I have a penalty. How do I request a waiver if filing electronically?

[Foolery]

We sold our principal residence last year and got well over our asking price (beyond our wildest expectations). The reason for our penalty can be solely attributed to this unusual capital gains situation (even with the $500,000 deduction for a couple). I want to request a waiver of the penalty but am filing electronically because we are living overseas. How can I do this?

[ColeenD3]

The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy.

You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service's First Time Penalty Abatement policy if the following are true:

• You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
• You filed all currently required returns or filed an extension of time to file.
• You have paid, or arranged to pay, any tax due.

The failure-to-pay penalty will continue to accrue, until the tax is paid in full. It may be to your advantage to wait until you fully pay the tax due prior to requesting penalty relief under the Service's first time penalty abatement policy.

Other administrative relief: If you received incorrect oral advice from the IRS, you may qualify for administrative relief.

You can apply for an abatement by phone.

Abatement

[Foolery]

In the TT Premier software, it seems to address this as you describe @ColeenD3.

For the question, "Was your 2020 tax liability zero?" Do they mean you paid no taxes or, as in my case, you actually got a refund having over withheld? In other words, I paid taxes, but at the time of filing had no tax liability.

This makes a big difference in whether I save some money!

[ColeenD3]

Your tax liability is found on line 24 Form 1040.

Your tax liability is the total amount of tax on your income minus any non-refundable credits such as child tax credit, saver’s credit, dependent care credit to name a few.

This can also include additional taxes like self-employment tax, household employment tax, and tax penalties such as the 10% early distribution penalty for IRAs.

If your tax withholdings and payments fell short of your tax liability for the year, the unpaid difference is the tax you owe. And if your withholdings and payments exceeded your tax liability, the difference is your tax refund.