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Advice for Tax Preparers

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Learning How to Get the IRS to Waive a Nonprofit Late Filing Penalty

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It’s going to happen. At some point, you or your boss is going to get the following sob story from a client.

Dear My Favorite CPA (when its starts this way you know you are in trouble – heh),

I know that you only prepare my individual and business tax returns. But I really need your help. I am on the board of directors of a charity that just got an IRS notice which says we owe them $30,000!!!

We did not discover until recently that the prior controller did not file last year’s Form 990 tax return and the IRS wants $100 per day in penalties. The letter also says if the amount is not paid then the IRS will put a lien on our assets!!! Help!!!

(FYI, the letter will also say that they can’t afford to pay you much and it infers that if you cant get it waived that they don’t want to pay you at all)

Step 1: Tell your client to relax

Let them know that the IRS is not going to show up like the Men in Black to take the charity’s assets. As long as the client responds to each letter, it is a slow road through the IRS bureaucratic process.

Step 2: Get the client to complete Form 2848.

Form 2848 will allow you to talk to the IRS on the client’s behalf. Unlike other tax notices, you will not use the CPA hotline to call the IRS. The IRS has a separate group for handling nonprofit tax issues. You can call them at (877) 829-5500 (see link for other contact info).

Step 3: Inform client of the following points

  • No phone waivers. The IRS will not waive the penalty on the phone. They always want the request to be in writing. As part of this tax waiver process, you are going to call the IRS. But it is merely to get the IRS agent to place a 60 day hold on any IRS lien proceedings. Once the IRS receives your waiver request (sent within the 60 days requested on the phone), the IRS will suspend all lien activity related to the IRS penalty notice until the IRS has made a decision on the waiver request.
  • Second IRS notice coming. The charity will receive a second IRS notice requesting payment on the penalty notice. It does not matter how fast you call the IRS. The IRS computer system is going to send the second notice. If you got the IRS to agree to the 60 hold then they are fine. Tell them to send you a copy of the notice and not worry about it.

Step 4: Write the letter 

The letter only needs to be about a page and should include the following information.

  • Request the waiver of all penalties and interest
  • Reason for the delay. Give any good reason that you have. But there is no reason to go overboard. If it was due to a change in personnel or a clerical error then just admit it. The idea is to explain the error was not intentional.
  • If it works in the favor (i.e. less than 5) then mention that the organization is small with essentially no paid employees.
  • If it works in their favor then mention that the charity has a good history of filing their tax returns on time.
  • Indicate that the charity has put in place procedures to prevent a late filing of the tax return in future years.

Sample Penalty Waiver letter

If you need an example copy of a successful letter (it’s free) then click the following Advice for Tax Preparers – Nonprofit Waiver Letter link.

If you find the letter helpful then I ask that you do the following things:

  1. Forward it to nonprofits that you think would benefit from it.
  2. Forward it to CPAs that could help other nonprofits get a waiver from the IRS.
  3. Use the social media buttons on this page to like my artcle on Facebook and LinkedIn.
  4. I will be publishing a book that teaches tax preparers how to succeed in a public accounting firm. Therefore, I hope you will tell any current or future accountants you know about my blog so they can learn from my posts and possibly buy the book when it is published.

It is going to take at least a couple of months to resolve the issue. But if done correctly the chance of a first time offender getting the penalty waived is over 90% (at least in my experience).

If you found these tips helpful please consider sharing this post with your friends on Facebook, LinkedIn and Twitter. Thanks.

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Bill Meador, CPA, JD

Bill Meador is a CPA and lawyer who has worked in the tax departments of public accounting firms for over twenty years. He created this blog to make Big 4, national, and local tax preparers lives easier. If you like the blog then tell your friends and keep on the lookout for the Tax Preparer Skills Guide which will teach tax preparers the tax, technical, office and social skills needed to succeed in a public accounting firm.

Comments

  2. No problem. I will e-mail it to you.

    To others that want the sample letter, I am a little behind in creating the form so that people can get the letter automatically. Therefore, if you would like the letter simply contact me through my contact page or leave a comment here. Thanks.

    Reply

  7. I also need the example letter of IRS waving penalty for nonprofit filing late. Can you please send me one? Thank You!

    Reply

  9. Bill. This is a first-rate article. I’m always curious about good governance policies. What do you consider to be “procedures to prevent a late filing of the tax return in future years”? You might make these procedures the subject of another post. Do include as part of such procedures that sometimes a state like Georgia wants a printed copy of the Form 990. Mail the form to the state and retain the postal receipt that has the state ZIP code. That is, e-filing to the IRS may not satisfy state requirements.

    Reply

  12. This is an excellent post. Several years ago, I wrote a very similar letter to the IRS for late filing of our charity’s 990, after we had already paid the penalty. The IRS approved the request, and they refunded the penalty with interest. Win.

    Reply

    • Thanks for the kind words about the post. My hope is to teach as many people in nonprofits as possible how to avoid paying the Form 990 late filing penalty. Therefore, anything you can do to help spread the word about the article (Facebook, LinkedIn etc.) would be appreciated.

      Reply

  14. I would like a copy of the sample letter requesting waiver. And, thank you for the information. It was very helpful.

    Reply

  16. I am the new treasurer for a non profit and just received one of these letters from the IRS. Please send me a copy of your sample letter. Thank you.
    Leslie

    Reply

  17. I would like a copy of the late penalty letter also.

    Thank you for this blog. I accidentally stepped onto it.

    Reply

  19. Your article is very helpful and encouraging! Could I please have a copy of the letter that you mentioned?

    Thank you.

    Reply

  20. Can you send me a copy of the letter that you mentioned? Can I use it with the attorney general?

    Also, if the penalty stands, how is it handled on the tax return? Normally a corporation will adjust it through the K1s issued to its shareholders.

    Thanks.

    Reply

  21. I would very much appreciate a sample copy of your letter for Non-profits requesting waiver of late filing penalties. Thank you so much!

    Reply

    • Glad to help. I will try to send you the letter shortly. If you find it helpful then I hope you will share my article with others on social media so that they can learn how to get rid of the 990 penalties.

      Reply

  22. I would like a sample copy of the letter for non-profits. I do know ours was submitted 15 days late, but we have not received a letter. The person filing thought it was due by the end of May, not May 15th. The article was very informative. I like your blogs!

    Reply

    • Thanks for the comment. It sometimes takes awhile for the IRS to process tax returns so it is no guarantee that they have missed that it was late. Therefore, I will send you a copy of the letter. If you find it helpful then I hope you will share my article with others on social media so that they can learn how to get rid of the 990 penalties.

      Reply

  23. I would be interested in seeing your letter. In this case it appears that the extension sent to the IRS was never received.

    Reply

  25. Please kindly send me the sample IRS Letter. We missed filing the 2nd extension. Recently, we received a penalty notice and wanted to abate of late filing penalties for the first time.

    Reply

  26. I would very much appreciate seeing a copy of your letter to the IRS for the abatement of a penalty for a nonprofit. Thank you for what you are doing to educate the public.

    Reply

  27. If you could please email me a copy of the letter to the IRS for the abatement ofa penalty for a non profit. Thank you very much!

    Reply

  28. Would you please send me a copy of the letter used for abatement of the penalty on a nonprofit late filing. Thanks for your help.

    Reply

  29. Can you send me a example copy of a successful letter to the IRS for waiving a Nonprofit Late Filing Penalty?

    Thank you

    Reply

  30. Can you send me a example copy of a successful letter to the IRS for waiving a Nonprofit Late Filing Penalty?

    Thank you

    Reply

  32. For those of you that may have missed it, I have now added a link to my nonprofit penalty waiver letter in my article. It is around the third line in the “Sample Penalty Waiver letter” section. If you found my letter helpful then I hope you will leave a comment about your experience and share the link to this article with any CPAs you know as well as any nonprofits that might need the letter.

    Thanks,

    Bill

    Reply

  33. Would love an example of the sample letter. Thanks for the updates and just what I was looking for. I’m trying to get a penalty waived and we are a small org.

    Reply

    • Liam,

      Thanks for your interest in my nonprofits penalty waiver letter. It might not be obvious, but I have now added a link to my nonprofit penalty waiver letter in my article. It is around the third line in the “Sample Penalty Waiver letter” section. If you found my letter helpful then I hope you will leave a comment about your experience and share the link to this article with any CPAs you know as well as any nonprofits that might need the letter.

      Bill

      Reply

  36. I’m glad this popped up in my google search – because this is exactly what I needed to calm down and know that I may not need to pay a late filing penalty. I did click the link to your letter, copied it and made my own edits.

    Crossing my fingers!

    Reply

  37. Great article. I’m curious if its at all possible to receive the FTA administrative waiver for the failure to timely file in regards to an exempt organization. Reviewing the IRM regarding penalties, its hard to confirm. There seems to be evidence that it does not apply but does not seem to specifically exclude exempt organizations. Your thought would be appreciatec.

    Reply

  42. Hi Bill,

    If possible, would you please send an example letter of IRS waving penalty for nonprofit filing late.

    Thanks,
    Jimmy Jen

    Reply

  43. Hi Bill,

    Great article! Could you please provide send an example letter of IRS waving penalty for nonprofit filling late.

    Thanks in advance,

    Carra

    Reply

  44. Bill your article was not recent, but still give me hopes, thank you!

    Can you send me the example letter requesting abatement from the IRS for not filing electronically since we did not even see warning in the tax software. We filed in paper timely, but was not honored by the IRS.

    Thank you,

    Reply

  45. Bill,

    Thank you for the great article and guide. I would greatly appreciate if you share a copy of the letter with thank you for your great service to the profession.

    Best Regards,

    Brian Buskirk, CPA

    Reply

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