Example:

A taxpayer furnished an exempt W–4 and is penalized. In a subsequent modification and abatement request, the taxpayer shows they are entitled to Single, standard rate and no adjustments. At the taxpayer’s income, no tax would be withheld if withholding were figured at Single, standard rate and no adjustments. Adjust withholding to Single, standard rate and no adjustments, and abate the penalty.

The taxpayer establishes that the W–4 was completed taking into account incorrect information received from a Service employee. See Declaration of Taxpayer Rights at VIII in Pub 1. The assertion that Service error is involved should be verifiable and credible under the circumstances. Misunderstanding publications or the law is not a reasonable basis for furnishing a false W–4.

The reasonable cause standard, which is applicable to abate some penalties (for example, penalties for late filing or late payment) does not apply to the penalty for furnishing an incorrect Form W-4.

The taxpayer's reasonable basis for furnishing an incorrect Form W-4 must be related to expected tax liability. The following lists provides examples of reasons taxpayers may offer for furnishing a false Form W-4 that do NOT meet the reasonable basis standard:

Illness,

Loss of records,

Overpayment of a tax liability.

Do not abate or waive the W–4 civil penalty on moral, religious, political, or constitutional arguments.

Do not abate penalties for reasons relating to personal finances of the taxpayer, either at the time the false W–4 was furnished or in connection with the taxpayer’s ability to pay the penalty.

Penalty abatements must be approved by the manager.

If you decide to abate or waive the penalty, send Letter 2811C to the taxpayer. A notice of adjustment is also automatically generated to notify the taxpayer. If the request is denied, use Letter 2804C and document the case history.