Quick overview

Penalty abatement lets the IRS remove or reduce certain tax penalties when a taxpayer can show a valid reason for noncompliance or qualifies for administrative relief. Common grounds include reasonable cause (serious illness, natural disaster, or other events beyond your control), the First‑Time Penalty Abatement (FTA) for historically compliant taxpayers, or other statutory/admin relief programs (see IRS Penalty Relief). This guide shows who qualifies, how to prepare a request, sample wording, likely timelines, and practical tips I use in practice as a CPA/CFP® helping clients through the process.

(For official IRS guidance, see: IRS — Penalty Relief: https://www.irs.gov/penalty-relief.)

Who can qualify for penalty abatement?

  • Taxpayers with a one‑time problem but otherwise compliant filing history (may qualify for FTA).
  • Taxpayers who missed deadlines because of circumstances beyond their control (reasonable cause), such as serious medical events, natural disasters, death in the immediate family, or inability to obtain records.
  • Businesses and individuals whose penalties were the result of IRS error or incorrect written advice from the IRS (rare and fact‑specific).

Two common relief paths:

  • First‑Time Penalty Abatement (FTA): An administrative waiver available when the taxpayer has a clean penalty history for the prior three years, has filed all currently required returns, and has paid or arranged to pay any tax due. (IRS, First‑Time Abatement guidance: https://www.irs.gov/penalty-relief)
  • Reasonable cause: Facts and circumstances showing that despite ordinary business care and prudence, the taxpayer was unable to comply. Documentation and a clear explanation are essential. (See IRS — Penalty Relief.)

Types of penalties commonly abated

  • Failure‑to‑file penalty: Typically 5% of unpaid tax per month (or part of a month), up to 25% of the unpaid tax. (IRS tables.)
  • Failure‑to‑pay penalty: Typically 0.5% per month, up to 25%.
  • Accuracy‑related penalty: Usually 20% for negligence or substantial understatement.

Note: Penalty abatement affects penalties, not interest. Interest on unpaid tax generally continues to accrue and cannot be abated (IRS: interest policy). Always verify the exact penalty amount on your IRS notice or account transcript before requesting relief.

How to find out why a penalty was assessed

  1. Review the IRS notice you received — the notice will show the penalty type, amount, and tax period.
  2. Check your IRS Online Account or request a tax account transcript to confirm the date of assessment and related transactions (https://www.irs.gov/individuals/get-transcript).
  3. Contact the IRS or your tax professional to clarify any discrepancies.

Understanding the precise reason and date of assessment helps you tailor the abatement request and collect supporting documentation.

Step‑by‑step: How to request penalty abatement

  1. Confirm compliance status: File any missing returns and get current on payments or set up an installment agreement or offer in compromise if needed. The IRS expects returns to be filed and tax issues addressed before granting many abatements.
  2. Choose your request method:
  • Written request: Submit Form 843 (Claim for Refund and Request for Abatement) for many penalty types, or write a detailed statement and mail it to the address on your IRS notice. Include your name, address, taxpayer identification number, tax period, exact penalty amount, and a clear statement of facts.
  • Phone: For some cases you can call the number on your IRS notice or the general help line (individuals: 1‑800‑829‑1040). For representatives, submit Form 2848 (Power of Attorney).
  • In some situations (e.g., FTA), the IRS can grant relief administratively when they review your account.
  1. Gather documentation: Medical records, hospital discharge summaries, death certificates, police reports, FEMA declarations, payroll or bank statements showing economic hardship, proof of timely mailing, or correspondence showing IRS error.
  2. Draft a clear explanation: State what happened, why you couldn’t comply despite ordinary business care, actions you took to correct the issue, and why abatement is appropriate. Attach all evidence.
  3. Submit the request and keep proof of delivery. If you mail a letter, use certified mail and save tracking and delivery records.

A simple sample statement (short):

I am requesting penalty abatement for Tax Year 20XX — Failure‑to‑file/Failure‑to‑pay penalties. On [date] I experienced [event — e.g., hospitalization], which prevented timely filing. I filed the return on [date filed] and paid the tax on [date paid]. Enclosed are medical records and hospital bills. I ask the IRS to abate the penalties based on reasonable cause. [Signature]

What to expect: timelines and likely outcomes

  • Processing times vary. Simple FTA requests may be handled in a few weeks to a few months; reasonable‑cause cases that require document review often take longer.
  • The IRS will send a written determination. If abatement is denied, you typically can appeal the decision using the IRS appeals process or request a Collection Due Process hearing if collection action follows.
  • If abatement is granted, penalties will be removed or reduced; interest will almost always remain unless specified by IRS rules.

Practical tips I use with clients

  • Act quickly. The sooner you request relief after learning of the penalty, the better the documentation and the more persuasive your case.
  • Keep a complete paper trail. Unambiguous documents (hospital records, insurance forms, FEMA declarations) carry weight. Second‑hand statements are less persuasive.
  • Demonstrate compliance history. If you’ve been compliant for several years, highlight that track record — it supports an FTA claim.
  • Use a representative. If the facts are complex, grant power of attorney to a CPA, EA, or attorney (Form 2848) so the representative can negotiate and track the case.
  • If you owe tax, get a payment plan in place before requesting abatement. The IRS is more likely to consider relief if you are addressing the underlying liability.

For related guidance on setting up payment arrangements and managing unpaid tax, see our guide to IRS payment plans. (Internal link: IRS payment plans: https://finhelp.io/irs-payment-plans)

Also read more about common tax penalties and how they are calculated in our Tax Penalties explainer. (Internal link: Tax penalties: https://finhelp.io/tax-penalties)

Common mistakes to avoid

  • Waiting too long to request relief or failing to file missing returns before requesting abatement.
  • Offering vague or unsupported explanations — ‘‘I forgot’’ is rarely persuasive without more context.
  • Believing abatement removes interest — in most cases it does not.
  • Sending incomplete documentation or failing to identify the tax period and exact penalty amount in your request.

When to hire help

If the penalty amount is large, the facts are complex, or you need to negotiate with the IRS (especially in collection status), consider hiring a tax professional. In my practice, well‑prepared documentation and a concise, fact‑based narrative significantly improve success rates for reasonable‑cause abatement requests.

Appeals and next steps if denied

If the IRS denies your abatement request, you can:

  • Request a formal Appeals review within the IRS Appeals Office, or
  • If collection action is underway, request a Collection Due Process hearing (CDP) to dispute the penalty before levy or levy action proceeds.

Final notes and legal/financial disclaimer

This article is educational and reflects best practices current as of 2025. It does not constitute tax advice for your specific circumstances. For authoritative IRS rules, see IRS — Penalty Relief (https://www.irs.gov/penalty-relief) and the Form 843 page (https://www.irs.gov/forms-pubs/about-form-843). Consult a qualified tax professional (CPA, EA, or tax attorney) for case‑specific guidance.

Selected official sources

If you’d like, I can review a draft abatement letter or explain the documents I typically collect when preparing a reasonable‑cause request.