How do I File a Protective Refund Claim or Get IRS Penalties Abated?

Taxes
Protective Claims

If there is a split between Courts of Appeal on the treatment of a deduction or taxability of income item you can file a protective claim using form 843. If the IRS denies the claim you have two years from the denial date to petition the Federal Tax Court or Court of Federal Claims.

An example would be when the Insurance companies demutualized ten years ago and policy holders received stock in the insurance company the IRS took the position the policy holders had a zero basis in the stock.  Before the case was decided the policy holders filed protective claims for refund after the IRS disallowed their basis on their 1040, to preserve their refund until the Tax Court made a decision.  Since there were so many policy holders with the same issue IRS  Counsel decided not to disallow the 843 claims outright until the case was decided.

Penalty Abatement

The IRS allows you to request an elimination of all or part of penalties assessed and the corresponding interest that has accrued on those penalties.  Form 843 can be used to request the following:

  • A refund of tax, other than a tax for which a different form must be used. For example if you can use form 1040X to request a refund of income tax that should be used and not the form 843.
  • An abatement of tax, other than income, estate, or gift tax. Employers cannot use Form 843 to request an abatement of FICA tax, RRTA tax, or income tax withholding.  Instead they should use form 941X.
  • A refund to an employee of excess social security or RRTA tax withheld by any one employer, but only if your employer will not adjust the overcollection.   When claiming a refund of excess social security or RRTA tax withheld by one employer you must  attach a statement from the employer indicating the following.  1) The amount, if any, the employer has reimbursed you for excess taxes withheld.   2) The amount, if any, of credit or refund claimed by the employer or authorized by you to be claimed by the employer.   3) The employer should include in the statement the fact that it is made in support of your claim for refund of employee tax paid by the employer to the IRS.  If you cannot obtain a statement from the employer, you should attach a statement with the same information to the best of your knowledge and belief and include in the statement an explanation of why you could not obtain a statement from the employer. Attach a copy of your Form W-2 to prove the amount of social security taxes withheld.
  • A refund of excess tier 2 RRTA tax when you had more than one railroad employer for the year and your total tier 2 RRTA tax withheld or paid for the year was more than the tier 2 limit.

  • A refund or abatement of interest, penalties, or additions to tax, caused by certain IRS errors or delays, or certain erroneous written advice from the IRS. An Example is if an IRS official gave you erroneous advice while acting in an official capacity that you relied upon you can get the penalty and the interest on the penalty abated.
  • A refund or abatement of a penalty or addition to tax due to reasonable cause or other reason  allowed under the law. An Example would be if you relied on your Accountant in taking a deduction and the IRS disallowed that deduction you could request abatement of the penalty.
  • A refund of the penalty imposed under section 6715 for misuse of dyed fuel.
  • A refund of a branded prescription drug fee. You would have to attach a copy of the Form 8947 that provided the basis for the fee as calculated by the IRS, as well as any additional information on the amount to be refunded.

If you have questions or need assistance in filing form 843, contact Gregory J. Spadea at 610-521-0604.

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