letter, simply submit a copy of the original one and include the latest notice with it. If yet another notice shows up and you still haven't received a reply, call the IRS problem resolution officer at the service center that you have been dealing with; he or she can often resolve a case within a week.
Date Tax Examiner's Name Penalty Appeals Unit Adjustment/Correspondence Branch Internal Revenue Service Center Address
Re: Your Name, Tax Return Year Document Locator Number Your Social Security Number
I received your notice, enclosed here, in which you have assessed a ((insert penalty cited)) in the amount of ((insert amount demanded)), plus interest. Under revenue regulation 301.6651-1(c), this letter contains facts that constitute the showing of reasonable cause necessary to have the penalty plus interest abated. Here are the facts:
(INSERT HERE THE NEXT PARAGRAPH OF YOUR LETTER, WHICH MUST DETAIL YOUR REASON. THREE SAMPLE PARAGRAPHS APPEAR AT RIGHT; USE THE ONE THAT APPLIES TO THE PENALTY NOTICE YOU RECEIVED.)
I believe I did not act in a willfully negligent manner as so stated in IRS code section 6651(a). Because of the facts outlined above, I have clearly shown that I have reasonable cause, and therefore the ((insert dollar amount of penalty)) plus interest should be abated. Furthermore, I have always filed and paid my taxes on time ((if that's true)), as your records will show. I appreciate your prompt attention to this matter, and if you need any additional information, please call me at ((insert your telephone number)).
Under penalties of perjury, I declare that the facts presented in this letter are to the best of my knowledge and belief true, correct and complete.
Your Name Your Social Security Number
Your Spouse's Name Your Spouse's Social Security Number
(FAILURE-TO-PAY PENALTY) On ((insert date)) I was hospitalized. Enclosed are my hospital bills showing the dates of stay, as well as a letter from my physician confirming the serious nature of my illness and the length of my recovery. It was not until ((insert date after the April 15 deadline)) of the year the tax was due that I was able to gather my records and file to pay the tax that was due. As section 4562.2 of the Internal Revenue Manual states, serious illness is considered a reasonable cause for abatement of penalties.
(ESTIMATED-TAX PENALTY) The records necessary for the accurate preparation of the quarterly payment in question were not available by ((insert tax-return due date)) from a limited partnership in which I have been involved for ((insert how many)) years. The records I needed showed income receipts and deductible expenses I paid as a limited partner. This tax information is necessary in order that my return be accurately prepared. However, the records arrived late; the complete set did not reach me until ((insert date)). As section 4562.2 of the Internal Revenue Manual states, inability to obtain records necessary to determine the amount of tax due is a reasonable cause for abatement of penalties.
(FAILURE-TO-FILE PENALTY) I filed late because on ((insert date)) my home was nearly destroyed by fire. Enclosed you'll find fire department and insurance reports describing the damage. On ((insert date after April 15)) I was finally able to file an accurate return and pay what I owed for ((insert tax year)). The delay was caused by getting copies ((of W-2s, 1099s, and any other pertinent documents)) needed for me to prepare an accurate return. Ordinary business care dictated that I not file an incorrect tax return. As section 4562.2 of the Internal Revenue Manual states, damage to tax records because of fire is a reasonable cause for abatement of penalties.