5 Practical Ways to Solve Your IRS Penalty Abatement Problems for Good

Why Understanding IRS Penalty Abatement Can Save You Thousands

IRS penalty abatement is the process of requesting the IRS to remove penalties assessed on your tax account. If you’ve received a penalty notice, you have options.

Quick Answer: 4 Main Ways to Get Penalty Relief

1. First-Time Penalty Abatement (FTA) – Easiest option if you have a clean 3-year compliance history
2. Reasonable Cause – Show you tried to comply but couldn’t due to circumstances beyond your control
3. Statutory Exception – Apply specific legal exceptions like disaster relief or incorrect IRS advice
4. Administrative Waiver – Request relief under special IRS programs for large groups of taxpayers

The IRS assesses billions in penalties annually, with failure to pay (56%) and failure to file (14%) being the most common. However, the IRS also abates billions—over $50.9 billion in assessed penalties in fiscal year 2022. Most taxpayers don’t ask for relief because they don’t know it’s available.

Whether you’re facing a failure to file, pay, or accuracy-related penalty, you have legal options to reduce or eliminate these charges. The key is understanding which path applies to your situation. When a penalty is abated, the associated interest is also removed, leading to significant savings.

As Attorney Samuel Landis, Managing Partner at Segal, Cohen & Landis, I’ve spent over 15 years developing innovative IRS penalty abatement strategies that have saved clients millions. My work includes modern settlement techniques that streamline complex tax resolutions while maintaining the highest standards of client confidentiality.

Way #1: Qualify for First-Time Penalty Abatement (The Easiest Win)

The First-Time Penalty Abatement (FTA) program is the easiest path to IRS penalty abatement if you have a clean tax history for the last three years. It’s an administrative waiver for taxpayers with a good compliance record.

You don’t need to prove why you made a mistake, only that you’ve been compliant in the past. The FTA program covers three major penalties:

• Failure to File: 5% of your unpaid taxes for each month your return is late, up to 25%.
• Failure to Pay: 0.5% per month on unpaid taxes, also capping at 25%.
• Failure to Deposit: Typically applies to business owners who don’t make employment tax deposits on time.

FTA is straightforward because it relies on your compliance history, not a detailed explanation. You can read more on the IRS page: Penalty Relief due to First Time Abate or Other Administrative Waiver.

How to Meet the First-Time Abatement Criteria

To qualify for FTA, you must meet specific requirements. If you’ve generally stayed on top of your taxes, you probably already meet them.

First, you must have filed all required returns. The IRS won’t grant a break if you have other outstanding tax obligations.

Second, you need a clean slate for the past three years. The three-year rule is the core of FTA, meaning you can’t have had any prior penalties (other than estimated tax penalties) assessed during the three tax years before the year you’re requesting relief for.

Third, you must be current on tax payments or have an IRS payment plan. An active installment agreement qualifies as being current.

For business owners dealing with Failure to Deposit penalties, you can’t have had more than four such waivers in the prior three years, and the failure can’t be due to deliberately avoiding the Electronic Federal Tax Payment System (EFTPS).

One important limitation: FTA typically applies to one tax period only. Even so, one year of penalty relief can save you thousands, making it worth pursuing. FTA is often approved quickly over the phone, making it the lowest-hanging fruit in penalty relief.

Way #2: Build a Compelling Case for “Reasonable Cause”

If First-Time Abatement isn’t an option, you can seek IRS penalty abatement by proving “reasonable cause.” This approach acknowledges that even diligent taxpayers can miss obligations due to circumstances beyond their control.

Reasonable cause means you exercised “ordinary business care and prudence” but were still unable to comply. The failure cannot be due to “willful neglect,” which is a conscious or reckless disregard for tax duties. Your case depends on strong supporting documentation—you must show the IRS what happened with records like hospital bills, death certificates, or fire reports. The IRS evaluates each case on its specific facts. You can find detailed guidance on the IRS website: Penalty Relief for Reasonable Cause.

Valid Reasons for Reasonable Cause

Certain situations are consistently successful in securing penalty relief:

• Serious illness or death: Hospitalization, a debilitating condition, or the death of an immediate family member can be legitimate obstacles if they directly prevented compliance.
• Unavoidable absence: An unexpected and necessary trip, such as to care for a dying parent, where you couldn’t access records to file or pay.
• Natural disasters and casualties: Destruction of your home or business by fire, flood, or other disaster. Documentation like FEMA reports is key.
• Inability to obtain records: When circumstances beyond your control, like destroyed records or a third party’s failure to provide documents, prevent you from filing accurately.
• System issues: Documented technical problems with IRS or bank systems that prevented timely electronic filing or payment.
• Reliance on a tax advisor: This is nuanced. You can’t delegate the duty to file on time. However, if you gave all necessary information to a competent professional and they provided incorrect specific advice that you followed, you may have a case.

Reasons the IRS Typically Rejects

The IRS routinely rejects certain arguments:

• Simple mistakes or oversights: Forgetting a deadline or a careless error is not considered exercising ordinary business care.
• Ignorance of the law: “I didn’t know” is almost never an acceptable excuse.
• Lack of funds: While real, not having money to pay is generally not considered reasonable cause for penalties. The IRS expects you to file even if you can’t pay. However, it can be a supporting factor if caused by an unforeseen event.
• Forgetting the deadline: This falls into the same category as mistakes and oversights.

When a penalty is successfully abated, the interest on that penalty is also removed. Learn more in our guide on IRS Interest Accrual and Abatement. A reasonable cause request is a legal argument that requires a compelling story backed by solid evidence.

Way #3: Leverage Statutory Exceptions and Administrative Waivers

Penalty relief can also come from specific legal provisions and IRS programs known as statutory exceptions and administrative waivers.

A statutory exception is written directly into the tax code and applies if you meet specific legal conditions. One common example is receiving incorrect written IRS advice. If you requested advice in writing, received a wrong answer, and relied on it, you shouldn’t be penalized. You’ll need to provide a copy of their written advice and show how it led to the penalty.

Other statutory exceptions include combat zone service and living in a federally declared disaster area. In these cases, the IRS often automatically extends deadlines and waives associated penalties.

Administrative waivers are granted by the IRS itself, often to provide relief to large groups of taxpayers facing widespread issues. A prime example is the pandemic relief program. The IRS recognized that millions of taxpayers didn’t receive collection notices due to operational disruptions and granted about $1 billion in penalty relief for the 2020 and 2021 tax years. You can read more about this specific relief program in the IRS news release on pandemic relief.

These waivers show the IRS can be flexible when systemic issues arise. Staying informed about these programs is key, as they are often time-limited. Understanding these exceptions and waivers can open doors to IRS penalty abatement that you might not have known existed, whether you’re dealing with current penalties or back taxes.

Way #4: Master the Request Process for IRS Penalty Abatement

Once you’ve identified the right type of IRS penalty abatement for your situation, the next step is to formally request relief. This isn’t as intimidating as it sounds.

Start with the IRS notice you received. It explains the penalty and often includes instructions on how to respond. You have two main options: call the IRS or submit a written request using Form 843. A call can be faster, but a written request is necessary if the call fails or if you’re seeking a refund of paid penalties.

The IRS provides detailed instructions about Form 843 on their website: About Form 843.

How to Make Your Request by Phone

A phone call can be the fastest way to get relief. Before you dial the number on your notice, be prepared. Have the notice in front of you and be clear on your argument. Are you requesting First-Time Abatement or arguing reasonable cause?

When you reach an agent, be calm and direct. For FTA, you might say: “I’m requesting First-Time Abatement. I have no penalties in the past three years, all returns are filed, and I’m current on payments.” For reasonable cause, be brief but specific: “I couldn’t file on time due to emergency surgery, and I have medical records to document it.”

Always document the call. Get the agent’s name and ID number, and note the date and time. This is crucial if there’s any confusion later.

How to Submit a Written Request Using Form 843

If a call doesn’t work or you prefer a paper trail, file Form 843, Claim for Refund and Request for Abatement. On the form, the most important section is Line 8, where you explain in detail why you deserve relief. Be specific and tell your story clearly. For example: “My home was destroyed in a federally declared flood on March 10, 2023, losing all my tax records and preventing me from filing by the April deadline.”

The key to a successful written request is supporting evidence. Attach copies (never originals) of documents that back up your claim, such as medical records, disaster declarations, or police reports. If you’re claiming bad IRS advice, include a copy of it.

Sign and date the form, and mail it to the address specified in the instructions. Always keep a complete copy of everything you send for your records. A well-prepared Form 843 with solid documentation significantly increases your chances of approval.

Way #5: Appeal a Denial to the IRS Independent Office of Appeals

A denial of your IRS penalty abatement request isn’t the final word. You have the right to a second chance through the IRS Independent Office of Appeals.

This office operates separately from the division that denied your case, ensuring a fresh, impartial review. Its goal is to resolve tax disputes fairly without going to court, considering the facts and the likely outcome of a trial. Your denial letter will explain your right to appeal. Pay close attention to the 30-day deadline from the date on the letter. Missing this window can severely limit your future options.

If the Appeals Office also denies your request, you may still be able to take your case to U.S. Tax Court or other federal courts. For a comprehensive look at the process, see our resource: More info about IRS Appeals.

Steps to Formally Appeal a Penalty Abatement Denial

To appeal a denial, start by carefully reading the denial letter to understand the IRS’s reasoning. This will help you craft a stronger appeal. Next, write a formal protest letter. This is your opportunity to make your case clearly. The letter should include:

• Your name, address, and taxpayer ID number.
• The tax periods and penalty amounts you are appealing.
• A copy of the IRS denial notice.
• A detailed explanation of why the denial was incorrect. Include any new documentation that supports your case.
• A statement of facts, signed under penalties of perjury, confirming your statements are true.

Mail your completed appeal letter and all supporting documents to the address in your denial notice, preferably via certified mail. Keep copies of everything. An Appeals Officer will then review your case and may contact you for more information. These officers are empowered to find fair resolutions.

If you feel stuck, the Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help. They can intervene on your behalf when you face difficulties. You can reach them here: Contact the Taxpayer Advocate Service. The appeals process offers a real opportunity for a fresh look at your case.

Frequently Asked Questions about IRS Penalty Abatement

Many clients have similar questions about penalty relief. Here are answers to the most common ones.

What are the most common IRS penalties that can be abated?

While the IRS has over 100 civil penalties, most taxpayers encounter only a few. Fortunately, these are the ones most eligible for IRS penalty abatement. The “big three” are:

• Failure to Pay Penalty: The most common, making up 56% of assessments.
• Failure to File Penalty: The second most common, at 14% of assessments.
• Failure to Deposit Penalty: Primarily affects businesses and accounts for 4% of penalties.

Other common ones include accuracy-related penalties and information return penalties. Together, these represent 74% of all IRS penalty assessments.

If my penalty is abated, what happens to the interest?

When your penalty is abated, the interest charged on that penalty is automatically reduced or removed as well. You don’t need to make a separate request. This can lead to significant savings.

However, interest charged on your underlying tax debt is different. That interest generally cannot be abated unless it was caused by an unreasonable error or delay by an IRS employee. For more details, see our guide: More info about IRS Interest Accrual and Abatement.

Are there any penalties that can’t be abated for reasonable cause?

Yes. The underpayment of estimated tax penalty is generally mandatory and cannot be waived for reasonable cause. The IRS expects you to pay taxes as you earn income throughout the year.

While the general reasonable cause argument doesn’t apply, there are specific statutory exceptions that can reduce or eliminate this penalty, such as situations involving casualty, disaster, or relief for certain retired or disabled individuals.

Get Expert Help With Your Tax Penalties

You’ve learned five powerful pathways to IRS penalty abatement: First-Time Abatement, Reasonable Cause, Statutory Exceptions, mastering the request process, and appealing denials. Each strategy can save you thousands.

However, successfully navigating the IRS requires precision and experience. A small mistake in your presentation—like missing documentation or a weak argument—can lead to denial.

Taking action quickly is crucial. Penalties and interest accrue, and appeal deadlines are strict. The longer you wait, the more you may owe and the fewer options you’ll have.

At Segal, Cohen & Landis, we’ve spent over 33 years helping more than 25,000 clients resolve these exact tax challenges. As a premier tax law firm in Los Angeles, we specialize in resolving federal and state tax issues. We understand the nuances of penalty abatement and know how to build the strongest possible case for our clients.

We’ve seen how the right approach can turn a denial into an approval, whether it’s by presenting facts differently or finding an exception you didn’t know existed.

You don’t have to face the IRS alone. We’re here to provide custom solutions for your specific situation. Let’s work together to explore every option for relief and get you back on solid financial ground.

Get help with your IRS Penalty Abatement