Annotated Sample Penalty Abatement Letter

Introduction of the Penalty Abatement Letter

The first part of a persuasive penalty abatement letter should be an introduction section. This is where the author introduces themselves and informs the reader why they are writing. By opening the letter with a request for penalty abatement, an IRS agent can follow the letter while holding the author's goal in mind.

Example Introduction Section

Please be advised that XYZ Inc. represents the referenced taxpayer and that we are writing to request that the accuracy related penalty, together with interest, are abated for the taxpayer's 2014 tax year. A discussion of the underlying facts, supportive law and analysis, and the basis for our conclusion appears below.

Sample IRS Penalty Abatement Letter -- Facts Section

The second part of the penalty abatement letter should be a facts section. This section is where an experienced author can earn an agent's empathy and impress upon her that justice requires penalty & interest relief. To successfully advocate on behalf of a Taxpayer, the author must gather relevant records, so that his presentation is clear, concise, and accurate. An experienced author will select which facts to advance, so that the factual record can be intertwined with the law to demonstrate that penalty relief is warranted.

Partial Example of a Facts Section

A building developer conducted a financial feasibility study and determined that it would be profitable to construct a condominium project that would provide affordable housing to hard working Americans. The developer began designing, marketing, and building the project.

The design proved to be popular and within a very short period of time the developer sold 75% of the units. The estimated time it would take from breaking ground to completing all phases of the project was one and a half years. As time passed, the cost of construction inputs rose. So, when the project was 85% complete, the developer had nearly depleted all his original funds, as his costs were unexpectedly high.

In order to complete the project, the developer was required to spend all his available cash and to borrow additional money from the bank. The developer was paying a high borrowing costs because his project was extended past the expected budget.

In the project’s first year, the developer reported profits as payments from buyers exceeded the developer’s expenses and expected costs. The developer was putting money aside to pay the IRS, but when inputs unexpectedly rose, he was required to deplete those funds so that he could continue the construction in accordance with his construction permit. If the developer did not pay the construction workers and his suppliers, the project would come an immediate halt resulting in layoffs, and significant financial losses for the workers, the buyers, the developer, and the bank. As soon as the developer sold units he used the proceeds to pay the IRS without delay.

IRS Penalty Abatement Letter -- Law and Analysis Section

The law and analysis section is where an author provides the IRS with the law that the taxpayer is relying upon to support penalty relief and merges the the facts together with the law to demonstrate that penalty abatement is warranted. We recommend that taxpayers contact an experienced tax professional that can be located from our tax professional directory.

Partial Example of the Law & Analysis Section

In the tax case Bouvelt Realty v. Commissioner, the court held that reasonable cause existed in a situation where corporate officers had employed reasonable safeguards for meeting corporate tax obligations, yet inadvertently made untimely deposits. The court stressed the “grave necessity” of meeting tax obligations in a timely manner, while noting that imposing penalties is not mandatory by statute. Lastly, in evaluating the facts present in Bouvelt, the court stressed that the taxpayer had a history of compliance and that upon notification of the failure, the taxpayer immediately implemented steps to rectify the failure.

IRS Penalty Abatement Letter -- Conclusion

The final section is where the author concludes by respectfully requesting that the IRS abate the penalties and interest associated with those penalties. Please also read our articles on how to write a penalty abatement letter or non-annotated sample penalty abatement letter.