IRS Penalty Abatement — How to Get Your Tax Penalties Removed

For many taxpayers who owe the IRS money a surprising discovery awaits when they look closely at their balance: a significant portion of what they owe is not the original tax at all — it is penalties and interest that have accumulated on top of it. Failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, and underpayment penalties can collectively add 25-50% or more to an original tax liability. What most taxpayers do not know is that the IRS has formal programs specifically designed to reduce or eliminate these penalty charges — and the most powerful of them is available to almost anyone with a clean prior compliance history.

Quick Answer: The IRS offers two main penalty abatement programs: First Time Penalty Abatement (FTA) which removes penalties for taxpayers with clean 3-year compliance history and is available almost automatically, and Reasonable Cause Abatement which removes penalties when taxpayers had legitimate reasons for non-compliance. FTA is the easiest and fastest — it can be requested by phone in minutes and often approved on the same call.

Table of Contents

1. Types of IRS Penalties and Their Costs
2. First Time Penalty Abatement — The Easy One
3. Reasonable Cause Abatement
4. Administrative Waiver
5. How to Request Penalty Abatement
6. What to Say When You Call the IRS
7. After Abatement — What to Do Next
8. FAQ
9. Conclusion

Types of IRS Penalties and Their Costs

Understanding which penalties are on your account tells you which abatement approach to use.

Failure to File Penalty (TC 160): 5% of unpaid taxes per month up to 25% maximum. This is the most expensive penalty — 10 times larger than the failure to pay penalty. If you filed late the first thing to check is whether FTA can remove this penalty entirely.

Failure to Pay Penalty (TC 166): 0.5% of unpaid taxes per month up to 25% maximum. Reduced to 0.25% while an installment agreement is in place. This penalty accumulates slowly but persistently.

Accuracy-Related Penalty: 20% of the underpayment — assessed when the IRS determines your return had substantial understatement of tax or negligence. Requires Reasonable Cause abatement approach.

Underpayment of Estimated Tax Penalty: Charged when you did not pay enough in estimated taxes during the year. Calculated based on the underpayment amount and the period. Different calculation method than other penalties.

To find your penalty amounts: Pull your IRS Account Transcript. Penalties appear as specific transaction codes (TC 160, TC 166, etc.) with dollar amounts. Sum these to find your total penalty balance separate from the original tax.

First Time Penalty Abatement — The Easiest and Most Powerful

First Time Penalty Abatement (FTA) is the IRS’s administrative waiver program that removes failure-to-file and failure-to-pay penalties for taxpayers who have maintained good compliance history for the prior three years. It is called first time abatement because it is designed for the first significant penalty event — not because you can only use it once in your lifetime (though it can only apply to one tax year at a time).

FTA qualification requirements:

1. You filed all required returns or filed a valid extension for the tax year in question
2. You paid or arranged to pay all taxes due for the current year
3. You have no penalties (other than estimated tax underpayment) in the prior three years (the three years before the year being abated)

Why FTA is so powerful: Unlike Reasonable Cause abatement which requires documentation and IRS discretion, FTA is essentially automatic for qualifying taxpayers. The IRS processes it based on your compliance history — which they already have. No documentation required. No lengthy explanation needed.

What FTA removes: Failure-to-file penalties and failure-to-pay penalties for one tax year per application. It does not remove accuracy-related penalties, fraud penalties, or estimated tax underpayment penalties.

The dollar impact of FTA: On a $20,000 tax debt with maximum penalties ($5,000 failure-to-file penalty + $2,500 failure-to-pay penalty = $7,500 in penalties) a successful FTA removes up to $7,500 from your balance before any other negotiation begins. This can be the most valuable five-minute phone call a taxpayer makes.

Reasonable Cause Abatement

When you do not qualify for FTA — either because of prior compliance issues or because you need abatement for multiple years — Reasonable Cause Abatement is the alternative. This program removes penalties when you can demonstrate that your failure to comply was due to circumstances beyond your reasonable control despite exercising ordinary care and prudence.

Qualifying circumstances for Reasonable Cause:

• Death or serious illness: Your own serious illness, death in the immediate family, or serious illness of an immediate family member that prevented compliance
• Natural disaster: Fire, flood, tornado, or other casualty that destroyed your records or prevented you from filing
• Unavoidable absence: Military service overseas, hospitalization, incarceration
• Incorrect advice from IRS: You relied on written advice from the IRS that turned out to be incorrect
• Incorrect advice from tax professional: You reasonably relied on advice from a qualified tax professional that was incorrect — though you must demonstrate you provided them with accurate information
• First-year self-employment: Genuine misunderstanding of estimated tax requirements in your first year of self-employment may qualify

What does NOT qualify for Reasonable Cause:

• Forgetfulness or procrastination
• Inability to pay the tax (this is separate from ability to file)
• Reliance on an employee who failed to file or pay without your knowledge (unless you can show you exercised proper oversight)
• General ignorance of tax law without specific mitigating circumstances

Administrative Waiver

The IRS occasionally provides systemic relief from penalties when they have made processing errors, issued incorrect guidance, or implemented new tax laws that created widespread confusion. These administrative waivers are announced by the IRS and apply automatically — you do not need to apply.

Check the IRS website for any current administrative waiver announcements if you have penalties related to recent tax law changes or IRS processing delays.

How to Request Penalty Abatement

Method 1 — Phone (fastest for FTA): Call the IRS at 1-800-829-1040. Ask specifically for “First Time Penalty Abatement.” Have your tax years, balance, and compliance history ready. FTA is often approved on the same call — you receive a reference number and the penalties are removed from your account within 2-4 weeks.

Method 2 — Written letter (required for Reasonable Cause): Send a letter to the IRS service center that processed your return. Include your name, address, Social Security number, the tax year and type of penalty, the amount of penalty you are requesting be abated, a detailed explanation of your reasonable cause circumstances, and supporting documentation (medical records, death certificate, insurance claims, etc.).

Method 3 — Form 843 (Claim for Refund and Request for Abatement): If you have already paid the penalties and are seeking a refund use Form 843. This formal claim triggers a specific IRS response timeline.

After you have filed and resolved your tax liability: Request penalty abatement only after your returns are filed. The IRS will not process abatement requests for unfiled tax years.

What to Say When You Call the IRS for FTA

Having a clear script for your IRS call significantly improves your chances of same-call approval:

“I am calling about penalties on my [tax year] account. I would like to request First Time Penalty Abatement under IRS administrative waiver policy. I have filed all required returns, I am in compliance with current year obligations, and I have not had any penalties in the three prior tax years. Can you check my compliance history and process the abatement?”

If the representative asks why you did not file or pay on time for FTA purposes you do not need to explain — FTA does not require a reason. It is based solely on your compliance history. If they push for an explanation simply say “I understand FTA does not require a specific reason — it is based on prior compliance history which I meet.”

After Abatement — What to Do Next

Penalty abatement reduces your balance — but the remaining tax and interest still need to be addressed. After abatement is confirmed:

• Get a current balance update — your new balance after abatement
• If you cannot pay in full set up an installment agreement on the reduced balance
• If the remaining balance is still unmanageable evaluate Offer in Compromise eligibility — the lower post-abatement balance may make OIC terms more favorable
• Request lien withdrawal if applicable — with a reduced balance you may now qualify for Fresh Start lien withdrawal

Frequently Asked Questions

Can I get penalty abatement if I still owe the original tax?

Yes. Penalty abatement reduces the penalty portion of your balance — the original tax and interest portion remains. You can request abatement before paying anything and then address the remaining balance through a payment plan or other resolution. Abatement is not contingent on paying the tax first.

How many times can I use First Time Penalty Abatement?

FTA can only apply to one tax year per abatement request — but you can use it again in the future as long as you maintain three years of clean compliance after the abated year. It is not a one-lifetime opportunity. Maintain clean compliance going forward and FTA remains available for any future isolated compliance failure.

What if the IRS denies my penalty abatement request?

You have the right to appeal any IRS penalty abatement denial. For FTA denials verify that your compliance history meets the requirements — sometimes IRS representatives make errors in the compliance check. For Reasonable Cause denials submit a formal appeal with additional documentation to the IRS Office of Appeals. Many initially denied abatement requests are granted on appeal with stronger documentation.

Can I get abatement on interest charges as well as penalties?

Interest abatement is much more limited than penalty abatement. The IRS can only abate interest when the interest resulted from an IRS error or delay — not from your own late payment or filing. If you believe your interest charges were caused by IRS processing errors or incorrect advice you can request interest abatement under IRC Section 6404(e). This is less commonly granted than penalty abatement.

Conclusion

IRS penalty abatement is one of the most underused tax relief tools available — because most taxpayers simply do not know it exists or do not believe it is as accessible as it actually is. First Time Penalty Abatement in particular is remarkably straightforward: if you have filed your returns, are current on your tax obligations, and have a clean three-year compliance history you almost certainly qualify. One phone call can remove thousands of dollars from your IRS balance in minutes. Pull your Account Transcript to identify your penalty amounts, verify your compliance history meets FTA requirements, and make that call. The penalty balance on your account may be significantly more negotiable than you ever imagined.