Home |IRS Tax Return | Is it possible to request a first-time penalty waiver when setting up a payment plan with the IRS for the additional tax, penalty, and interest owed due to a corrected W2, even if the mistake was not malicious but a genuine oversight?

Is it possible to request a first-time penalty waiver when setting up a payment plan with the IRS for the additional tax, penalty, and interest owed due to a corrected W2, even if the mistake was not malicious but a genuine oversight?

Robert James, 20+ years of experience in IRS matters
Answered on September 16,2023

If most of that is an Accuracy-related penalty, you can only get that waived if you meet Reasonable cause criteria.

Accuracy-Related Penalties

If you just received a CP2000 you can include a request to not assess Accuracy-related penalties in your response. You can also request an appeal in your response.

IRS CP2000 Underreporter Inquiries

You probably want to emphasize that you made a good faith effort to file an accurate tax return and that you just made an honest mistake. There's some more information about reasonable cause in this PDF:

LB&I Concept Unit

If the additional taxes are already assessed then you need to file Form 843. It's very common to need to appeal after IRS refuses to waive penalties for Reasonable cause.

If you qualify for First time penalty abatement that should be applied to any currently-assessed Failure to Pay penalties automatically.

The IRS system isn't set up to automatically remove future assessments of the Failure to Pay penalties so that penalty will be assessed monthly until the original tax assessment is paid off. With a payment plan you'll need to request First time abatement after you've paid off the tax balance, which might be approx four years from now depending on your installment agreement terms.

Penalty Relief due to First Time Abate or Other Administrative Waiver

You should make sure your payroll withholding is enough to cover your current tax obligations. Use the Tax Withholding Estimator for that:

Tax Withholding Estimator

Any IRS refunds you have will be applied to the balance due until it's paid off, so you can choose to have more withheld from paychecks for that. Or you can use IRS Direct Pay to make additional payments towards the balance due for that year.

Direct Pay With Bank Account

Is it possible to request a first-time penalty waiver when setting up a payment plan with the IRS for the additional tax, penalty, and interest owed due to a corrected W2, even if the mistake was not malicious but a genuine oversight?

Related Questions