Form 843: The New Investor’s “Oops Button” for IRS Mistakes

When you start your journey in real estate investing, the focus is on the thrill of the hunt—finding deals, securing financing, and closing on your first property. But soon, the less glamorous side emerges a world of paperwork, deadlines, and taxes. It’s here that a common fear creeps in “What if I make a mistake?”

Fortunately, the IRS has a tool for that. It’s called Form 843, and for a new investor, it’s best thought of as your financial “oops button” or safety net. This guide will break down what Form 843 is, when you might need it, and how to use it to fix honest mistakes.

What is IRS Form 843?

Form 843, Claim for Refund and Request for Abatement, is an official IRS document used to ask for two primary things a refund of certain overpaid taxes or a cancellation of penalties and interest the IRS has charged you. For most new real estate investors, the second use—requesting a penalty cancellation (abatement)—is the most relevant.

Key Uses

• Penalty Abatement: This is the most common reason an investor would use this form. It’s your formal request to the IRS to forgive a penalty because you have a “reasonable cause” for making a mistake, such as a failure-to-file or failure-to-pay penalty.
• Tax Refund: This applies only to specific types of taxes, such as employment taxes (FICA, FUTA), excise taxes, or certain other taxes. It is not for getting a refund on overpaid income tax.

[CRITICAL WARNING] Do NOT Use Form 843 For This!

Using the wrong form can cause major delays and will result in your request being rejected. Be absolutely clear on the following:

• For Income Tax Refunds: if you overpaid your personal or business income tax, you MUST use Form 1040-X, Amended U.S. Individual Income Tax Return, or the equivalent amended form for your business entity.
• For Local Property Tax Appeals: This form is for the federal IRS only. To appeal your local property taxes assessed by your city or county, you must follow the procedures set by your local assessor’s office.

When Your Safety Net is Needed: 3 Real-World Scenarios

So when might you actually need to pull out your “oops button”? Here are three situations a new real estate investor could easily face.

Scenario 1: The “I Forgot to File a 1099” Predicament

• The Setup: You hired a great plumber for a $2,500 repair on your rental property. You paid them and moved on, completely forgetting to send Form 1099-NEC to them and the IRS by the January 31st deadline. Months later, you receive a penalty notice.
• Your Responsibility: As the business owner making the payment, the filing responsibility is yours.
• “Reasonable Cause” Example: Your argument on Form 843 could be: “As a new real estate investor, this was my first year being required to file a Form 1099-NEC. I misunderstood the filing deadline but have now implemented a calendar system and accounting software to ensure all future filings are timely.”

Scenario 2: The “Estimated Tax Underpayment” Shock

• The Setup: Your first rental property is cash-flowing—great! But you didn’t know you were supposed to pay taxes on that profit throughout the year. When you file your annual return, you’re hit with an underpayment penalty.
• Your Responsibility: The IRS operates on a “pay-as-you-go” system. Income not subject to employer withholding (like rental income) requires estimated tax payments.
• “Reasonable Cause” Example: This is a classic case for a First-Time Penalty Abatement. You can explain this was your first year earning non-wage income and you were unaware of the requirement, but you have now set up a schedule to make quarterly payments going forward.

Scenario 3: The “Closing Paperwork Glitch”

• The Setup: You successfully flipped your first house. You assumed the title company handled all the tax paperwork, but they made an error and failed to file Form 1099-S, “Proceeds From Real Estate Transactions.” The IRS sends you the penalty notice.
• Your Responsibility: Even when a third party is involved, the IRS often holds the taxpayer ultimately responsible for ensuring filings are complete.
• “Reasonable Cause” Example: Here, you would explain that you reasonably relied on the closing agent to file the form as is standard practice. You would attach a copy of your closing statement and any correspondence from the agent acknowledging their error.

Your 4-Step Action Plan to Use Form 843

If you find yourself needing to file, follow these clear steps.

Important Note: To stop interest from accruing while the IRS considers your request, the safest strategy is often to pay the disputed penalty and tax amount first. If the IRS approves your Form 843, they will issue you a full refund.

• Step 1: Get Your Facts Straight
  Gather the IRS notice you received. Identify the exact penalty amount, the tax form it relates to (e.g., Form 1099-NEC), and the tax period (e.g., calendar year 2023).
• Step 2: Write Your Explanation (Line 7)
  This is the most critical part. Be Humble, Honest, and Proactive. Do not blame the IRS. Clearly state the facts of what happened and why. Take responsibility for the error and, most importantly, explain the specific steps you’ve taken to ensure this mistake won’t happen again.
• Step 3: Attach Your Proof
  Make copies of any documents that support your story. This includes the IRS notice itself, letters from a closing agent, doctor’s notes (if illness was the cause), or anything else that proves your “reasonable cause.”
• Step 4: File and Wait (Patiently)
  You can download Form 843 from IRS.gov. Check the official instructions for the correct mailing address, as it varies depending on the type of tax. Be prepared to wait—the process can take 6 months or longer.

Common Pitfalls and Limitations

While Form 843 is useful, it’s important to know its limitations.

• Approval Is Not Guaranteed: The IRS evaluates each case individually. A strong “reasonable cause” is essential, but it doesn’t guarantee your penalty will be waived, especially for repeat issues.
• Long Wait Times: The IRS process is slow. Do not expect a quick resolution after mailing the form.
• Doesn’t Stop Collections: Filing the form does not automatically stop the IRS from pursuing collection of the penalty. This is why paying first is often the safest bet.

FAQs: IRS Form 843

Conclusion

The ultimate goal is to build good habits—like using a tax calendar and solid bookkeeping—so you never need this form. But being a successful investor also means being a prepared business owner. Understanding tools like Form 843 transforms fear of the unknown into confidence. It’s not just an “oops button,” but a sign that you’re ready to handle whatever the business throws at you.