How to Request an IRS Hardship Exception from Penalties

How to Request an IRS Hardship Exception from Penalties

Dealing with penalties from the IRS can be stressful, especially if paying them would cause financial hardship. Fortunately, the IRS offers penalty relief in cases of hardship. Here’s how to request an exception.

What IRS Penalties Can Be Removed for Hardship?

The most common IRS penalties that may qualify for a hardship exception include:

• Failure to file penalty
• Failure to pay penalty
• Estimated tax penalty

To have these penalties waived, you must prove to the IRS that paying them would prevent you from covering basic living expenses like housing, food, medical care, clothing, etc.

Do You Qualify for Hardship Relief?

The IRS looks at each case individually but generally you may qualify if:

• You can’t pay basic living expenses if required to pay the penalties
• You have a history of properly filing and paying taxes
• You did not intentionally neglect your tax duties
• You’ve taken steps to correct the issue

Situations demonstrating hardship include medical issues, death in the family, loss of financial records, reliance on an IRS misstatement, etc.

You likely don’t qualify if you have a history of non-compliance, could have paid on time but chose not to, or penalties resulted from fraud.

How to Request IRS Penalty Relief

Follow these steps to formally request an exception from the IRS:

1. Gather documentation like medical records, death certificates, police reports, bank statements, etc.
2. Fill out Form 843 and attach documentation.
3. Write a personalized letter further explaining your circumstances.
4. Mail your request to the IRS service center listed on your penalty notice.
5. Follow up if the IRS requests additional information.
6. Consider getting help from a tax pro or attorney.

What to Include in Your Hardship Letter

Your hardship letter is crucial to prove financial difficulty. Include:

• Background on your profession, family, and tax history
• Details on the circumstances that caused the hardship
• Description of your income, expenses, assets, and inability to cover basics if required to pay penalties
• Good faith efforts made to get into IRS compliance
• Specific request for penalty relief due to hardship
• List of documents you’re attaching
• Thanking the IRS for consideration

Be clear, concise, and focused only on the facts demonstrating hardship. Sign and date the letter before sending.

After Sending a Hardship Request

Here’s what happens after you submit your penalty relief request:

• The IRS reviews your request and documentation.
• If approved, you receive written confirmation the penalties are abated.
• If denied, you also receive written notice and can file an appeal within 30 days.
• If you paid the penalties already, the IRS issues a refund within 2-3 weeks of approval.

The entire process usually takes 60-90 days. Getting professional help can be useful for navigating IRS rules.

Common Hardship Request Pitfalls

Avoid these mistakes when seeking penalty relief:

• Waiting too long to request abatement after getting penalties
• Not including enough documentation of the hardship
• Leaving out important dates or details in your letter
• Sending originals rather than copies of documents
• Getting impatient and contacting the IRS repeatedly
• Appealing a denial without providing new information

Carefully following all steps and providing ample support gives you the best shot at having penalties removed.

Can You Get IRS Penalty Relief Yourself?

It’s possible to request an exception on your own, but getting expert help is recommended. A tax professional can:

• Ensure you have the right documentation
• Help prepare a compelling hardship letter
• File forms correctly
• Communicate with the IRS for you
• Avoid common errors that hurt your request

Their expertise significantly improves your chances of qualifying and having IRS penalties waived.

Appealing a Hardship Exception Denial

If your request is denied, you can appeal within 30 days. Here are tips for a successful appeal:

• Provide new or additional documentation of the hardship
• Further explain circumstances if anything was unclear
• Cite precedents where exceptions were granted in similar situations
• Politely request the Appeals officer reconsider your case

Well over half of appeals result in reversal of the original denial. Persistence pays off.

Getting Back into IRS Compliance

While waiting on a hardship determination, begin resolving whatever issues caused the penalties. This shows good faith. Steps include:

• File any unfiled returns from previous years
• Pay current year taxes on time
• Begin making payments on back taxes
• Set up installment plans if needed
• Correct any estimated tax issues

Returning to compliance strengthens your case and prevents future penalties.

The Bottom Line

Requesting an IRS hardship exception takes time and effort, but provides needed relief if you qualify. With thorough documentation, a compelling description of your situation, and persistence, you have a good chance at penalty removal. Don’t hesitate to get expert help. Your financial stability is worth fighting for.