Overview

When first‑time abatement (FTA) doesn’t apply—or you’ve already used it—the IRS still provides routes to reduce or remove penalties. These include reasonable cause relief, agency-issued waivers or disaster relief, and negotiated payment programs. Each route has different eligibility rules, required evidence, and likely outcomes.

Common penalty relief options

  • Reasonable cause relief: The most-used option when taxpayers can show circumstances beyond their control (e.g., serious illness, natural disaster, death in the family, loss of records). The taxpayer must explain what happened, why it prevented compliance, and what steps were taken to meet obligations once able. (See IRS guidance on penalty relief and reasonable cause.) [https://www.irs.gov/newsroom/penalty-relief-options-for-federal-taxpayers]

  • Administrative waivers and special relief programs: The IRS periodically issues administrative relief for specific events (e.g., disaster relief, system errors, or regulatory changes). These are announced on IRS.gov and apply only to eligible taxpayers and timeframes. Check IRS news releases for current waivers. [https://www.irs.gov/newsroom]

  • Payment arrangements that reduce penalty burden: Entering an installment agreement or qualifying for an offer in compromise (OIC) won’t always remove penalties but can reduce monthly costs and stop some penalty accruals. In certain installment agreements, penalties may stop accruing on the unpaid balance once set up—this is situation dependent; interest usually continues. Consider the costs and long‑term effects before agreeing.

  • Penalty abatement for payroll and employment taxes: Employers can request abatement for deposit or filing penalties if they show reasonable cause tied to business disruption or other valid reasons. The IRS treats payroll penalty requests separately from individual income‑tax penalty requests.

How to request relief and what evidence matters

  • Start with the IRS notice: If you received a penalty notice, follow the instructions to respond. Many notices include a specific address or phone number for penalty disputes.
  • Prepare a clear written statement: Describe events, dates, and supporting documentation (medical records, insurance claims, weather reports, bank statements, business records). Explain why the taxpayer failed to comply and actions taken to correct the issue.
  • Respond quickly: Timeliness matters. Some relief paths require prompt action (responding to a notice or filing within statutory periods). If you miss deadlines, your options narrow.
  • Escalation: If denied, you may appeal through the IRS Office of Appeals or consider involvement of the Taxpayer Advocate if the situation involves a hardship. (IRS: appeals and Taxpayer Advocate resources.)

Evidence that helps

  • Third‑party records (hospital bills, insurance claims, police or FEMA reports)
  • Proof of attempts to file or pay (bank records, canceled checks, payroll reports)
  • Correspondence with preparers, financial institutions, or the IRS
  • Timeline and remediation steps taken once the triggering event ended

Who is eligible

Individuals, businesses, and employers who have penalties for late filing, late payment, deposit failures, or accuracy penalties may qualify for relief—eligibility depends on the penalty type, cause, and documentation. Reasonable cause is case‑specific; administrative waivers apply only to the cohort named in the IRS announcement.

Practical examples from practice

  • Example 1: A small employer missed a payroll deposit after a bank failure prevented timely transfers. With bank statements and correspondence, the employer obtained abatement for deposit penalties based on reasonable cause.
  • Example 2: A taxpayer lost records in a house fire. A combination of insurance claims, FEMA documentation, and replacement records supported a successful reasonable cause abatement for failure‑to‑file penalties.

Common mistakes to avoid

  • Waiting too long to respond to an IRS notice
  • Submitting vague or unsupported claims (“I forgot” is not reasonable cause)
  • Assuming interest will be abated—interest is rarely removed and generally continues to accrue
  • Not exploring administrative waivers announced on IRS.gov after major events

How long relief decisions typically take

Processing times vary. Many reasonable cause requests and administrative reviews take 30–90 days; complex cases and appeals can take longer. The IRS will usually notify you in writing of the outcome.

Appeals and next steps if denied

If the IRS denies relief, you can request an Appeals Office review or ask the Taxpayer Advocate Service to intervene if you face significant hardship or systemic issues. Keep deadlines in mind when appealing.

Professional tips

  • Gather contemporaneous documentation at the time an incident occurs; recreating records later weakens the claim.
  • Keep copies of all communications with the IRS.
  • If a penalty is large or complex (employment tax, accuracy‑related, or fraud), consult a qualified tax professional—complex penalties often require specialized advocacy.
  • Monitor IRS announcements for temporary waivers or disaster relief that may apply to your year.

Related resources (FinHelp)

Authoritative sources

Disclaimer

This article is educational only and does not replace personalized tax advice. For guidance on a specific penalty or to prepare a submission to the IRS, consult a qualified tax professional or attorney.