IRS Penalty Abatement: How Tax Penalties May Be Reduced or Removed

IRS penalties can significantly increase the amount a taxpayer owes. In many cases, penalties alone can add thousands—or even tens of thousands—of dollars to an existing tax balance. Penalty abatement refers to the process through which certain IRS penalties may be reduced or removed when specific criteria are met.

While penalty abatement is not automatic and does not apply in every situation, it can be an important part of addressing tax debt. This guide explains what penalty abatement is, the types of penalties the IRS assesses, when abatement may be available, and how this option fits into broader tax resolution strategies.

What Is IRS Penalty Abatement?

Penalty abatement is the reduction or removal of IRS penalties that have been assessed on a tax account. The IRS may grant abatement when a taxpayer demonstrates qualifying circumstances or meets certain administrative criteria.

It is important to understand that penalty abatement generally applies to penalties, not to the underlying tax owed. Interest related to penalties may also be reduced if the associated penalty is removed.

Common Types of IRS Penalties

The IRS assesses various penalties depending on the nature of the tax issue. Some of the most common penalties include:

• Failure-to-file penalty: Assessed when a tax return is filed late.
• Failure-to-pay penalty: Assessed when taxes are not paid by the due date.
• Accuracy-related penalty: Applied when there are substantial understatements or errors.
• Estimated tax penalty: Applied when sufficient estimated payments are not made.
• Information return penalties: Related to missing or incorrect filings.

These penalties may be assessed separately or in combination, depending on the facts of the case.

First-Time Penalty Abatement (FTA)

One of the most commonly referenced forms of penalty relief is First-Time Penalty Abatement. The IRS may grant FTA when a taxpayer has a clean compliance history and meets certain baseline requirements.

In general, a taxpayer may be eligible for FTA if:

• No significant penalties were assessed in the prior three tax years
• All required returns are filed
• Any outstanding tax is paid or arranged through an approved payment plan

FTA is administrative in nature and does not require the taxpayer to demonstrate reasonable cause. However, it is typically limited to certain penalties and tax periods.

Reasonable Cause Penalty Abatement

Reasonable cause abatement is based on facts and circumstances. The IRS may consider reducing penalties when a taxpayer can demonstrate that they exercised ordinary care but were unable to comply due to circumstances beyond their control.

Examples of situations that may support a reasonable cause request include:

• Serious illness or medical emergencies
• Natural disasters or other catastrophic events
• Death or incapacitation of an immediate family member
• Inability to obtain necessary records despite reasonable effort

Each case is reviewed individually, and documentation is often required to support the request.

How the IRS Evaluates Penalty Abatement Requests

The IRS considers several factors when reviewing a penalty abatement request. These may include:

• The taxpayer’s compliance history
• The specific penalty assessed
• The timing and duration of the issue
• Actions taken to resolve the issue once discovered

The IRS generally expects taxpayers to show that the issue was isolated and that steps were taken to prevent recurrence.

Penalty Abatement vs. Other Tax Resolution Options

Penalty abatement is often just one component of addressing tax debt. Depending on the situation, it may be used alongside or instead of other options, such as:

• IRS installment agreements
• Offer in Compromise
• Currently Not Collectible (CNC) status

Reducing penalties may lower the overall balance, which can make other resolution options more manageable.

How Long Does the Penalty Abatement Process Take?

Processing times vary. Some requests may be resolved relatively quickly, while others require additional review or documentation. Delays may occur if information is missing or if the IRS requests clarification.

While a request is under review, interest may continue to accrue on the remaining balance.

Common Reasons Penalty Abatement Is Denied

Not all requests are approved. Common reasons for denial include:

• Lack of supporting documentation
• Repeated compliance issues
• Situations considered within the taxpayer’s control
• Failure to correct the underlying issue

Practical Considerations Before Requesting Penalty Abatement

Before pursuing penalty abatement, it can be helpful to review your full tax situation, including compliance status and other available options. In some cases, addressing filing issues or setting up a payment plan first may be necessary.

Frequently Asked Questions