Receiving an IRS penalty notice is bad enough, but getting a Letter 1277 (the official "Request Denied" notice) can be even more disheartening. Most people assume the IRS is being difficult, but in reality, most denials result from specific, fixable mistakes.
If you want to avoid a rejection, keep an eye out for these five common traps.
1. Outstanding Compliance Issues
The IRS has a "clean hands" policy. If you are asking for a favor (like removing a penalty), they expect you to be a model taxpayer in every other area.
- The Mistake: Requesting an abatement while you still have unfiled returns or an unpaid tax balance without a payment plan.
- How to Avoid It: Ensure all returns for the last six years are filed and that you have either paid the tax in full or are on an approved Installment Agreement before you submit Form 843.
2. The "Boyle" Trap: Blaming Your Accountant
Many taxpayers tell the IRS, "I gave my papers to my CPA, and they filed it late. It’s their fault!"
- The Mistake: Relying on the landmark Supreme Court case United States v. Boyle, the IRS maintains that the duty to file a return is non-delegable. You are legally responsible for hitting the deadline, even if you hire a professional.
- How to Avoid It: Don't argue that your CPA forgot. Instead, argue that you provided everything necessary and were led to believe it was filed, or focus on a different "Reasonable Cause" like a medical emergency that happened simultaneously.
3. The Documentation Gap
The IRS is a bureaucracy of paper. If you say you were sick, they don't take your word for it—they need to see the chart.
- The Mistake: Providing a narrative without "Third-Party Substantiation."
- How to Avoid It: Attach concrete proof.
- Illness? Include hospital discharge papers or a doctor’s letter.
- Natural Disaster? Include insurance claims or news clippings of the event.
- Bad Advice? Include the emails or letters showing the incorrect guidance.
4. The Timeline Mismatch
For "Reasonable Cause," the hardship must happen at the same time as the tax failure.
- The Mistake: Arguing that a death in the family in January is why you couldn't pay your taxes in October.
- How to Avoid It: Use a Timeline of Events. Show a direct correlation. If the hardship ended months before the deadline, you must explain why you still couldn't comply (e.g., "The January flood destroyed my records, which I couldn't reconstruct until November").
5. Prior Penalty History (The FTA Barrier)
If you are applying for a First-Time Abatement (FTA), the computer does a "look-back."
- The Mistake: Requesting an FTA when you had a small penalty (even just $50) in the previous three years. This triggers an automatic "No."
- How to Avoid It: Order your IRS Tax Transcripts first. Check for any "Penalty Assessed" codes in the prior three years. If you find one, skip the FTA and lead with a "Reasonable Cause" argument instead.
What to Do if You Are Denied?
A denial isn't the end of the road. You generally have 30 days to appeal the decision.
- The Informal Conference: You can request a call with a manager to discuss the denial.
- Appeals Office: You can file a formal protest to have an independent Appeals Officer review your case.
Sources and Legal Authorities
