A penalty abatement letter allows an individual or a business to request an abatement or reduction of certain penalties assessed by the Internal Revenue Service, says Jim Buttonow of the American Institute of CPAs. The IRS can award taxpayers with a one-time penalty abatement.
The IRS has a first-time abatement penalty-waiver program, continues Mr. Buttonow. This program was created in 2001, but it is not used frequently by taxpayers who qualify for abatement. This waiver can be used for failure-to-file penalties, failure-to-pay penalties or failure-to-deposit penalties.
A taxpayer is only able to claim an abatement for one tax period. The taxpayer cannot have any other penalties of a significant amount assessed within the three years prior on the same return he is requesting abatement. The taxpayer must also be in compliance with all other filing and payment requirements, stresses Mr. Buttonow.
Lastly, IRS employees use a decision-support program called the reasonable cause assistant, which helps them determine a taxpayer's eligibility, states Mr. Buttonow. This software has yielded criticism for producing a high percentage of incorrect determinations of eligibility. An accountant representing a taxpayer can sometimes persuade the IRS to reverse incorrect determinations so that the taxpayer does qualify for the abatement.