What This Letter Means
Letter 3502C is good news. It goes to a business and tells it the IRS approved relief from the failure to deposit penalty. That is the penalty charged when payroll and other federal tax deposits are made late, in the wrong amount, or the wrong way.
The IRS generates this letter through its Reasonable Cause Assistant, the tool its employees use to decide penalty relief requests. When that tool turns down a deposit penalty request, a different letter goes out. Letter 3502C is the approval.
First Time Abate
Read the letter for the reason the penalty came off. If the IRS granted relief because of your good history of filing and paying on time, the letter says so. That is first time abatement, an administrative waiver. It is not a finding that you had reasonable cause.
That matters for next time. The letter will tell you this type of relief is only available one time, and that any future penalty relief will be decided on reasonable cause. Keep a copy of the letter with your payroll tax records.
If Tax Is Still Unpaid
Removing a penalty does not pay the tax. If tax is still owed on the period, the letter may tell you that the failure to pay penalty will keep applying to the unpaid tax until it is paid in full. Under the IRS's procedures, once the tax is paid in full, the additional failure to pay penalty that built up can also be removed under the first time abate waiver.
What to Do
- Check your account. Make sure the penalty was actually removed for the tax period on the letter.
- Pay any remaining balance. Paying stops the failure to pay penalty and interest from growing.
- Fix the deposit problem. Late or short deposits are what caused the penalty. Make sure your deposit schedule and method are right going forward.
- Keep the letter. You may need it if the same period comes up again.
If you received Letter 3502C and still have payroll tax balances or penalties to deal with, call us at (813) 229-7100.