USTaxPenaltySaverWhat Is Penalty Abatement?
Penalty abatement is the official IRS process for reducing or completely removing tax penalties from your account. When the IRS assesses a penalty (such as failure-to-file, failure-to-pay, or failure-to-deposit), it is not necessarily final. The Internal Revenue Code and IRS administrative policies provide several grounds for getting penalties removed.
There are three main categories of penalty relief: First-Time Abatement (FTA), which is an administrative waiver for taxpayers with a clean compliance history; Reasonable Cause, which provides relief when you had a legitimate reason beyond your control; and Statutory Exceptions, which apply in specific situations defined by law (like being in a federally declared disaster area).
If abatement is approved, the penalty amount is removed from your IRS account balance. If you already paid the penalty, you can receive a refund or have the amount credited to other tax debts. Interest that was charged on the penalty amount is also typically removed.
First-Time Abatement (FTA): The Easiest Path
First-Time Abatement is the most common and successful form of penalty relief. It is an administrative waiver, meaning you do not need to prove a specific reason for the penalty. You simply need to demonstrate a clean compliance history.
To qualify for FTA, you must meet three requirements: (1) You have not had any penalties (other than estimated tax penalties) in the prior 3 tax years. (2) You have filed all required returns or filed a valid extension. (3) You have paid, or arranged to pay, any tax currently due.
FTA covers failure-to-file penalties (IRC 6651(a)(1)), failure-to-pay penalties (IRC 6651(a)(2)), and failure-to-deposit penalties (IRC 6656) for businesses. It does not cover accuracy-related penalties, fraud penalties, or estimated tax penalties.
The fastest way to get FTA is by calling the IRS at 800-829-1040. A phone representative can approve FTA on the spot during the call. Alternatively, you can submit a written request using Form 843 or a penalty abatement letter, but this takes 2-4 months for processing.
Reasonable Cause: When You Had a Valid Reason
If you do not qualify for FTA (perhaps because you had a penalty in the prior 3 years), Reasonable Cause is your next option. Under IRC 6651(a), penalties can be abated if you can show that the failure was due to reasonable cause and not willful neglect.
The IRS evaluates Reasonable Cause requests using the four-factor test from IRM 20.1.1.3.2: (1) What happened and when did it happen? (2) How did the event prevent you from filing or paying on time? (3) How did you handle your tax affairs before and after the event? (4) What steps did you take to comply as soon as possible?
The IRS Internal Revenue Manual (IRM 20.1.1.3) recognizes 11 categories of reasonable cause: serious illness or medical incapacity, death of a family member, natural disaster (fire, flood, hurricane), fire or casualty loss, reliance on a tax professional, reliance on incorrect IRS advice, inability to obtain records, military service in a combat zone, incarceration, mental incapacity, and other circumstances showing ordinary business care.
For Reasonable Cause requests, documentation is everything. A letter alone is not enough. You need supporting evidence: doctor letters, death certificates, FEMA declarations, CPA engagement letters, military orders, or other proof that matches your specific category.
Statutory Exceptions
In certain situations, penalties are automatically waived by law. These include: taxpayers in federally declared disaster areas (IRS automatically extends deadlines and abates penalties), military personnel in combat zones (IRC 7508), and victims of certain tax-related identity theft. These exceptions apply regardless of your prior compliance history.
Additionally, the IRS occasionally provides administrative relief for widespread issues. For example, during the COVID-19 pandemic, the IRS issued broad penalty relief for certain tax years. Check IRS.gov/newsroom for any current relief programs that might apply to your situation.
How to Request Penalty Abatement
By Phone (FTA Only): Call 800-829-1040, navigate to the individual tax department, and request First-Time Abatement. Have your SSN, the tax year, and the notice number ready. The representative will check your compliance history and can approve FTA during the call. Best call times are Tuesday through Thursday, 7am-9am local time.
By Mail (Form 843): Download Form 843 from IRS.gov. Complete the form, specifying the penalty type and tax year. Attach a brief explanation of why the penalty should be removed. For FTA, state that you qualify under the First-Time Abatement policy. For Reasonable Cause, include your four-factor narrative and all supporting documents. Mail to the IRS service center for your state.
By Letter: You can also write a penalty abatement letter without using Form 843. Address it to the IRS service center, include your name, SSN (last 4 only in the letter body), tax year, penalty type, and your explanation. Our Reasonable Cause calculator generates personalized letters for all 11 IRM categories.
Online: Currently, the IRS does not offer online penalty abatement requests. However, you can view your penalty balance and payment history in your IRS Online Account at IRS.gov/account.
What to Do If Denied
A denial is not the end. First, review the denial letter carefully to understand why the IRS rejected your request. Then consider these escalation options in order.
Reconsideration: Submit a new request with additional or better documentation addressing the specific reason for denial. Many denials happen because the original request lacked sufficient evidence. Appeals: If reconsideration fails, you can appeal to the IRS Office of Appeals within 30 days of the denial. Appeals officers have independent authority to grant relief. Taxpayer Advocate Service: If you are experiencing financial hardship due to the penalty, contact TAS at 877-777-4778. They can intervene on your behalf.
Collection Due Process (CDP) hearing: If the IRS has issued a Notice of Federal Tax Lien or a Notice of Intent to Levy, you have 30 days to request a CDP hearing, where you can raise penalty abatement as an issue. Tax Court: As a last resort, you can petition the U.S. Tax Court for review.
FTA vs Hiring a CPA: Cost Comparison
For a straightforward FTA request, here is what you would typically pay: DIY by phone call costs $0 (just your time and a 20-30 minute call). Using our tool to check eligibility and generate a letter costs $39.99. Hiring a CPA or enrolled agent typically costs $200-$500. Hiring a tax attorney costs $300-$1,000+.
For Reasonable Cause cases, the economics shift. Simple cases (clear medical issue, documented disaster) can still be handled with our tool at $39.99. Medium complexity cases (multiple years, business penalties) might cost $500-$1,500 with a CPA. Complex or high-value cases ($25,000+ in penalties, IRS Appeals) can cost $2,000-$5,000+ with a tax attorney.
Bottom line: For FTA and simple Reasonable Cause cases, professional help is not necessary and our tools provide the same guidance at a fraction of the cost. For complex cases involving large penalties, multiple tax years, or business issues, professional representation may be worth the investment.