How to Fight an IRS Negligence or Accuracy-Related Penalty

Under Internal Revenue Code § 6662, the IRS may impose a 20% accuracy-related penalty on any underpayment attributable to negligence, disregard of rules, or substantial understatement of income tax.

An IRS penalty isn’t the final word, however. It’s an allegation, and it can be challenged.

What “Negligence” Actually Means

Treasury Regulations define negligence as a failure to make a reasonable attempt to comply with tax law or to exercise ordinary and reasonable care in preparing a return (Treas. Reg. § 1.6662-3).

Common triggers include:

• Failure to maintain adequate records
• Improperly substantiated deductions
• Ignoring clear IRS guidance
• Omitting income reported on Forms 1099 or W-2

The IRS must first show that the penalty is justified before it can be enforced, according to 26 U.S.C. § 7491(c).

The Most Powerful Defense: Reasonable Cause

Even if there is an underpayment, 26 U.S.C. § 6664(c) says that the penalty may not apply if you demonstrate reasonable cause and good faith.

According to Treasury Regulation § 1.6664-4, the IRS determines reasonable cause and good faith by evaluating:

• The taxpayer’s effort to assess proper liability
• The complexity of the issue
• The taxpayer’s knowledge and experience
• Reliance on a competent tax professional

Reliance on a CPA or tax attorney can be a complete defense, but only if you provided full and accurate information and reasonably relied on their advice.

How to Challenge the Penalty

If you receive a 30-day letter, you may file a written protest and request an Appeals conference. If you receive a Notice of Deficiency, you have 90 days to petition the United States Tax Court—and you don’t have to pay first (which is usually required when disputing a tax bill). If you miss that deadline, however, your leverage drops significantly.

A well-prepared protest should include factual documentation, legal authority supporting your position, and a structured, reasonable cause argument grounded in the Internal Revenue Code and Treasury Regulations.

Take Action Early and Get Help from a Tax Attorney

Accuracy-related penalties increase financial exposure and lead to further scrutiny. With strategic advocacy and documented evidence, many negligence penalties can be reduced or eliminated entirely.

If the IRS has assessed a penalty against you, Gabaie & Associates, LLC can help. Contact us today to protect your rights, evaluate your options, and take immediate action before the situation escalates. Call (410) 358-1500 or fill out our contact form with your specific information.