What This Letter Means

Letter 1277 is the decision from the IRS Independent Office of Appeals on your penalty appeal. You asked the IRS to remove penalties, the IRS said no, and you protested. Appeals has now decided. It either kept all of the penalties or removed only some of them.

If Appeals had removed every penalty you appealed, you would have received Letter 1278 instead. Letter 1277 means at least part of the penalty stands.

These appeals usually involve penalties that are already assessed: failure to file, failure to pay, estimated tax, and deposit penalties are common. Appeals looks at reasonable cause, statutory exceptions, administrative waivers, and IRS errors. The letter includes a narrative explaining why your request was denied in full or in part. Read it carefully. It tells you what Appeals found missing.

What to Do

  • Check your account to see what you still owe after any partial removal.
  • Interest and penalties keep accruing on an unpaid balance until it is paid in full.
  • If you can't pay in full, ask about an installment agreement or other payment options before collection moves forward.

If You Disagree

Appeals is the end of the administrative road for this penalty. To go further, you go to court, and the route is a refund suit:

  • Pay the balance in full.
  • File Form 843, Claim for Refund and Request for Abatement, with a statement asking that the claim be immediately disallowed.
  • The IRS sends a formal notice disallowing the claim. You generally have two years from that notice to file suit in a U.S. District Court or the U.S. Court of Federal Claims.

Refund claims have their own time limits. Generally, a claim must be filed within three years from when the return was filed or two years from when the tax was paid, whichever is later. Don't sit on it.

Deadlines

Letter 1277 itself has no response deadline. The deadlines that matter are the refund claim period and the two-year suit period that starts when your claim is formally disallowed.

If Appeals turned down your penalty appeal and you want to know whether a refund suit makes sense, call us at (813) 229-7100.