Template from tincompliance.com. A reasonable cause statement for the two penalties the CAWR program asserts: PRN 549, intentional disregard under IRC 6721(e), and PRN 550, late-filed W-2s under IRC 6721(a). First Time Abate is not available: "Chief Counsel has determined the First Time Abate Penalty relief option does NOT apply to the Intentional Disregard Penalty (PRN 549) ... or the Late Filing Penalty (PRN 550) ... These penalties can only be abated based on Reasonable Cause criteria" (IRM 4.19.4.3.1(1) Note, June 11, 2025). The examiner applies Treas. Reg. 301.6724-1 through two questions, did the taxpayer react timely upon discovery, and did they act to prevent recurrence, and if either is missing sends a Letter 2057-C or checks the next year's filing (IRM 4.19.4.3.1.4(6) to (8)). The statement "must address the issue preventing the filing of the Forms W-2 from the period they were due up to and including the time of their response to IRS" (IRM 4.19.4.3.1.4(5)). The sections below follow that order. Attach it to the Letter 98-C / 99-C reply or to a response to the CP 215.
Statement of reasonable cause
Penalties PRN 549 (IRC 6721(e)) and PRN 550 (IRC 6721(a)); [Letter 98-C dated [date] / CP 215 dated [date]]; tax year [YYYY]
[Employer legal name], EIN [00-0000000] ("[Employer]")
1. The failure
For tax year [YYYY], [Employer] filed Forms [941 / 943 / 944] reporting Social Security wages and tips of $[amount] and Medicare wages of $[amount]. The Forms W-2 [processed by SSA / filed with this reply] report $[amount] and $[amount]. The difference of $[amount] arose because [state the specific cause: the W-2 file for [number] employees was rejected by SSA on [date] and not resubmitted / the W-2s were filed under EIN [00-0000000], the EIN of [related entity], rather than this EIN / the payroll provider, [name], did not transmit the W-2 file / a third-party sick pay payer reported wages that were not included in our W-2s / the Form 941 for quarter [n] contained a transposition error]. We do not dispute that the Forms W-2 [were not filed timely / did not agree with the Forms 941] for the year.
Say what happened in one paragraph and do not minimize it: "The fact the error occurred does not prevent the possibility for the penalty to be waived/abated" (IRM 4.19.4.3.1.4(4)). Vague causes ("an oversight") answer neither examiner question.
2. What [Employer] did when the error was discovered
[Employer] first learned of the discrepancy on [date] when [it received SSA letter SSA-L-94-SM / it received Letter 98-C / its year-end reconciliation of Forms 941 to Form W-3 for the following year disclosed it / its payroll provider reported the rejected file]. Within [number] days, [Employer] [identified the affected employees / obtained the rejected file and the SSA rejection reason / reconciled each quarter's Form 941 to the W-2 detail / engaged [firm] to reconstruct the wage records]. The corrected Forms [W-2 and W-3 / W-2C and W-3C] were filed with SSA on [date], and [Forms 941-X for quarters [n] were filed on [date]]. Copies of the filings and SSA acknowledgments are attached as Exhibit [A].
[If SSA had written before the IRS letter: SSA's letters of [date] and [date] were [received and acted on as follows: ... / not received because they were addressed to [former address], which changed on [date]; Form 8822-B was filed on [date]]. We understand that the explanation must cover the reason for not responding to SSA as well as to the IRS, and address it here.]
The first examiner question is whether the taxpayer reacted timely upon discovery. If the statement does not say what happened at that moment, a Letter 2057-C asks "what took place at the time the error was discovered" (IRM 4.19.4.3.1.4(7)). The explanation "should encompass the reason why they didn't comply when they were contacted by both SSA and IRS" (IRM 4.19.4.3.1.4(10) Note); do not skip the SSA letters.
3. What [Employer] changed so the failure cannot recur
Since [date], [Employer] has [describe each concrete control: reconciled the four quarterly Forms 941 to the Form W-3 totals before the W-3 is transmitted, with sign-off by [title] / required written SSA acknowledgment of each W-2 file within [number] days of transmission, tracked on a filing log / replaced [payroll provider] with [new provider or in-house process] effective [date] / added the CAWR fields (Social Security wages and tips, Medicare wages, federal income tax withheld) to the quarter-close checklist / designated [title] as responsible for the annual reconciliation and confirmed the IRS address of record with Form 8822-B]. The Forms W-2 and W-3 for tax year [YYYY + 1] were filed on [date], within the January 31 due date, and reconcile to the Forms 941 for that year; the SSA acknowledgment is attached as Exhibit [B].
The second examiner question is whether the taxpayer acted to prevent recurrence. If the statement does not answer it, the examiner "checks the subsequent year's filing": a timely, balanced next year meets the requirement; the same error again does not, and the penalty is assessed (IRM 4.19.4.3.1.4(8)). Attaching the next year's acknowledgment answers the question before it is asked.
4. Why the failure happened: circumstances beyond [Employer]'s control
[Choose those that apply and give dates and documents for each:] (a) [Employer] relied on written advice from the IRS dated [date], a copy of which, with our request of [date], is attached as Exhibit [C]. / (b) [Employer]'s records were unavailable from [date] to [date] because [fire / flood / seizure / system failure], documented in Exhibit [D]. / (c) [Employer]'s principal place of business was in the area covered by FEMA disaster declaration [number] from [date]. / (d) [Name], the [title] responsible for payroll reporting, [died / was seriously ill / was unavoidably absent] from [date] to [date], and no other person had access to the payroll system until [date]. / (e) [Employer] filed its first Forms W-2 for tax year [YYYY] and had no prior year's filing to reconcile against.
[Employer] has a history of compliance: for tax years [YYYY] through [YYYY] its Forms 941 and W-2 reconciled and were filed timely, and no information return penalty has previously been assessed. We ask that this history be considered as a mitigating factor.
The manual lists as beyond the taxpayer's control: erroneous written IRS advice (include the request and the reply), unavailable records, a FEMA disaster, fire or casualty, and death, serious illness or unavoidable absence; and as mitigating factors: first-time filer status and a good compliance history, which "should be considered whether or not the taxpayer specifically requests waiver on this basis" (IRM 4.19.4.3.1.4(9) and (10)). Reliance on a payroll provider or agent is treated differently: "Generally, this is not a basis for reasonable cause ... that responsibility cannot be delegated," and "The agent has to then demonstrate they acted in a responsible manner" (IRM 4.19.4.3.1.4(10)). If a provider failed, do not rest on it; describe your own oversight of the provider before the failure, your actions on discovery, and the replacement or new controls, and attach the provider's own statement of what went wrong and what it changed.
5. The period from the due date to this response
The Forms W-2 for tax year [YYYY] were due January 31, [YYYY + 1]. From that date to [date of discovery], [Employer] [believed the forms had been accepted because ... / had not received the SSA correspondence because ...]. From [date of discovery] to [date of filing], the steps in section 2 were taken. From [date of filing] to the date of this statement, [Employer] [awaited SSA processing / responded to Letter 98-C on [date] / filed this statement with its reply]. No period is unaccounted for.
"Any reasonable cause documentation must address the issue preventing the filing of the Forms W-2 from the period they were due up to and including the time of their response to IRS" (IRM 4.19.4.3.1.4(5)). The letter arrives two to three years after the due date (IRM 4.19.4.3.1.4(5)); a gap of a year with no explanation is read against you. Account for every interval, briefly.
6. Request
[Employer] requests that [the intentional disregard penalty (PRN 549) of $[amount] / the late filing penalty (PRN 550) of $[amount] / both penalties] proposed for tax year [YYYY] not be assessed [or: be abated], because [Employer] acted in a responsible manner both before and after the failure and the failure resulted from the circumstances described above. We understand that First Time Abate does not apply to these penalties and do not request it. If the penalty was assessed after our written reply to the Letter 98-C was evaluated, we ask that the written supervisory approval required by IRC 6751(b) be confirmed to us (IRM 4.19.4.7.1). If this request is denied, we ask for the specific reason in writing and notice of our appeal rights.
Declaration
Under penalties of perjury, I declare that I have examined this statement, including the accompanying exhibits, and to the best of my knowledge and belief it is true, correct and complete. I am [an officer / the owner / a person authorized to sign employment tax returns] of [Employer].
[Signature]
[Name], [Title]
[Date]
Exhibits: [A] corrected filings and SSA acknowledgments; [B] following-year Forms W-2/W-3 acknowledgment; [C] IRS written advice and request; [D] records or disaster documentation; [E] payroll provider statement; [F] filing log and reconciliation procedure
A denial after a reply to the bill comes on Letter 854-C, which must "inform the taxpayer of their appeal rights. Include the specific reason" (IRM 4.19.4.6.1(11), Apr. 10, 2024). A follow-up disagreement is treated as an appeal and requires a signed request from the taxpayer or a Form 2848 listing the specific periods; "A Form 8821 or Form 2848, Level H, is not considered an authorized POA" (IRM 4.19.4.6.2). Examiners are told "caution should be used in abating the penalty" (IRM 4.19.4.6.1(1)); the statement that succeeds is specific, dated, and documented in every section. After the assessment statute has expired, an abatement is limited "only up to the amount of credits allowed to be refunded" (IRM 4.19.4.6.1(10)).