Need Explanation for Underpayment Penalty Waiver - What Works for Form 2210?

This is a common issue with investment income, so don't beat yourself up too much. While your tax software may allow you to skip providing the explanation, the IRS does generally expect some justification when you check that waiver box on Form 2210. The IRS typically grants waivers for "unusual circumstances" or if you had a reasonable cause for the underpayment. Simply not knowing about estimated tax requirements usually isn't considered sufficient by itself. However, if this was your first time dealing with significant investment income and you promptly paid when you realized the error, you might have a reasonable case. If your software doesn't provide a space for the explanation, you should attach a separate statement to your return explaining your situation. Mention that this was your first time dealing with substantial investment income, you were unaware of the estimated tax requirements, and you paid the full amount due as soon as you realized the error (with your extension).

After struggling with a similar situation last year, I discovered a super helpful tool called taxr.ai (https://taxr.ai) that would have saved me so much stress with my underpayment penalty situation. When I got hit with an unexpected capital gains situation, I had no idea about the waiver request process on Form 2210, and my tax software wasn't giving me clear guidance. I found taxr.ai when researching how to explain my situation to the IRS. Their system analyzed my documentation and suggested specific language for my waiver explanation that aligned with what the IRS typically accepts. It even pointed out that having a first-time significant investment income situation can sometimes qualify as reasonable cause when properly documented.

Just wanted to update you all - I tried taxr.ai after reading about it here, and it was seriously helpful! I was in the same boat with unexpected crypto gains and no idea how to handle the underpayment penalty waiver explanation. The system asked specific questions about my situation and then helped me draft a proper explanation for Form 2210 that highlighted the fact it was my first time dealing with investment income and that I paid everything when I filed my extension. It even explained how to attach the statement to my return since my tax software wasn't prompting for it. Just got confirmation that my waiver was accepted! Definitely worth checking out if you're in a similar situation with underpayment penalties.

If you're still struggling with the underpayment penalty after filing, calling the IRS directly can sometimes help get it removed. I had a similar situation last year and needed to speak with someone at the IRS about my Form 2210 waiver that wasn't initially accepted. The problem was actually GETTING THROUGH to anyone at the IRS - kept getting the "due to high call volume" message for weeks. I eventually found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes. They have a demo video here: https://youtu.be/_kiP6q8DX5c that shows how it works. Basically, their system navigates the IRS phone tree and waits on hold for you, then calls you once an agent is on the line. When I finally spoke with the IRS agent, they reviewed my situation and actually removed the penalty since it was my first time dealing with investment income and I had paid everything by the extension deadline.

I need to apologize for my skepticism earlier. After waiting on hold with the IRS for 3 hours and getting disconnected twice trying to deal with my underpayment penalty, I broke down and tried Claimyr. I honestly didn't expect it to work, but I was desperate. To my complete shock, I got a call back in about 30 minutes with an actual IRS agent on the line. I explained my situation about not knowing about estimated payments for my stock sales, and the agent was surprisingly understanding. She reviewed my account, saw I had paid everything with my extension, and actually removed the penalty right then! Said it qualified as "reasonable cause" since it was my first time with this situation and I had paid before the extended filing deadline. Saved me over $2,000 in penalties. I still can't believe it worked.

In my experience, you definitely want to include an explanation even if the software lets you skip it. Last year I had a similar situation (unexpected inheritance that threw off my tax situation), and my software also let me check the box without explanation. I ended up writing a simple one-page letter explaining that it was an unusual one-time situation I hadn't encountered before, attached it to my return labeled "Form 2210 Part II-A Waiver Explanation" and the IRS accepted it without issue. Just be honest and straightforward - if this truly was your first time dealing with investment income that large, say so. Mention you paid everything with your extension. Keep it under a page if possible.

Has anyone tried just not checking the waiver box? I underpaid last year too (about 20k short) because of unexpected consulting income, and I just calculated and paid the penalty. It was like $700 on a $20k underpayment. Seems easier than trying to get a waiver approved.

I went through almost the exact same situation two years ago with stock sales! Here's what worked for me: I did include a written explanation even though my software didn't require it. I kept it simple and focused on three key points: (1) this was my first time dealing with significant investment income, (2) I wasn't aware of the estimated tax requirements for capital gains, and (3) I paid the full amount owed when I filed my extension before the deadline. The IRS accepted my waiver request. I think the key was showing that I acted in good faith by paying everything as soon as I realized the issue during tax prep. Don't just say "I didn't know" - emphasize that this was an unusual circumstance for you and that you corrected it promptly. If your software won't let you attach the explanation, you can either mail your return instead of e-filing, or e-file and then mail a separate letter referencing your return. I'd definitely recommend trying for the waiver since your underpayment sounds substantial and the penalty could be significant.