Reduce or Remove a Penalty

Penalties may be reduced or removed completely for reasonable cause. To request a penalty reduction, send a statement to the IRS explaining the facts. You, or your representative, with a power of attorney, must sign your statement under penalty of perjury.

The following may be considered reasonable cause:

  • An honest misunderstanding of fact or law that is reasonable, given the experience, knowledge, sophistication and education of the taxpayer
  • An isolated computational or transcription error.
  • Reliance on erroneous information reported on Forms W-2, 1099, etc., provided that the taxpayer did not know or have reason to know that the information was incorrect.
  • Reliance on advice of a tax advisor or appraiser who does not suffer from a conflict of interest or lack of expertise.

In some cases, the IRS may request that you pay the tax in full before it removes or reduces the late payment penalty.

The IRS Will remove a penalty (but not interest) if:

  • You wrote to the IRS and asked for advice on a specific issue.
  • You gave the IRS complete and accurate information.
  • The IRS wrote back to you and told you what to do or explained what not to do.
  • You followed the written advice of the IRS in the way they told you.
  • You received a penalty for the action the IRS advised you to take.

If you meet the above criteria:

  • Complete Form 843, Claim for Refund and Request for Abatement, and ask the IRS to remove the penalty.
  • Attach to your Form 843:
    • A copy of your original request for advice.
    • A copy of the written advice the IRS gave you, and
    • The notice (if any) showing the penalty your were charged.
  • Where to send Form 843:
    • Send Form 843 to the IRS Service Center where you filed your return for the year you relied on their erroneous advice.

Do You Have Employees?

If you have employees, using a repurtable payroll service can be a smart move. They're fairly inexpensive, reliable, save you tons of work and compliance headaches, and prevent you from getting slapped with stiff IRS penalties. Check out Paychex Payroll Services for small business payroll needs and the options they offer.

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