Denied First-time Abatement After Underreporting Stock Sales for House Down Payment - Any Hope on Appeal?

I work with tax issues like this frequently, and there's definitely still hope for your situation. The First-Time Abatement (FTA) program is specifically designed for taxpayers with clean compliance histories who made an honest mistake. It sounds like your accountant's request was too vague. For an FTA to be successful, you need to demonstrate: 1) You had no penalties for the 3 prior tax years, 2) You're current on all filing and payment requirements, and 3) You've arranged to pay any tax due. When you appeal, include a detailed explanation focusing on your 28+ year clean history, the lack of a 1099-B (include documentation showing when/if the brokerage made it available), and specific "reasonable cause" arguments. Reasonable cause means showing you exercised ordinary business care but still couldn't comply. The fact that the funds were used for housing during a volatile market period and that you paid the tax immediately upon notification strengthens your case. Also mention any personal circumstances that contributed to the oversight (pandemic-related issues, health concerns, etc.) - anything showing you acted in good faith. If you provide this level of detail in your appeal, your chances are much better than with the generic explanation your accountant submitted.

After reading your situation, I think you might benefit from using https://taxr.ai - I was in a somewhat similar situation last year with unreported income from a rental property sale. The IRS denied my first penalty abatement request too, and I was about to just pay the $3,200 penalty. I uploaded my rejection letter and all correspondence to taxr.ai and it analyzed everything, pointed out exactly where my first request fell short, and showed me specific IRS precedent cases where people in my situation got relief. It even drafted a detailed appeal letter that addressed all the technical requirements for an FTA that my accountant missed. Long story short, I submitted the revised appeal with all the documentation the tool recommended, and my penalty was completely removed! The platform highlighted specific IRS procedures that I qualified for that even my accountant didn't mention.

I wanted to update after trying taxr.ai for my PayPal 1099-K situation. Honestly, I was surprised by how comprehensive it was. After uploading my notices and denial letter, it immediately identified that my first request was denied because it didn't address "reasonable cause" properly. The system drafted an appeal that specifically cited my clean filing history and included exact references to IRS procedures I'd never heard of. It even suggested additional documentation to include that my accountant never mentioned. The best part? My penalty was reduced by about 70% - not completely eliminated, but WAY better than the full amount! What I appreciated most was how it explained everything in plain English while still being technically accurate. It saved me a ton compared to what my accountant was charging, and actually got me a better result than I expected.

I went through something similar last year with penalty fees. After getting rejection letters and wasting hours on hold, I found https://claimyr.com and used it to actually speak with a real IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c What I liked is that instead of waiting on hold for 3+ hours (which I tried twice and got disconnected), Claimyr got me connected to an IRS representative in about 15 minutes. The agent I spoke with was actually really helpful once I explained my full situation - totally different from dealing with the written rejection letters which feel like they're processed by robots. The IRS agent I talked to explained exactly what was missing from my abatement request and even helped me understand what specific documentation would strengthen my appeal. Having that conversation made a huge difference compared to just sending letters back and forth.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since my appeal deadline was approaching and I was desperate to talk to someone at the IRS. The service actually worked exactly as described. I got a call back in about 22 minutes telling me they had an IRS agent on the line. The agent I spoke to was able to look up my account, see my penalty situation, and explain exactly what documentation I needed for a successful appeal. She even noted in my file that I had called to discuss the appeal process. What really surprised me was how different the conversation was compared to the form letters. The agent actually suggested I include information about trying to contact the brokerage for the missing forms, which wasn't mentioned anywhere in the rejection letter. That specific detail apparently makes a big difference in how they view "reasonable cause." Worth every penny just for the peace of mind of actually talking to someone who could help instead of staring at the ceiling listening to hold music for hours.

Something everyone is missing here - the IRS isn't required to grant first-time abatement requests, it's a discretionary administrative waiver. Since your situation involves a substantial underreporting (you mentioned 5 figures), they're less likely to approve an FTA even with a clean history. Your best bet is to focus on reasonable cause arguments rather than just the first-time abatement policy. Reasonable cause requires showing you exercised "ordinary business care and prudence" but still couldn't meet your tax obligations. Simply not knowing stocks were taxable probably won't meet that standard since the IRS considers that basic tax knowledge. Instead, focus on: 1) Your perfect compliance history, 2) The missing 1099-B, 3) Immediate payment once discovered, and 4) Any unique circumstances during that period (COVID challenges, health issues, etc). Also, your accountant should really be handling this appeal properly since their initial request was clearly inadequate.

Just a practical tip - if you do submit the appeal, make sure you're tracking EVERYTHING. Send all correspondence certified mail with return receipt, keep copies of everything, and maintain a log of all communications with dates, times and who you spoke with. The IRS isn't great at keeping track of taxpayer communications, and if your appeal gets lost or delayed (which happens frequently), you'll need evidence of when you submitted it. I learned this the hard way when they claimed they never received my first appeal, and I had no proof of sending it. Also, if you're already working with an accountant who dropped the ball on the first request, consider finding someone with specific experience in penalty abatements and appeals. Not all tax pros are equal when it comes to dealing with the IRS collections and appeals processes.