IRS Penalty Abatement

Yes. The IRS removes penalties every day when the requirements are met.

The first thing I want to know is which penalty was charged and why. From there we can tell whether relief applies automatically, whether there is a reasonable cause argument, or whether something else fits better.

Interest is a different question, and the answer there is narrower. I cover it below.

The IRS replaced First Time Abate with a program called Automatic Exemption from Penalty.

If you filed and paid on time for the three prior years, the IRS now removes failure to file, failure to pay, and failure to deposit penalties on qualifying original returns without anyone asking. No request, no letter, no phone call. You get a notice telling you the relief was applied.

It starts with 2025 tax year returns and 2026 quarterly returns, and it replaces First Time Abate for returns with original due dates on or after January 1, 2027.

Here is what that means for most people who call me. The new program handles clean, current years. It does not reach the older years, and older years are usually the reason someone is looking at this page. Those still run on the prior rules, and they still take a strategy.

This is where the work actually lives.

First Time Abate removes penalties for one tax period. One. If you have penalties across four years, that relief covers a single year, and which year you spend it on changes what you end up paying.

So I do not request it just because it is available. I look at every open year first, find where the largest penalty sits, and build reasonable cause for the rest. Requesting relief on the wrong year is a mistake you usually cannot take back.

Start with the notice. The penalty on it tells you what is possible.

When both the failure to file and failure to pay penalties run in the same month, the failure to file penalty is reduced by the failure to pay penalty. The combined rate is 5%, not 5.5%.

Payroll deposits carry their own penalty under IRC section 6656, and the amount depends on how late the deposit was. That one is covered on our employment taxes page.

Interest runs under IRC section 6621, compounded daily, at a rate that resets every quarter.

Most penalties on this page are about timing. You filed late, or you paid late. The accuracy related penalty under IRC section 6662 is about the return itself.

It is 20% of the underpayment, and it usually shows up in one of four ways.

• Negligence. You did not make a reasonable attempt to follow the tax law.
• Disregard of rules or regulations. Careless, reckless, or intentional. Disregard does not require bad intent, which surprises people.
• Substantial understatement. For individuals, that is an understatement greater than 10% of the tax required to be shown, or $5,000, whichever is larger. For a return using the section 199A deduction the threshold drops to 5%.
• Substantial valuation misstatement.

Here is the part that matters most, and almost nobody puts it on a website.

The automatic relief program does not cover it. Neither did First Time Abate. Those programs reach failure to file, failure to pay, and failure to deposit. The accuracy related penalty is not on that list.

That leaves reasonable cause and good faith under IRC section 6664(c), or an argument through Appeals. Both require a real record, not a letter.

So if this penalty is on your notice, the clean-history shortcut everyone talks about is not available to you. That is exactly the case where I want to see the account before anyone writes anything.

Reasonable cause is different from automatic relief, because the facts matter.

The IRS looks at what happened, when it happened, how it affected your ability to meet the obligation, and what you did once you were able to act.

That is why I do not start these cases by writing a letter. I start by understanding what happened and looking at the records that back it up. A reason is not a request. Most denied requests I see explain a hard year without proving one.

One thing worth knowing up front. Lack of money is not by itself reasonable cause for filing or paying late. The reason behind the lack of money sometimes is.

Rarely, and only on narrow grounds. Interest is set by statute, and the IRS does not have the same discretion over it that it has over penalties.

There are two real openings. Interest that accrued because of an unreasonable IRS error or delay can be abated under IRC section 6404. And interest charged on a penalty comes off when the penalty itself comes off.

That second one is the practical answer. Remove the penalty and the interest riding on it goes with it.

Anyone telling you they will remove your interest outright is describing something the law does not provide.

No. Some penalty situations are straightforward, and under the new automatic program a clean year may resolve itself without anyone doing anything.

Representation matters more when the amount is significant, when several years are involved, when the accuracy related penalty is on the notice, when a prior request has already been denied, or when a payroll trust fund penalty is in the picture.

That is when I want to see the account before telling you what I think you should do.

1. Get authorized. We file a power of attorney and speak to the IRS for you, on your behalf, so you do not have to.
2. Read the account. We pull the IRS records, including the internal transcripts most taxpayers never see, and identify every penalty by year and amount.
3. Find the right relief for the right year. Automatic, administrative, or reasonable cause, and not always the same answer across years.
4. Build the record. Dates, documents, and a timeline that matches the period at issue.
5. File it and follow it. Requests get denied and misrouted. We track it and take it to Appeals when the denial is wrong.
6. Deal with the balance underneath. Removing penalties does not resolve the tax, and the tax is what keeps generating them.

Penalty abatement is a subject I have written about at length. My first book, IRS Secrets Revealed: How to Survive IRS Audit, Collections & Appeals, includes a chapter on penalty abatement. My later book, How to Get Out of IRS Problems, covers penalties and interest as part of a step-by-step look at resolving IRS debt. Complimentary PDF copies of both are available through BestTaxPro™.

You work directly with Joshua A. Webskowski, EA, USTCP.

Josh is an Enrolled Agent. He is also one of the few non-attorneys admitted to practice before the U.S. Tax Court.

He has been doing taxes since 2003, more than 20 years. The BestTaxPro^TM team brings more than 130 years of combined tax experience.

When you call, you reach a real tax professional. Not a sales center that hands your file to someone else after you sign.

I will not tell you what the IRS is going to do before I have seen your account. What I can do is figure out what relief you qualify for and build the strongest request the facts support.

Is First Time Abate gone?

It is being phased out. The IRS replaced it with Automatic Exemption from Penalty beginning with 2025 tax year returns, and the replacement is complete for returns with original due dates on or after January 1, 2027. Older years still run on the prior rules.

How long does penalty abatement take?

It depends on the penalty, the year, and how the request is filed. Automatic relief happens during return processing. A written reasonable cause request takes longer, and a case that goes to Appeals takes longer still. Anyone quoting you a timeframe before reading your account is guessing.

Will asking for abatement trigger an audit?

A properly documented request is a routine filing. What draws attention is a request that contradicts what is already on the return.

The IRS denied my request. Is that the end?

No. A denial can be appealed to the IRS Independent Office of Appeals, and Appeals looks at it fresh. A denial does make the second attempt harder, which is the argument for building the first one properly.

Can penalties come off if I still owe the tax?

Sometimes. Administrative relief generally expects the balance to be paid or under an arrangement. Reasonable cause does not carry that same requirement in every situation.

Bring us the notice. We will read it, pull your account, and tell you which relief you actually qualify for.

Call BestTaxPro™ at 763-477-4205 or schedule a consultation at book.BestTaxPro^TM.com. Based in Minnesota, helping taxpayers nationwide. In-person and online Zoom meetings are available.

General information only, not tax or legal advice. Individual situations vary.