If you’ve been hit with IRS penalties, you’re probably wondering whether there’s any chance to have them reduced or removed. The good news: under certain circumstances, the IRS may agree to waive penalties and related interest. This process is known as penalty abatement, and it’s a tool that both individuals and businesses can use to challenge penalties assessed due to late filing, late payment, or other issues.

Understanding how the process works—and what qualifies as a valid reason—can help you present a stronger case.

What Is Penalty Abatement?

Penalty abatement is the formal process of requesting that the IRS remove or reduce penalties assessed on your tax account. While not guaranteed, relief is often granted when a taxpayer can demonstrate that they acted in good faith and that the failure to comply with tax obligations was due to reasonable cause or other qualifying criteria.

In many cases, interest that is tied to the penalties may also be reduced or eliminated once the penalties themselves are waived. However, interest on the actual unpaid tax balance will continue to accrue until it is fully paid. The IRS is not in the business of offering interest-free loans.

Reasonable Cause: The Foundation of Most Requests

The most common basis for penalty abatement is reasonable cause. This means that something outside of the taxpayer’s control prevented them from meeting their tax obligations. Examples of reasonable cause may include:

  • A serious illness or injury affecting you or an immediate family member
  • Death in the family
  • Natural disasters such as floods, fires, or hurricanes
  • Civil disturbances or other significant life disruptions

It’s important to note that simply not having the money to pay your taxes is generally not considered reasonable cause by itself. However, if the lack of funds was caused by circumstances beyond your control—like a medical emergency or business closure—it may still be worth pursuing.

To increase your chances of success, it’s critical to provide documentation supporting your claim. This might include hospital records, insurance documents, death certificates, or police reports. The IRS does perform due diligence in these cases, so be prepared to submit clear, credible evidence.

First-Time Abatement (FTA): Relief for Responsible Taxpayers

The IRS also offers a First-Time Abatement (FTA) program for taxpayers who have an otherwise clean compliance history. If this is your first penalty—or the first one in several years—you may be eligible for administrative relief.

To qualify for First-Time Abatement, you must meet the following criteria:

  • No significant penalties in the past three tax years
  • All required returns must be filed
  • All taxes owed must be paid or a payment arrangement must be in place

You can request an FTA waiver by calling the IRS at the number listed on your penalty notice. In some cases, you may also need to submit a written explanation. Although this process is simpler than a full reasonable cause claim, it’s still wise to be organized and clear in your request.

Statutory Exception: Relief Due to IRS Errors

Another pathway to relief is known as the statutory exception. This typically applies when the IRS provides written advice that turns out to be incorrect, and you relied on that advice when filing or paying your taxes.

To qualify, you’ll need to show:

  • Your written request for IRS guidance
  • The IRS’s written response
  • Proof that your actions were based on that guidance

Unfortunately, oral advice from an IRS representative—even if incorrect—does not typically qualify for this type of relief. That’s why it’s always a good idea to keep all written correspondence from the IRS on file.

Why Work with an Enrolled Agent?

Handling tax issues like penalties and interest abatement can be stressful and time-consuming, especially when you’re running a business or managing a busy household. That’s where an Enrolled Agent (EA) can help.

Enrolled Agents are federally licensed tax professionals who specialize in dealing with the IRS. Unlike attorneys or CPAs who are licensed at the state level, EAs are certified directly by the IRS and are authorized to represent taxpayers in all 50 states.

A knowledgeable EA can:

  • Help you prepare and submit a strong abatement request
  • Communicate with the IRS on your behalf
  • Explore other tax resolution options, such as installment agreements or offers in compromise

Working with a qualified professional can improve your chances of success—and reduce the stress of navigating the IRS system on your own.

Summary: Challenging IRS Penalties Is Possible

Receiving a penalty notice from the IRS doesn’t always mean you’re out of options. Whether through reasonable cause, first-time abatement, or a statutory exception, there are ways to pursue penalty and interest relief.

While interest on unpaid taxes will still accrue until your balance is paid in full, getting the penalties and associated interest reduced can significantly lessen your financial burden.

If you’re unsure whether you qualify or how to begin the process, we’re here to help.

 

Get Help from Former IRS Agents

At Tax Resolution Services, our owners—David and Gerald Yarborough—are former IRS employees with more than 40 years of experience helping taxpayers like you. As a local, family-owned business, we believe in providing Straight Talk, not empty promises.

To find out what options are available for your unique tax situation, reach out today using our online contact form.