Sample Letter to Remove Form 990 Late-Filing Penalty
Are you a small all-volunteer nonprofit organization with no paid manager or CFO? Is this your first late-filing penalty? Did you just file one year late? If so, you may have success with a simple letter similar to the one below:
Re: Our Town High School Baseball Booster, Inc., EIN xx-xxxxxxx. Late filing penalty assessed for the year ended 12/31/2011. Penalty notice attached.
Dear Service Center Representative:
I am writing on behalf of the Our Town High School Baseball Booster in response to the penalty notice dated 10/15/2012 for the tax year ended 12/31/2011. The Organization believes it has reasonable cause for filing late and is hereby requesting that the IRS abate the late-filing penalties.
The Booster was formed in 2011 for the purpose of supporting the Our Town High School baseball team. A local attorney helped us at no charge to incorporate as a nonprofit in our state and to apply for tax-exempt status with the IRS. We keep computerized accounting records and file financial reports with the school each year.We thought that by doing so we were in compliance with the law and believed we were acting responsibly. We had no knowledge of the requirement to file Form 990. Our volunteer board of directors is made up of parents of students at the high school. No one has any experience with tax matters.
In September 2012 a local CPA was helping us with our financial reports and asked to see our Form 990. It was then that we learned of the requirement to file Form 990 and that we had missed the deadline for the 2011 return.
Right away we had the CPA prepare our 2011 Form 990-EZ, which we filed on September 20, 2012.
No extension of time to file Form 990-EZ was requested because we were not aware of the requirement to file the return.
We believe we have reasonable cause for filing late because we are a small all-volunteer membership organization and honestly did not know about the requirement to file Form 990. This was the first time we were required to file this type of return. As soon as we discovered our error, we immediately prepared and filed the return before being notified by the IRS that it was late, thereby demonstrating that we acted responsibly and in good faith. We believe this demonstrates that we did not willfully neglect our filing requirement.
To prevent future late filings we have placed the due date of the Form 990 on the calendar of the board of directors, and all new board members are educated on all the annual filing requirements that pertain to the organization.
We respectfully request that the IRS abate all assessed penalties and interest related to our 2011 Form 990-EZ.
Thank you for considering our request.
Under penalties of perjury, I declare that the facts presented here, to the best of my knowledge and belief, are true, correct, and complete.
[Signed by a corporate officer]
Mail the letter to the IRS using Certified mail with return receipt. Do not fax your letter to the IRS.
Should You Write Your Own Reasonable Cause Letter to the IRS?The above letter represents the simplest possible scenario where abatement is highly likely. If your situation is more complicated, or if your organization has paid financial management or has had prior problems with late filing, or multiple years are delinquent, or if you are a CPA who may have contributed to the delinquency, you should get help in crafting your letter.
You should get help from someone who takes your situation seriously. If you are dealing with someone whose approach is "Let's write a letter and see if they'll abate the penalties--what have you got to lose?" or, "Hey, it's worth a shot!" --then you need to find someone else to help you. Writing a reasonable cause abatement request letter to the IRS is not a crap shoot. It isn't gambling. You have to do more than just "give it a shot." Abatement for reasonable cause is a provision of the tax code and Treasury regulations. Requirements for abatement are given in the code and regulations as well as in various court cases, IRS publications, and the IRS Manual.
When Will a Short, Simple Letter Be Effective in Penalty Removal?A simple letter like the one above often results in abatement under the conditions assumed:
- It's a new organization.
- It's an all-volunteer membership organization.
- It's the first time the organization had to file that type of return.
- The organization has only one delinquent year.
- The organization filed its return before receiving a notice from the IRS.
First Time Abatement Administrative Waiver is Not Available
The IRS offers an administrative waiver of penalties which is referred to as First Time Abatement, or "FTA". Unfortunately, this administrative waiver is not applicable to the Daily Delinquency Penalties of IRC Section 6652. See Internal Revenue Manual, paragraph 9 of Part 184.108.40.206.6.1. However, this does not mean the IRS will not take into account the fact that an organization has never before (or not within the last 3 years) been assessed a penalty for late filing of Form 990.
Learn to Write a More Effective Letter to the IRSIf the facts and circumstances are more complicated, a more rigorous argument should be made. A letter like the one above will require about two pages. I've written letters that required between 9 and 14 pages. If you've got a $4,000 penalty--or a $40,000 penalty--you want to make sure you use every possible argument available to you to help the IRS see that you qualify for abatement. I've literally written the book on the subject of nonprofit penalty abatement.
If your situation is a bit more complicated, you should take advantage of my written materials on how to get late-filing penalties abated. The price is right and the value is huge.
Find out more about my instructional materials on how to write a letter to the IRS to get Form 990 late-filing penalty abatement. Clicking on the link will take you to my other web site with details and testimonials to help you decide if the book and materials are right for you.
David B. McRee, CPA