Penalty Abatements

When you fail to pay your IRS tax liability in full, file a tax return late, or neglect to make required tax deposits, the IRS will assess penalties—along with interest on those penalties. Over time, these penalties and accrued interest can make up a significant portion of your total tax debt.

However, under certain circumstances, you may qualify for penalty relief. While the IRS does not abate interest—because it is required by law and continues to accrue until the balance is paid in full—any reduction or removal of penalties will automatically reduce the related interest charged on those penalties.

The following penalties may be reduced or entirely removed under certain qualifying circumstances:

  • Failure-to-File Penalty: Typically 5% of the unpaid tax per month, up to a maximum of 25%.

  • Failure-to-Pay Penalty: 0.5% of the unpaid tax per month, also capped at 25%.

  • Failure-to-Deposit Penalty: Imposed for not depositing certain required taxes in a timely manner.

  • Other Applicable Penalties: Depending on the specific facts and circumstances of your case.

Types (Grounds) for Penalty Relief

  1. Reasonable Cause

  2. Administrative Waiver and First Time Penalty Abatement

  3. Statutory Exception

1. Penalty Relief Due To Reasonable Cause

Reasonable Cause relief is based on the principle that you made a good-faith effort to comply with tax laws but were unable to meet your obligations due to circumstances beyond your control. A Request for Penalty Abatement based on Reasonable Cause is a legal argument supported by facts and documentation explaining why you failed to file a return, pay a liability, or make a required deposit on time.

The IRS will consider any legitimate reason for noncompliance if it is clearly established, including—but not limited to—events such as: fire, casualty, flood, natural disaster, or other disturbance; the inability to obtain necessary records; death or serious illness of the taxpayer or an immediate family member; incapacitation; or conditions such as substance abuse or gambling addiction that rendered the taxpayer unable to act.

A mere lack of funds, by itself, does not constitute reasonable cause for failing to file or pay taxes on time. However, if the underlying reasons for the financial hardship are compelling and beyond the taxpayer’s control, they may qualify as reasonable cause for relief from the failure-to-pay penalty.

2. Penalty Relief Due to Administrative Waiver & First Time Penalty Abatement

You may be eligible for penalty relief under the IRS’s First-Time Penalty Abatement (FTA) policy if you were penalized for failing to file a tax return on time, failing to pay on time, or failing to deposit taxes when due—provided you meet the following conditions demonstrating a history of compliance:

  • You had no filing requirement or no assessed penalties for the three tax years preceding the year in which the penalty was incurred (See your IRS Transcript Report);

  • You have filed all required tax returns or obtained a valid extension to file;

  • You have paid the tax due or made arrangements to resolve the outstanding tax liability.

3. Penalty Relief Due to Statutory Exception

If you received incorrect written advice from the IRS, you may be eligible for a statutory exception to penalties. To request this form of penalty relief, you will generally need to provide the following:

  • A copy of your written request for advice;

  • The written advice you received from the IRS that you relied upon;

  • Any report of tax adjustments identifying the penalties assessed and the specific items related to the erroneous advice.

Let us help!

We have successfully secured Penalty Relief for many of our clients—often resulting in significant savings. If you’ve been assessed IRS penalties, contact us to determine whether you may qualify for relief and how much you could potentially save.