IRS Form 972-CG (also known as “The Proposed Penalty Notice”) is one of the more serious communications you can receive from the IRS. It demands a response. What is more, a response indicating an ignorance of the law can cost you big time. That said, arguing your way out of a proposed penalty is entirely possible; provided you know what you are doing and can back up your words with significant documentation. Although the summer months are often regarded as a down time in the information-reporting world the reality is that the Proposed Penalty Notice lurks in the dog days of summer. If you do not know how to handle the Form 972-CG when your organization receives one it can bite you for years to come.
 
In this article we focus on the Proposed Penalty Notice – what it is, how to recognize one when you receive it and how you should respond. First, let’s clarify what the Form 972-CG is and what it is not.