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.
"The failure-to-file penalty is the one that surprises people most. They think it starts when the IRS finds out they didn't file. It doesn't. It starts the day after the return was due, even if you filed an extension and missed that deadline too. Filing the return — even if you can't pay — is always the first move. The penalty stops accruing the day you file."
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
- 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.
- 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.
- Tax paid or arranged. You must have paid the underlying tax, or be on an installment agreement or other formal arrangement with the IRS.
"The name 'First-Time Abatement' is slightly misleading — it's not just for people who have never had a penalty before. You qualify as long as you haven't had a penalty for the same type in the prior three years. Someone who had a penalty in 2018 and then stayed clean through 2021 would qualify for FTA on a 2022 penalty. Most practitioners know this, but most taxpayers don't. The IRS won't tell you."
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.
Important: FTA only removes penalties for one tax period. If you have penalties across multiple years, you may need to apply for FTA on one year and reasonable cause on others. This is where strategy matters — applying FTA to the wrong year can waste 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"
"Reasonable cause requests live or die on documentation. Saying 'I was sick' without a doctor's letter gets denied. Saying 'I was hospitalized from March 14 to April 22, 2023, as evidenced by the attached hospital discharge record, which prevented me from filing my 2022 return by April 18' gets approved. The IRS penalty unit reviewer is following a checklist. Give them what's on the checklist."
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.
Timing matters: Requesting penalty abatement does not stop the collection clock or trigger additional enforcement. But if you are in an active collection situation with a levy notice, get the levy stopped first, then address penalties. Don't let penalty abatement negotiations delay action on an imminent levy.
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.
Frequently asked questions about IRS penalty abatement
Related IRS resolution guides
Have an IRS penalty? Talk to someone who used to assess them.
Romeo Razi spent years inside the IRS before entering private practice. He knows exactly what the penalty unit is looking for — and how to make the strongest possible request.
Get a Free Consultation