IRS penalties can add 25% or more to what you owe — and the IRS will never tell you to ask for them back

What IRS penalties actually are — and how fast they compound

The IRS assesses penalties automatically through its computer systems. Nobody reviews whether you deserve one. The three most common penalties are:

• Failure to File (FTF): 5% of unpaid taxes per month, up to 25%. This runs from the return due date, not when the IRS discovers you didn't file.
• Failure to Pay (FTP): 0.5% of unpaid taxes per month, up to 25%. This continues until the balance is paid in full.
• Accuracy-Related Penalty: 20% of the underpayment if the IRS determines you understated income or took an improper deduction.

These penalties also accrue interest from the original due date. Interest compounds daily. On a $100,000 balance, you could be looking at $25,000 in failure-to-file penalties, $25,000 in failure-to-pay penalties, and years of interest — before anyone from the IRS has even talked to you.

First-Time Abatement — the easiest penalty relief the IRS offers

First-Time Abatement (FTA) is an administrative waiver the IRS grants to taxpayers with a clean compliance history. It requires no proof of hardship, no special circumstances, and no lengthy explanation. If you qualify, the IRS is required to grant it.

The three requirements for FTA

1. No penalties in the prior three tax years for the same type of penalty (failure to file, failure to pay, or failure to deposit). The estimated tax penalty doesn't count against you.
2. All required returns filed — or extensions filed — for the year in question. You cannot get FTA for a year where you still haven't filed.
3. Tax paid or arranged. You must have paid the underlying tax, or be on an installment agreement or other formal arrangement with the IRS.

How to request FTA

FTA can be requested by phone or in writing. For many cases, a phone call to the IRS at the number on your notice is sufficient. State clearly: "I'm calling to request first-time abatement of the [failure to file / failure to pay] penalty for tax year [XXXX] under IRM 20.1.1.3.6.1." The IRS representative should be able to process it on the call.

Starting with 2025 returns filed in 2026, the IRS began applying FTA automatically for qualifying filers, meaning you may not need to call at all. For prior years, you still need to request it.

Reasonable Cause — when you have a real story

If you don't qualify for FTA — or if you have penalties across multiple years — Reasonable Cause relief allows the IRS to remove penalties when you can demonstrate that the failure was due to circumstances beyond your control and that you exercised ordinary business care and prudence.

What the IRS accepts as reasonable cause

• Serious illness or injury — yours or an immediate family member's — that prevented you from filing or paying
• Death of a family member close enough to have disrupted your affairs
• Natural disaster (fire, flood, hurricane) affecting your records or ability to comply
• Erroneous written advice from the IRS itself (this is a separate provision — keep any written IRS guidance you received)
• Unavoidable absence — incarceration, active military deployment, or hospitalization

What the IRS does not accept

• Inability to pay — financial hardship alone doesn't remove penalties (but may qualify you for Currently Not Collectible status)
• Not knowing you had to file or pay
• Reliance on a tax professional who didn't file on time (the IRS holds you responsible for your preparer's delays)
• Vague claims of being "too busy" or "stressed"

How to submit a reasonable cause request

Write a letter addressed to the IRS Service Center that sent the penalty notice. Include:

• Your name, SSN or EIN, and the tax year(s) at issue
• The specific penalty you are requesting be abated and the amount
• A clear, factual explanation of the circumstances — dates, specific events, and how they prevented compliance
• Supporting documentation (medical records, death certificates, disaster agency records, insurance claims)
• A statement that you exercised ordinary business care and prudence before and after the event

Mail it certified with return receipt to the address on your notice. Allow 60-90 days for a response.

How penalty abatement fits into a broader resolution strategy

Penalty abatement is rarely the complete solution on its own — it works best as part of a sequenced resolution plan. Here's how the pieces fit together:

Reducing the balance before negotiating a payment plan

If you're setting up an installment agreement, removing penalties first lowers the total balance — which means lower monthly payments and potentially staying below the $50,000 threshold for a streamlined agreement that doesn't require a lien.

Reducing the balance before filing an Offer in Compromise

An Offer in Compromise is based on your Reasonable Collection Potential (RCP) — what the IRS thinks it can collect. Penalties are part of the balance the IRS is comparing against your RCP. Removing $15,000 in penalties before filing an OIC can shift whether an offer is viable.

Combining with Currently Not Collectible status

If you qualify for Currently Not Collectible status, penalties stop accruing new collection pressure — but they're still on the account. Getting them abated before the collection statute expires means less to resolve when you're eventually back on your feet.

The interest on abated penalties also disappears

This is something almost nobody knows: when the IRS abates a penalty, the interest that accrued on that penalty is also automatically removed. Interest on the underlying tax balance continues — but the interest on the penalty itself disappears along with the penalty.

On a large balance where penalties have been accruing for several years, this can be a significant additional reduction on top of the penalty removal itself.

The statutory and administrative authority behind penalty abatement

Understanding exactly where FTA and Reasonable Cause come from in the law helps you make the strongest possible request — and understand why the IRS is required to grant FTA when you qualify.

IRC § 6651(a) — The penalty statute itself

26 U.S.C. § 6651(a)(1) imposes the failure-to-file penalty: 5% per month up to 25%. § 6651(a)(2) imposes the failure-to-pay penalty: 0.5% per month up to 25%. Both are subject to abatement under § 6651(c), which provides that neither penalty applies if the failure is due to "reasonable cause and not due to willful neglect."

This is the statutory basis for Reasonable Cause abatement. It is not a discretionary IRS program — it is a statutory exception to the penalty statute itself. If you meet the standard, the penalty does not legally apply.

IRM 20.1.1.3.6.1 — The First-Time Abatement administrative waiver

First-Time Abatement is not a statute — it is an administrative waiver documented in the Internal Revenue Manual at IRM 20.1.1.3.6.1. The IRM states that the IRS will abate the failure-to-file, failure-to-pay, or failure-to-deposit penalty for one tax period if the taxpayer:

1. Has not previously been required to file a return, or has no prior penalties (for the same penalty type) in the preceding three years
2. Has filed all required returns or filed a valid extension for the current period
3. Has paid or arranged to pay any tax currently due

The IRM language is specific: "If the taxpayer meets the criteria... the penalty must be abated." This is not discretionary. A revenue agent who denies an FTA request that meets all three criteria is acting contrary to the IRM, and the denial should be appealed.

IRM 20.1.1.3.2 — The Reasonable Cause standard

The Reasonable Cause standard is further defined in IRM 20.1.1.3.2: "The taxpayer exercised ordinary business care and prudence and was nevertheless unable to comply with the law." The IRM then lists specific circumstances that qualify:

• Death, serious illness, or unavoidable absence of the taxpayer or immediate family
• Fire, casualty, natural disaster, or other disturbance beyond the taxpayer's control
• Erroneous advice or information provided by an IRS officer or employee
• Ignorance of the law in certain situations (rare, requires specific facts)

The IRM also lists what does not qualify: reliance on a tax professional who failed to file on time (the taxpayer is responsible for their own returns), lack of funds alone, and ordinary negligence.

Rev. Proc. 84-35 — Partnership penalty relief

Partnerships and S-corporations have an additional avenue: Revenue Procedure 84-35 provides that a small partnership (10 or fewer partners, all of whom are individuals) can avoid the failure-to-file penalty entirely if all partners have reported their income and paid their share of partnership tax. This applies even without an FTA request.

The interest abatement separate provision — IRC § 6404

26 U.S.C. § 6404 allows the IRS to abate interest in two specific situations: (1) where the interest resulted from an IRS error or delay in performing a ministerial act (§ 6404(e)), and (2) where the interest accrued on an erroneous refund that the taxpayer did not know about. Interest abatement under § 6404 is separate from penalty abatement and requires a different showing — but is worth requesting when the IRS's own delay contributed to the balance growing.

Frequently asked questions about IRS penalty abatement