- The clock, as the IRS keeps it
- Form first: the statement the examiner can accept
- The two questions
- Mitigating factors and events beyond your control
- TIN failures: the solicitation test
- Denied on sight
- The one-penalty cascade
- Small-business status is verified, not assumed
- E-file waivers examiners honor
- After the decision: 854-C, reconsideration, appeal
- The response checklist
- Questions people ask
The clock, as the IRS keeps it
IRM 4.19.25.2(6), 4.19.25.7.6, 4.19.25.13, 4.19.25.14, 4.19.25.21.
The practical reading: you get one full response and one supplement. A second thin submission goes straight to assessment with Letter 854-C.
Form first: the statement the examiner can accept
Before any facts are weighed, the examiner checks four formalities (IRM 4.19.25.8(3) to (4), 20.1.7.12.1(6)). The waiver request must state the specific provision under which it is made, set out all the facts, be signed by an authorized person (an officer for a corporation, any partner for a partnership), and carry a penalties-of-perjury declaration. A response from your payroll vendor with no officer signature, or an emailed narrative with no jurat, is not a reasonable-cause request; it is an incomplete reply, which earns a 1948-C on a current-year case or a closed file on a reconsideration.
Two useful details. Signing the disagreement section of the 972CG itself satisfies the declaration, because the jurat is preprinted on the notice. And faxed signatures are acceptable.
Write the response so that the first page passes the formalities check without the examiner reading a word of your argument: provision cited, officer signature, penalties-of-perjury statement, all failures on the notice addressed.
The two questions
Reasonable cause under Treas. Reg. 301.6724-1 has two parts: the filer acted in a responsible manner before and after the failure, and there was either a significant mitigating factor or an event beyond the filer's control. The IRM reduces the first part to two questions the examiner must answer (IRM 4.19.25.8(6) to (7)):
IRM 4.19.25.8(6)-(7). The IRM concedes that “Notice 972-CG does not provide a detailed explanation of reasonable cause requirements,” which is why so many responses miss one prong.
The second question has teeth beyond the current case. The penalty handbook says a filer "can not continually rely on the same explanation to establish reasonable cause when the filer's compliance history indicates a pattern of failures," and instructs examiners to check whether the error rate declined year over year and, if not, to consider intentional disregard (IRM 20.1.7.12.1(12) to (13)). A payer that received a 972CG last year for bad TINs needs to show measurably fewer bad TINs this year, and the response should say what changed and quote the numbers.
What does not count as responsible: "Carelessness and forgetfulness are not examples of ordinary business care and prudence" (IRM 20.1.7.12.1(9)).
Mitigating factors and events beyond your control
The IRM gives examiners a fixed list (IRM 4.19.25.8(8) to (11); IRM 20.1.7.12.1(11) to (23)). Organize the response around it.
| Factor | What the examiner needs to see |
|---|---|
| First-time filer | Never before required to file that type of return. |
| Compliance history | Must be considered "whether or not the taxpayer specifically requests waiver on this basis." Failures excused under the de minimis rule do not count as prior penalties. Good history alone can carry a filer who acted responsibly but has no external event. |
| Erroneous written IRS advice | A copy of the advice with the IRS employee's name and date, plus a copy of your request showing the facts you gave. Phone advice does not qualify. |
| Reliance on an agent or vendor | You chose the agent with reasonable business judgment, gave them the data "well in advance of the due date," and the agent itself has a mitigating factor or external event. If the agent fails that test, you can still win on your own compliance history. |
| Payee failure | The payee gave nothing or gave wrong information, you gave the payee what they needed, and you can produce "documentary evidence when requested." For TIN failures this route exists only if the solicitation rules were followed. |
| Records unavailable | Unavailable for at least two weeks before the due date because of fire, casualty, a late statutory change, or the death or serious illness of the person with sole authority to file, "not the individual preparing the return." If someone else shared filing responsibility and was unaffected, it is not an event beyond your control. |
| Disaster | Federally declared disaster or casualty. The postponement freeze does not automatically cover 1099s unless listed in Rev. Proc. 2018-58, but lost or destroyed records are a recognized event. Raise it yourself; the IRS does not always identify affected payers by ZIP code. |
| Ignorance of the law | Never an automatic waiver, but "must be considered as one factor" if everything else shows responsible conduct. |
TIN failures: the solicitation test
For missing or incorrect TINs the examiner applies the special solicitation rules of Treas. Reg. 301.6724-1(e) and (f), and the IRM adds three operational points.
Email does not count for the annual solicitation. An initial solicitation may be by mail, phone or electronic means. The annual solicitations "must be made by mail or telephone." The decision table is blunt: "If the taxpayer claims they made annual solicitations by electronic means, Deny the request for relief. Assess the penalty" (IRM 4.19.25.8.3(4) to (5)). A vendor portal reminder is not an annual solicitation. A mailed letter must include the $50 IRC 6723 warning to the payee, a W-9 and a return envelope; a phone solicitation must be a completed call with an adult or an officer that includes the same warning (IRM 20.1.7.12.2.5).
The IRS asks for proof and checks your history. When you request waiver of a TIN penalty the examiner evaluates the solicitation record and "Research[es] IDRS to determine Notice 972-CG history" (IRM 4.19.25.8.3(6) to (8)). If your explanation is thin and you say you can supply more, the IRS asks for the solicitation letters. If you say you cannot, the request is denied. Keep dated copies of every W-9 request and B-Notice, and the mailing log; the regulation calls them "concurrent records," meaning made at the time, not reconstructed.
The B-Notice is the solicitation, and withholding is not required for the waiver. Mailing the B-Notice within 15 business days of a CP2100 satisfies the annual solicitation for that payee that year, and "Filers are not required to show they backup withheld on payee accounts to satisfy the requirement for waiver of the penalty" (IRM 20.1.7.12.2.4). The withholding obligation is a separate exposure under IRC 3406, handled by a different program, but it does not decide the 972CG.
If you skipped solicitations, the cure is two consecutive annual solicitations in later years; the penalty runs for the years missed "and subsequent years until the filer has completed the make-up solicitations" (IRM 20.1.7.12.2.6). Start now.
Denied on sight
- First Time Abate. "First Time Abatement (FTA) administrative waiver procedures do not apply to information return penalties" (IRM 4.19.25.8(1)). Citing it wastes the examiner's goodwill. Clean history is a mitigating factor, not a waiver.
- A plain postage receipt as proof of timely paper filing. "Only a registered or certified mail receipt can be used as proof of timely filing"; anything else is denied with an 854-C citing Treas. Reg. 301.7502-1 (IRM 4.19.25.8.1(10)). E-file dates are checked against the FIRE system.
- Mailed to the state, or to the wrong IRS center. "Does not in itself constitute reasonable cause" (IRM 4.19.25.8(12)).
- A second hardship waiver from e-filing. A hardship waiver in any prior year "put the filer on notice"; later requests are denied for failure to act responsibly (IRM 4.19.25.8.2, 20.1.7.12.1(23)).
- Responses on CD, DVD or USB. Returned unread; "the IRS cannot accept information on electronic media" (IRM 4.19.25.2).
- An appeal backed by Form 8821. "A Form 8821 ... is not considered an authorized POA." Only Form 2848 listing "Civil Penalty," the form series and the years (IRM 4.19.25.17.3.1).
The one-penalty cascade
"Only one penalty per information return filed incorrectly can be assessed" (IRM 4.19.25.7.2). That sounds like a limit. It is also a trap. The examiner evaluates failures in order of value, late filing first, then incorrect TIN, then paper-when-e-file-required. If you win a waiver on one failure, the return does not leave the penalty; it drops into the next failure that still applies (IRM 20.1.7.3.3).
The IRM's own example: 500 Forms 1099-DIV e-filed late in late April by a small business, 50 of them with bad TINs. Proposed penalty: 50 at $310 plus 450 at $60, or $42,500. The payer wins reasonable cause on the TIN failures but not on lateness. The recalculated penalty is 500 at $60, or $30,000, not $27,000, because the 50 returns are still late.
Address every failure type on the notice, not just the expensive one. A response that only argues the TIN failures leaves the late-filing failure standing under every return.
Two exceptions that help. Duplicate filings: if the original was timely, the penalty on the duplicate is waived in full. And returns that were not legally required (below the reporting threshold) are backed out of the count; this happens automatically for e-filed and scanned returns but manually for keyed paper returns, so ask for it explicitly (IRM 4.19.25.8.1(8), 20.1.7.12.2.7).
Small-business status is verified, not assumed
The notice classifies you as a large or small filer systemically. If you dispute it, the examiner pulls your Forms 1120, 1065 or 1040 series, averages line 1c net receipts over the three most recent tax years, and applies the $5,000,000 test under IRC 448(c). Subsidiaries are aggregated with the parent as a controlled group under IRC 1563(a) (IRM 4.19.25.7.1.14, 20.1.7.8.1(3) to (4)). A small subsidiary of a large parent gets the large-filer maximums; a genuinely small filer charged large-filer caps should say so in the response and expect the check.
The IRM also publishes internal tier start dates with a grace period. For tax year 2023 e-filed returns other than 1099-NEC, tier 1 started April 17, tier 2 May 17, tier 3 August 17 (IRM 4.19.25.8.1(7)). A filing that landed a few days after a statutory boundary may be charged at the lower tier, and if the notice shows otherwise, push back.
E-file waivers examiners honor
The paper-when-e-file-required penalty applies only to the returns above the threshold (IRM 4.19.25.8.2). Beyond an approved Form 8508, the manual lists specific arguments examiners accept: undue hardware or software cost, supported by two cost estimates obtained at least 45 days before the due date; a religious exemption, permanently recorded once claimed; unexpected growth, if the prior year showed 250 or fewer returns; and receiving last year's 972CG after this year's returns were already filed, accepted only if that was the sole prior year of history (IRM 4.19.25.8.2, 20.1.7.12.1(22)). Formal waivers on Form 8508 are limited to eight reasons, and "Deny waivers that include reasons other than those listed" (IRM 3.42.9.10.1(4)).
One trap outside the penalty unit: an extension or waiver can fail to post to your Payer Master File account if the payer TIN and name control on the form do not match IRS records (unpostable codes 501 and 503). The IRS works those in July, but a Form 8809 filed under a DBA or a merged entity's old name can leave you with a late-filing 972CG despite a timely extension (IRM 3.42.9.12.3). No approval letters are ever issued for extensions, so keep the acknowledgment screen.
After the decision: 854-C, reconsideration, appeal
Letter 854-C is the denial, and the only letter that carries appeal rights. Letter 6304-C closes a case that was fully waived, or one that was incomplete. A CP15 or CP215 with no letter means you agreed, did not reply, or the notice was undeliverable (IRM 4.19.25.9 to 16).
Reconsideration after assessment uses the same reasonable-cause rules but "is never suspended": an incomplete request is closed with a 6304-C telling you what was missing, and, since the August 2025 revision, "if all necessary information has previously been requested from the taxpayer and the taxpayer has not provided the information, do not request the information again" (IRM 4.19.25.17.1.3). Make the reconsideration complete on the first submission.
Appeals go to the Independent Office of Appeals in Fresno with a signed request from the taxpayer or a Form 2848 representative. An unsigned appeal with a phone number gets one call and three business days to fax a signature; otherwise the case closes (IRM 4.19.25.17.3.1). Two statute points: the IRS must assess within three years of the later of the due date or filing date, and refund claims run three years from filing or two from payment. Penalties "should not be abated on a full paid account if the overpayment created is barred from refunding ... even if the taxpayer's claim for penalty abatement is based on reasonable cause" (IRM 4.19.25.17.4.2). Pay-then-fight has a two-year clock. And "no statute of limitations applies to non-filed information returns" (IRM 20.1.7.12.2.8).
One procedural defense worth knowing: the automated 972CG needs no supervisory approval under IRC 6751(b), but once you respond and an examiner evaluates it, any penalty sustained requires written managerial approval in the file (IRM 4.19.25.6). A missing approval is a legitimate point on reconsideration or appeal.
The response checklist
- Provision cited (Treas. Reg. 301.6724-1), officer signature, penalties-of-perjury statement. Or sign the disagreement block on the notice itself.
- Address every failure code on the notice, in the IRS's order: late, TIN, media.
- Question one: what you did when you discovered the error, with dates.
- Question two: what you changed so it will not recur, with evidence (TIN matching adopted, vendor onboarding gate, filing calendar), and this year's error rate against last year's.
- The mitigating factor or external event, from the IRM list, with the documents it requires.
- For TIN failures: dated solicitation letters or B-Notices, the mailing log, and a statement that annual solicitations went by mail or phone.
- For late filing: certified mail receipt or FIRE/IRIS acknowledgment; extension acknowledgment if one was filed.
- If the notice classifies you as a large filer and you are not: the three-year receipts figures.
- Any returns not legally required, listed for removal from the count.
- Compliance history, stated even though the examiner must consider it anyway.
The 972CG reasonable-cause templates follow this structure.
Questions people ask
We paid the penalty to stop interest. Can we still get it back?
Yes, by reconsideration or a refund claim, within three years of filing or two years of payment. After that the IRS will not abate even a penalty it agrees was wrong, because the refund is barred (IRM 4.19.25.17.4.2).
Our filing service responded for all its clients in one letter. Is that allowed?
Yes, but the IRS needs the name and TIN of every affected client, treats them consistently, and will not disclose anything to the service without a Form 2848 or 8821 for each client that says "Civil Penalty" with the years (IRM 4.19.25.7.3, 7.5). Service bureaus should collect those authorizations before July.
Does the de minimis exception help on a 972CG?
Rarely. It requires the originals to have been timely and corrected by August 1, and the IRM notes payers usually learn of the errors after August 1, so "this exception would rarely apply" (IRM 4.19.25.7.1.3). It is a reason to run TIN matching before filing, not a defense afterward.
What if we filed so late there was no 972CG, just a bill?
Excessively late returns and unprocessable returns skip the proposal stage; the first contact is a CP15 or CP215 (IRM 4.19.25.18, 4.19.25.20). Your reasonable-cause request is then a reconsideration, with the no-suspense rules above.
We are a government entity. Does any of this apply?
Federal agencies and quasi-governmental entities receive Notice 972F, an informational notice for TIN corrections, and are not penalized. State and local governments are (IRM 4.19.25.4, 20.1.7.6.1).