How to Write a Penalty Abatement Letter

Why the IRS claims they assert penalties

The IRS officially states that the purpose of penalties is to foster a system of voluntary compliance with the tax code, not to generate additional revenue for the Government. So when drafting a penalty abatement letter, we recommend emphasizing facts that demonstrate you are blameless and showing steps taken towards voluntarily compliance with the tax code. If you made an error, explain why the error or oversight occurred.

Three Steps to Take Before Drafting a Penalty Abatement Letter

  1. The first step is to obtain historical tax records, both from the taxpayer's personal papers and from the IRS. This step is taken so that the author can view the case with the same lens as the IRS agent.
  2. The second step is to review the records to gain an understanding of what occurred so that the author of the penalty abatement letter can begin to paint a picture.
  3. Once the author begins to understand what occurred, and what the IRS knows, the author should conduct research so that he or she understands the grounds to warrant penalty relief.

How to Organize a Penalty Abatement Letter

It is important to introduce a tax penalty case in a manner designed to allow the IRS agent to easily follow what happened, why a penalty was asserted, and what, if any, steps were taken to rectify or mitigate the problem(s). Each fact pattern may require a different style of organization, but generally a penalty abatement letter should hold the following sections:

  • Introduction -- Provide a brief statement introducing yourself and state exactly what you are asking for, which in this case is relief from penalties and interest associated with those penalties.
  • Facts -- This is the meat of a good penalty abatement letter and it can take a lot of skill to draft a good fact section. You want to present facts in a way that makes the reader, who is the decision maker, to feel sympathetic to the taxpayer's plight.
  • Issue (optional) -- If your fact pattern is rather complex, a well worded issue section helps clarify exactly what is at issue.
  • Law and Analysis -- This is the potatoes of a good penalty abatement letter. In this section you want to follow-up on the facts section of the letter and provide law that in conjunction with your facts support the proposition that penalty relief is warranted.
  • Conclusion -- Reiterate what you are asking for and request that you receive relief from penalties and interest associated with those penalties.

When Should you Write a Penalty Abatement Letter

As soon as a penalty is proposed or assessed by the IRS you should take steps to write a persuasive penalty abatement letter, as there may be legal time limits for requesting relief. For your benefit, we created a sample penalty abatement letter and an annotated sample penalty abatement letter to help demonstrate what should be included in a persuasive request.