Penalty Abatement

The IRS may reduce or remove penalties when taxpayers acted with reasonable cause or meet administrative criteria. Penalty relief is available for several common penalties—including failure to file, failure to pay, accuracy‑related penalties and failure to deposit. Taxpayers may request relief through three main avenues:

1. First‑Time Penalty Abatement (FTA) – an administrative waiver for taxpayers with a good compliance history. FTA can remove failure‑to‑file, failure‑to‑pay and failure‑to‑deposit penalties for a single tax period. To qualify, taxpayers must have filed the same return type for the previous three years and had no penalties (or had them removed for reasonable cause) in those years. Additional criteria include the absence of multiple failure‑to‑deposit penalties and no event‑based filings. Taxpayers may request FTA even if the underlying tax has not been fully paid, but interest and continuing penalties will accrue until the tax is paid. FTA requests can often be made by phone; the IRS will review account information to determine eligibility.
2. Reasonable Cause Relief – granted when taxpayers can show they used ordinary care but were unable to comply due to circumstances beyond their control. Examples include natural disasters, inability to obtain records, serious illness or death, or system failures that delayed filing or payment. Lack of funds alone is not sufficient, but other circumstances showing reasonable care may qualify. For accuracy‑related penalties, the IRS examines factors such as efforts to report the correct tax, complexity of the issue and reliance on competent tax advice. Taxpayers should document what happened, how it prevented compliance and the steps taken to rectify the issue; supporting documents (hospital records, disaster declarations, receipts) improve the request.
3. Statutory Exceptions and Other Relief – certain penalties may be waived due to specific statutory provisions. For example, estimated tax penalties may be reduced when taxpayers meet safe‑harbor rules or qualify for the annualized income method. The IRS may also grant relief if the penalty resulted from erroneous IRS advice or was incorrectly assessed. Taxpayers should follow the instructions in their notice and may need to file Form 843 to request abatement. If penalty relief is denied, taxpayers can appeal or seek assistance from the Taxpayer Advocate Service.

Interest on penalties is charged until the underlying tax is paid, but the IRS automatically reduces related interest if the associated penalties are removed. As with other relief programs, taxpayers should act quickly upon receiving a notice and contact the IRS promptly.