Quick overview

When you owe a penalty to the IRS, two common routes to relief are a reasonable‑cause request and the First‑Time Abatement (FTA) program. Reasonable cause asks the IRS to excuse the penalty because of special circumstances; FTA is a simpler, administrative waiver the IRS grants to qualifying taxpayers who have a clean recent history. Both reduce penalties but work differently, require different evidence, and have different eligibility rules.

Who I am and why this matters

I’m a CPA and CFP® with over 15 years advising taxpayers on penalty relief and collections. In my practice I regularly prepare written reasonable‑cause requests and submit FTA requests; I’ve seen both approaches succeed when used correctly and documented well. This article explains the practical differences, what to gather, and how to make the strongest case.

Which penalties are typically eligible?

Note: Abatement of penalties does not stop statutory interest from accruing on unpaid tax balances. The IRS will generally continue to charge interest on underpayments even when a penalty is removed.

How First‑Time Abatement (FTA) works

What it is:

  • An administrative waiver the IRS can grant to taxpayers with a clean compliance history.

Basic eligibility (high level):

  • No penalties for the three years prior to the tax year in which the penalty occurred.
  • You have filed all required returns or filed an extension where allowed.
  • You have paid, or arranged to pay, any tax due.

Key points:

  • FTA is commonly granted for a single penalty event (failure to file, pay, or deposit) but only once during the lookback window.
  • The IRS typically does not require a lengthy narrative or supporting documents to grant FTA — the request is often handled administratively once eligibility is confirmed.
  • Interest is not abated. Only penalties are eligible for removal under FTA.

How to request FTA:

  • Call the IRS or request it in writing. An IRS representative can apply the administrative waiver to your account when the file meets the rules. FTA requests can also be made through a practitioner representing the taxpayer.

Practical tip from my practice: before requesting FTA, confirm that all returns are filed and tax amounts are paid or under an agreed installment plan. Missing a return or unpaid tax is the main reason the IRS denies FTA.

(See the IRS FTA guidance: https://www.irs.gov/businesses/small-businesses-self-employed/first-time-penalty-abatement)

How Reasonable Cause works

What it is:

  • A fact‑specific justification explaining why the taxpayer could not comply despite ordinary business care and prudence.

Common qualifying reasons (examples the IRS recognizes):

  • Death, serious illness, or unavoidable absence of the taxpayer or immediate family member.
  • Fire, casualty, natural disaster, or other unavoidable events.
  • Inability to obtain necessary records.
  • Reliance on incorrect written advice from the IRS under limited circumstances, or on a competent tax professional when the taxpayer provided complete and accurate information.

Evidence and documentation:

  • The IRS will evaluate all surrounding facts and expects documentation that supports timing, severity, and how the event caused the noncompliance. Typical evidence includes medical records, hospital discharge summaries, insurance claims, police reports, eviction or foreclosure notices, correspondence showing inability to access records, and proof of efforts taken to comply.

How to request reasonable cause:

  • Provide a written statement explaining the facts and attach supporting documents. Include dates, timelines, and demonstrate you acted with ordinary business care when possible (for example, prompt attempts to file or pay once you were able).
  • You can request relief by letter, through a tax practitioner, or as part of an appeals process if the IRS initially denies relief.

Practical example from my practice: I helped a client who missed a filing deadline because of prolonged hospitalization. We submitted a concise timeline with hospital records and dates when the client resumed control of finances. The IRS abated the failure‑to‑file penalty after reviewing the documentation.

(IRS guidance on reasonable cause: https://www.irs.gov/businesses/small-businesses-self-employed/reasonable-cause-penalty-appeals)

Which route should you try first?

  1. Check FTA eligibility first — it’s faster and often simpler. If you meet the criteria, request FTA and document that all returns are filed and taxes paid or in an installment agreement.
  2. If you’re not FTA‑eligible (for example, prior penalties exist or multiple penalties are involved), prepare a reasonable‑cause packet.
  3. If the IRS denies relief, you can appeal the decision with the IRS Office of Appeals. Keep copies of everything and note dates of phone calls.

Step‑by‑step checklist for a reasonable‑cause request

  1. Draft a clear, chronological written statement explaining the event, its impact, and why it prevented timely filing or payment.
  2. Gather supporting evidence (medical, legal, disaster declarations, proof of reliance on a professional, timeline of efforts to comply).
  3. Include proof you filed any outstanding returns and proof of payment or an installment agreement.
  4. Send the request to the address on the penalty notice or submit through your tax practitioner, and keep certified mail or IRS electronic delivery records.
  5. If denied, request an appeal and retain copies of your appeal packet.

For more on documentation strategies, see our guide: How to Request Penalty Relief: Step‑by‑Step Documentation.

Common mistakes that hurt a claim

  • Waiting too long to submit a written explanation or supporting documents.
  • Failing to file missing returns before requesting relief.
  • Providing vague or uncorroborated statements without supporting evidence.
  • Assuming FTA removes interest — it does not.

When to call a professional

  • If you have multiple penalties across years, complex facts, or if collections have started (levy or lien). A tax professional can package the reasonable cause claim, confirm FTA eligibility, and represent you in communications or appeals. For small businesses and payroll‑deposit penalties, the rules and documentation differ; specialized help is often warranted.

See our practical walk‑through for preparing stronger reasonable‑cause packets: Penalty Abatement: How to Request Relief from IRS Penalties.

Appeals and next steps if relief is denied

If the IRS denies an abatement request, you generally have the right to appeal the decision through the IRS Office of Appeals. Keep a complete paper trail—call logs, certified mail receipts, and copies of all submitted documents. If the appeal is rejected, further remedies can include Tax Court in some circumstances, but professional guidance is recommended before escalating.

Final practical tips

  • Act quickly. Requests with contemporaneous evidence (documents dated near the event) are more persuasive.
  • Be factual and concise—explain cause, impact, and remedies attempted.
  • Keep records of everything and follow up. The IRS handles many accounts electronically; persistent but professional follow‑up matters.

Disclaimer

This article is educational and not legal or tax advice. Rules and IRS procedures may change; confirm current guidance on the IRS website and consult a qualified tax professional about your specific situation. Authoritative IRS resources cited in this article: First‑Time Penalty Abatement (https://www.irs.gov/businesses/small-businesses-self-employed/first-time-penalty-abatement) and Reasonable Cause (https://www.irs.gov/businesses/small-businesses-self-employed/reasonable-cause-penalty-appeals).