Overview

If you receive an IRS notice claiming penalties from a previous tax year, don’t ignore it. The notice will show the penalty type, the amount, and whether interest or additional assessments apply. Acting quickly preserves options like penalty abatement, appeals, or flexible payment plans.

Step-by-step actions (practical)

  1. Read the notice carefully
  • Note the penalty type, tax year, date assessed, and any deadline or pay-by date. The notice usually explains why the IRS assessed the charge.
  1. Verify identity and accuracy
  1. Recreate the math
  • Compare the IRS calculation to your filed return, W-2/1099s, and payment records. Common penalty categories:
  • Failure-to-file (late return)
  • Failure-to-pay (late payment)
  • Accuracy-related (underreported income or disallowed deductions)
  • Underpayment of estimated tax
  1. Gather documentation
  • Collect the tax return for that year, bank canceled checks or proof of electronic payments, correspondence, medical or disaster records (if relevant), and any corrected forms (e.g., corrected 1099).
  1. Consider relief options
  • First-Time Abatement (FTA): If you have a generally clean compliance history, FTA may remove failure-to-file, failure-to-pay, or failure-to-deposit penalties. See IRS guidance and eligibility rules (IRS Penalty Relief).
  • Reasonable cause: Provide a written explanation and evidence if life events (serious illness, natural disaster, or other events beyond control) prevented compliance. Build a chronological narrative with supporting documents — see our guides on reasonable cause and building a strong case.
  • Formal appeals: If you disagree after reviewing, you can appeal. See our guide on appealing an IRS penalty for procedure and required evidence.
  1. How to request relief
  • Many requests begin with a written statement or phone call to the number on the IRS notice. For some penalties you can request abatement online or by mail; in other cases, Form 843 (Claim for Refund and Request for Abatement) may be appropriate. Check IRS instructions or consult a tax professional for the right route.
  1. If you can’t pay in full
  • Ask about an installment agreement, currently not collectible status, or an Offer in Compromise for qualifying taxpayers. Entering a payment plan quickly reduces ongoing interest and stops enforced collection in many cases.
  1. When to hire help
  • If the amount is large, the penalty arises from an audit adjustment, or your case involves complicated documentation, get a CPA, enrolled agent, or tax attorney. In my practice, a timely professional review converts confusing notices into clear action plans and often reduces total cost.

What to include in a reasonable-cause or abatement letter

  • Taxpayer name, SSN or EIN, tax year, notice number
  • Clear statement: request for penalty abatement (reason) and type of penalty
  • Chronological facts explaining what prevented compliance
  • Supporting documents (medical records, disaster declarations, bank records)
  • Signature and date

Timing and important notes

  • Respond before any pay-by or appeal deadline on the notice. Interest continues to accrue on unpaid balances.
  • The IRS generally has three years to assess a tax, but exceptions exist for fraud, substantial understatement, or unfiled returns — consult IRS guidance if you believe statute-of-limitations issues apply.

Related FinHelp resources

Authoritative sources

Professional disclaimer
This article is educational and does not replace personalized tax advice. For case-specific guidance, consult a licensed tax professional (CPA, enrolled agent, or tax attorney). In my practice I review notices, prepare abatement requests, and represent clients in appeals when needed.