IRS Penalty Abatement: The Relief Most People Miss (2025)

Last Updated: December 2025

Here's something many taxpayers don't realize: even if you can't reduce the tax you owe, you may be able to eliminate the penalties — which can represent 25% or more of your total bill.

The IRS assesses billions of dollars in penalties each year, but they also abate (remove) millions of those penalties when taxpayers ask properly. First-Time Penalty Abatement alone is granted to hundreds of thousands of taxpayers annually.

This guide explains which penalties can be removed, how to request abatement, and when it makes sense to pursue.

Understanding IRS Penalties

Before you can get penalties removed, understand what you're dealing with:

Failure-to-File Penalty

What it is: Penalty for not filing your tax return by the deadline (including extensions).

How much: 5% of unpaid taxes per month, up to 25% maximum.

Example: You owe $10,000 and file 5 months late. Penalty = $2,500 (25% of $10,000).

This is the harshest penalty. Filing late is penalized more severely than paying late.

Failure-to-Pay Penalty

What it is: Penalty for not paying your tax bill by the deadline.

How much: 0.5% of unpaid taxes per month, up to 25% maximum.

Example: You owe $10,000 and take 2 years to pay. Penalty = $1,200 (12 months × 0.5% × 2 years, capped mechanics apply).

This penalty is reduced to 0.25% per month if you're in an approved installment agreement.

Combined Penalty Impact

If you both file late AND pay late, the maximum combined penalty is 47.5% of your tax due (25% failure-to-file + 22.5% failure-to-pay, with some overlap rules).

On a $20,000 tax bill, penalties alone could add $9,500.

Accuracy-Related Penalties

What it is: Penalty for understating your tax due to negligence, substantial understatement, or other errors.

How much: 20% of the understated tax.

When it applies: If you underreport income or overclaim deductions due to carelessness or disregard of rules.

Estimated Tax Penalty

What it is: Penalty for not paying enough tax throughout the year via withholding or estimated payments.

How much: Calculated based on underpayment amount and IRS interest rates.

Who it affects: Self-employed individuals, investors, retirees — anyone without sufficient withholding.

Three Ways to Get Penalties Removed

1. First-Time Penalty Abatement (FTA)

This is the easiest path. If you have a clean compliance history, the IRS will remove failure-to-file and failure-to-pay penalties — no questions asked.

You qualify if: - You haven't had penalties in the prior 3 tax years - You've filed all required returns (or filed valid extensions) - You've paid or arranged to pay any tax due

What it covers: - Failure-to-file penalty - Failure-to-pay penalty - (Does NOT cover accuracy-related penalties or estimated tax penalties)

How to request: - By phone: Call the IRS at 800-829-1040 and ask for First-Time Penalty Abatement - In writing: Send a letter to the address on your notice requesting FTA - With your payment: Note "First-Time Penalty Abatement requested" when paying

Success rate: Very high if you meet the criteria. This is administrative — the IRS representative can approve it immediately.

Example: - You've always filed and paid on time - 2024 was a rough year — you filed 3 months late and owed $15,000 - Failure-to-file penalty: $2,250 (15% of $15,000) - You call, request FTA, and penalty is removed

2. Reasonable Cause Abatement

If you don't qualify for FTA, you can request penalty abatement based on "reasonable cause" — circumstances beyond your control that prevented compliance.

The IRS considers: - Death, serious illness, or incapacitation — You or immediate family member - Natural disaster — Fire, flood, hurricane affecting your records or ability to file - Unable to obtain records — Despite reasonable efforts - Reliance on professional advice — You relied on a tax professional who made errors - IRS error — You followed incorrect IRS guidance - Incarceration — Unable to handle tax matters while imprisoned - Other circumstances — Anything that shows you exercised ordinary business care but still couldn't comply

What doesn't typically work: - "I forgot" - "I didn't have the money" - "I didn't know I had to file" - "My accountant didn't tell me"

How to request: Submit a written explanation with documentation supporting your claim. Use Form 843 (Claim for Refund and Request for Abatement) or write a letter.

Key elements of a successful request: 1. Explain exactly what happened 2. Show how it prevented compliance 3. Demonstrate you acted responsibly otherwise 4. Include supporting documentation (medical records, insurance claims, etc.) 5. Show you corrected the issue as soon as possible

Example reasonable cause letter:

"I am requesting abatement of the failure-to-file penalty for tax year 2023. On March 15, 2024, I suffered a heart attack and was hospitalized until April 20, 2024, followed by cardiac rehabilitation through June. I was physically unable to gather documents or prepare my return during the filing period. I filed my return on July 15, 2024, as soon as I was medically able. I have attached hospital records and my cardiologist's statement documenting my condition. I have no prior history of late filing."

3. Statutory Exceptions

Some penalties have specific exceptions written into the tax code:

Estimated tax penalty exceptions: - You owe less than $1,000 after withholding - You paid at least 90% of current year tax or 100% of prior year tax - You retired or became disabled during the tax year - Your income was uneven (annualized income method)

Reasonable cause built into the law: - Casualty losses that made payment impossible - Certain federally declared disaster situations

How Much Can You Save?

Penalty abatement can be significant:

Note: You won't always have maximum penalties. But even partial penalty abatement can save thousands.

Step-by-Step: Requesting Penalty Abatement

For First-Time Abatement (Phone)

1. Call 800-829-1040 (best times: early morning or late afternoon)
2. Verify your identity — Have your SSN, filing status, and prior return information ready
3. State your request clearly: "I'd like to request First-Time Penalty Abatement for [tax year]"
4. Confirm eligibility: The representative will check your 3-year compliance history
5. Get confirmation: Ask for a reference number and written confirmation

For Reasonable Cause (Written Request)

1. Gather documentation — Medical records, insurance claims, disaster evidence, etc.
2. Write your explanation — Clear, factual, focused on why you couldn't comply
3. Complete Form 843 or write a letter including:
4. Your name, address, SSN
5. Tax year(s) and type of penalty
6. Specific reasonable cause
7. Supporting documentation list
8. Mail to the IRS — Address on your penalty notice or use the appropriate IRS service center
9. Wait for response — Typically 30-60 days

If Your Request Is Denied

You have options:

1. Request reconsideration — Submit additional documentation or clarification
2. Appeal to IRS Appeals — Within 30 days of denial, request an Appeals conference
3. Pay and claim refund — Pay the penalty, then file Form 843 to claim a refund (extends your options)

When to Request Penalty Abatement

Best Time: Before Paying the Penalty

Request abatement when you receive the penalty notice, before paying. It's easier to prevent a payment than to get a refund.

Still Possible: After Paying

You can request abatement (and a refund) even after paying the penalty. Generally, you have: - 3 years from the date you filed the return, or - 2 years from the date you paid the penalty

Whichever is later.

Strategic Timing

Consider penalty abatement as part of your overall tax debt strategy:

1. Get penalties abated first — Reduces total amount owed
2. Then set up payment plan — Lower balance means lower monthly payments
3. Or pursue OIC — Lower balance improves your offer position

Interest: The Penalty You Usually Can't Abate

Important distinction: Interest is not a penalty. It's the cost of borrowing money from the government.

Interest generally cannot be abated except in rare circumstances: - IRS error or delay caused the interest - Federally declared disaster zones (specific provisions)

When you get penalties abated, the interest that accrued on those penalties is also removed. But interest on the underlying tax remains.

Example: - You owed $10,000 tax + $2,500 penalty + $800 interest - Penalty abated: $2,500 removed - Interest on penalty also removed: ~$200 - Remaining: $10,000 tax + ~$600 interest on the tax

Common Mistakes to Avoid

Mistake 1: Not Asking at All

Many taxpayers assume penalties are set in stone. They're not. The IRS abates millions of dollars in penalties annually — but you have to ask.

Mistake 2: Weak Reasonable Cause Arguments

"I forgot" isn't reasonable cause. Neither is "I couldn't afford it." Focus on circumstances that actually prevented compliance, not just made it inconvenient.

Mistake 3: No Documentation

A reasonable cause request without supporting documentation is much weaker. Medical claims need medical records. Disaster claims need insurance or FEMA documentation.

Mistake 4: Missing the Deadline

If you receive a penalty notice, respond by the deadline on the notice. Ignoring it limits your options later.

Mistake 5: Not Checking FTA Eligibility First

First-Time Abatement is the easiest path. Always check if you qualify before building a complicated reasonable cause argument.

Professional Help: Is It Worth It?

You Can Handle It Yourself If:

• You're requesting First-Time Abatement (just call)
• Your reasonable cause is straightforward and well-documented
• It's a single tax year with a clear situation

Consider Professional Help If:

• Multiple tax years with penalties
• Complex situations requiring strategic presentation
• Prior requests have been denied
• You're combining penalty abatement with other resolution strategies (OIC, installment agreement)
• The amounts are significant ($10,000+ in penalties)

A tax professional may present your case more effectively and knows the specific IRS procedures and language that work best.

Key Takeaways

1. Penalties can be removed — The IRS abates millions in penalties annually
2. First-Time Abatement is easy — Clean 3-year history = automatic approval
3. Reasonable cause requires documentation — Events beyond your control, properly proven
4. Ask before paying — Easier to abate than to get refunded
5. Interest usually sticks — Penalty removal helps, but interest on tax remains
6. Timing matters — Request as part of your overall resolution strategy
7. You can appeal denials — First decision isn't always final

Next Steps

Want to pursue penalty abatement?

1. Check your IRS compliance history (filed all returns, any penalties in past 3 years?)
2. If clean history → Call IRS and request First-Time Penalty Abatement
3. If not → Gather documentation for reasonable cause argument
4. Consider timing with other resolution strategies

Not sure if you qualify?

• Take our quiz to understand your overall tax situation
• Review your IRS notices for penalty details
• Check your transcript at IRS.gov for compliance history

Need help with your request?

📞 Call: (XXX) XXX-XXXX
Monday - Friday, 9AM - 5PM EST
Free consultation, no obligation.

We can review your situation and help you craft the most effective penalty abatement request — or handle the IRS communication for you.

Sources

• IRS.gov: Penalty Relief
• IRS First-Time Penalty Abatement Administrative Waiver
• Internal Revenue Manual, Penalty Handbook
• IRS Form 843 Instructions
• IRS Publication 594: The IRS Collection Process

This guide is for educational purposes only and does not constitute tax advice. Every situation is different — consult a qualified tax professional for advice specific to your circumstances.