Requesting IRS Penalty Abatement by Phone: What to Have Ready and What to Expect

People assume removing an IRS penalty takes a formal written request and months of waiting. Sometimes it does. But for the most common penalties, the IRS will consider relief over the phone, and often decide it on the same call.

The IRS says so directly on its reasonable cause page: it may reduce or remove some penalties over the phone, and you should call the toll-free number at the top right corner of your notice. The trick is knowing which penalties qualify for a phone request, what to have ready, and when the IRS will insist on paper.

Which penalties can be handled by phone

The Internal Revenue Manual draws the line. IRM 20.1.1.3.1 allows unsigned or oral requests for relief from three penalties: failure to file, failure to pay and failure to deposit.

For those penalties, the employee is first directed to check whether you qualify for first-time abatement. The manual says FTA has no oral statement dollar threshold, so it can be granted on a call regardless of the size of the penalty.

If you do not qualify for FTA, oral reasonable cause requests can still be considered, but only up to a dollar threshold per tax period. The specific amounts are redacted in the public version of the manual. The manual says the threshold is higher when the employee uses the Reasonable Cause Assistant software, and that employees can seek managerial approval to consider requests at the higher level when the software is not available.

If the penalty is above what can be handled orally, the employee will ask for a signed written request.

Which penalties need paper

The manual is explicit that other penalties require a written statement signed under penalties of perjury. It specifically lists:

• TIN penalties.
• Information return penalties.
• Penalties assessed by a compliance program, such as an examination.

So an accuracy-related penalty from an audit, a penalty for late Forms 1099, or a penalty proposed in a CP2000 notice is not a phone call. Those need a written request, and often a specific response process.

The manual adds a wrinkle. If you call about two or more penalties and any one of them exceeds what can be handled orally, or any one is a penalty other than failure to file, pay or deposit, the employee should ask for a signed written request covering all of them rather than handle some on the phone.

What to have in front of you

The IRS website lists three things to have when you call: the notice, the penalty you want relieved, and the reasons you think it should be removed. I would add a few:

• Every notice for the tax period, not just the latest one.
• Your account transcript, so you can confirm dates, payments and the exact penalties assessed.
• A one-page timeline: due date, what happened, when it ended, when you filed or paid.
• Your supporting documents, ready to fax or mail if asked. The IRS site suggests hospital or court records or a doctor's letter with start and end dates, documentation of disasters, copies of letters and responses, and receipts.
• A pen. Write down the date, the time, the employee's name and ID number, and exactly what you were told.

How the call should go

Identify the tax period and the specific penalty. The manual says the request must identify the penalties and address the reasons applicable to each, since each penalty is for a different type of failure.

Let the employee check FTA. The IRS website says that if you ask for reasonable cause but the IRS determines you qualify for first-time abatement, it will apply FTA. That is consistent with the manual's order of relief. If FTA is granted, you are done with that period.

If FTA does not apply, give your reason in date order, briefly. The employee is evaluating it against criteria, often with the Reasonable Cause Assistant. The questions in IRM 20.1.1.3.2 are the ones you should be ready to answer: what happened and when, how it prevented compliance, how you handled your other affairs, and what you did once things changed.

If the employee says the request needs to be in writing, ask what exactly is needed and where to send it. Then send it promptly. The paper route is covered in the Form 843 guide and writing a penalty abatement letter.

When to skip the phone

The phone is the right tool for first-time abatement and for simple, well-documented reasonable cause cases within the oral limits. It is the wrong tool for a complicated story.

If your reasonable cause case depends on several events, multiple tax periods, or documents the employee needs to read closely, put it in writing from the start. A written request creates a record of exactly what you argued, which matters if you later go to Appeals. It also lets you organize the facts in the order the IRS evaluates them, rather than in the order a phone conversation happens to follow.

A sensible approach for many people is both: call to see whether FTA applies, and if it does not, follow with a complete written request.

If someone else is calling for you

IRM 20.1.1.3 says the IRS will consider relief requests received from third parties, including representatives without a power of attorney. But no taxpayer information may be discussed with a third party unless a valid power of attorney or other written authorization is on file. In practice, your helper can pass along information but cannot have a real conversation about your account.

If you want someone to handle the call, put a Form 2848 on file first. That also matters later, because the manual says an appeal request must be signed by the taxpayer or an authorized representative under a valid Form 2848, and a Form 8821 does not qualify.

If the answer is no

A phone denial is still a denial, and it comes with rights. IRM 20.1.1.3.5.3 says that employees denying a request must give the taxpayer written notice of the denial and of appeal rights regardless of whether the request was made in person, over the phone or in writing. The notice should explain the decision and the basis for it, explain how to file a written protest, and include power of attorney information.

Watch for that letter. It is often Letter 854C. Its arrival starts your path to Appeals, explained in appealing a penalty abatement denial.

And if you have new information the employee did not consider, the manual allows a subsequent request. If the new facts meet the criteria, the penalty is abated. If not, you can still ask for the case to go to Appeals.

After a yes

Get the confirmation in writing. The manual says that when FTA is granted, the IRS notifies the taxpayer that relief was based on compliance history, using letters such as 168C. Check your account transcript a few weeks later to confirm the abatement posted, along with the related interest. The IRS says interest tied to a penalty is automatically reduced or removed when the penalty is.

If you still owe tax on the period, remember that under FTA for older years, the failure-to-pay penalty may keep accruing until you pay in full. Once the balance is paid, call again to have the later accruals removed. A short, prepared call is often all it takes. Make it a prepared one.