IRS Penalty Abatement: How to Remove Tax Penalties

When the IRS will remove penalties and how to ask

IRS penalty abatement works on three grounds: an administrative waiver (First Time Abate, now becoming the automatic AEP), reasonable cause, or a statutory exception. For a late return or late payment with three clean prior years, the waiver is usually the fastest route, and a phone call is often enough. Reasonable cause needs a documented story.

Many taxpayers treat a penalty notice as final. It often is not. The IRS lists failure to file, failure to pay, failure to deposit, accuracy-related, information return, and dishonored check penalties, among others, as eligible for relief (IRS: Penalty relief).

How fast do IRS penalties add up?

The two penalties we see most often run on a monthly clock.

• Failure to file: 5% of the unpaid tax for each month or partial month the return is late, up to 25% (IRS: Failure to file penalty).
• Failure to pay: 0.5% of the unpaid tax per month or partial month, also capped at 25%. It drops to 0.25% during an approved payment plan if you filed on time, and rises to 1% if you don’t pay within 10 days of a notice of intent to levy (IRS: Failure to pay penalty).
• When both apply in the same month, the filing penalty is reduced by the payment penalty, so the combined charge is 5%, not 5.5%.
• Minimum penalty: for a Form 1040 or 1120 more than 60 days late, due after December 31, 2025, the minimum is $525 or 100% of the unpaid tax, whichever is less.

Illustration: $10,000 of unpaid tax, return filed and tax still unpaid 5 months late

Penalty	Rate applied	Amount
Failure to file	4.5% x 5 months	$2,250
Failure to pay	0.5% x 5 months	$250
Total before interest		$2,500

Arithmetic from the IRS rates above. After month 5 the filing penalty stops growing, but the payment penalty keeps accruing, and the IRS also charges interest on penalties.

First Time Abate, and the new Automatic Exemption from Penalty

First Time Abate (FTA) has been the IRS’s most common administrative waiver. The IRS now says FTA is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting summer 2026 (IRS: First Time Abate or other administrative waiver).

Who qualifies for either one

You need a timely compliance history, which the IRS defines as:

• The same return type was filed on time for the prior three years (or 12 consecutive quarters), and
• No penalty was assessed in that window, except the estimated tax penalty, or any penalty that was assessed was later removed for reasonable cause or IRS error.
• Businesses also must not have had the failure-to-deposit penalty waived four or more times in that window, and the deposit penalty cannot have been charged for avoiding EFTPS.

Note what the second bullet leaves out. A penalty removed by FTA itself is not on the list of exclusions, so using the waiver for one year generally counts against the clean history for the years that follow. When several years carry penalties, the order in which you ask matters.

Which penalties are covered

Eligible for FTA or AEP	Not eligible
Failure to file (IRC 6651(a)(1)), including partnership (IRC 6698) and S corporation (IRC 6699) late-filing penalties	Estimated tax penalty
Failure to pay (IRC 6651(a)(2) and (a)(3))	Returns filed once or infrequently (event-based filing)
Failure to deposit (IRC 6656)	The Daily Delinquency Penalty, and information reporting dependent on another filing

Accuracy-related penalties are not on the IRS’s FTA/AEP list. Relief for those runs through reasonable cause.

FTA and AEP side by side

Feature	First Time Abate	Automatic Exemption from Penalty
Periods covered	All prior years and quarters, plus 2025 tax-year and 2026 quarterly returns that AEP does not consider	2025 tax-year returns, 2026 quarterly returns, and later
How you get it	You must contact the IRS	Automatic, no action needed
Penalty	Assessed first, then removed	Never assessed
Failure-to-pay penalty	May keep accruing until the tax is paid	Does not accrue on the unpaid tax
Return types	Any return with an eligible penalty above	Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1

Two practical points. AEP does not erase the tax: you still owe any unpaid tax, interest, and penalties outside AEP. And if you get a notice showing an assessed penalty on a 2025 return when you believe AEP should have applied, the IRS says to contact it.

How to request FTA for older years

Call the toll-free number in the top right corner of your notice, or send a written statement or Form 843. The IRS says you don’t need to name FTA or attach documents; it reviews your account for eligibility. If you ask for reasonable cause on the phone and the agent finds you qualify for FTA, the IRS applies FTA instead (IRS: Penalty relief due to reasonable cause).

Reasonable cause penalty abatement

When no waiver applies, reasonable cause is the backup path. The IRS decides it case by case and asks whether you “exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time.” It does not apply to the estimated tax penalty.

Reasons the IRS lists as potentially valid for late filing or payment:

• Fires, natural disasters, or civil disturbances. Southwest Florida owners who lost records or offices to Hurricanes Ian, Helene, or Milton should document the dates carefully.
• Inability to get records.
• Death, serious illness, or unavoidable absence of the taxpayer or immediate family.
• System issues that delayed a timely electronic filing or payment.

Reasons that generally do not qualify on their own:

• Reliance on a tax professional. The IRS says you are responsible for knowing what your preparer files and for getting proof it went out on time. For accuracy-related penalties the question is different: the IRS weighs whether you gave a competent advisor all the needed information.
• Lack of knowledge of the rules or the deadline.
• Mistakes and oversights, unless other facts show you tried to comply.
• Lack of funds by itself, although other facts showing reasonable care can still help.

What a reasonable cause request should include

The IRS asks you to explain what happened and when, how it stopped you from filing or paying, and what you did to try to comply. Supporting documents it names include hospital, court, or doctor’s records with start and end dates, documentation of the disaster, copies of relevant letters, and receipts. The strongest requests tie the event’s dates to the exact filing or payment dates that were missed.

How to request IRS penalty abatement

1. Check the notice first. If the information on it is wrong, follow the notice’s instructions; correcting the error may remove the penalty.
2. Call the number on the notice. Have the notice, the penalty you want removed, and your reasons ready. The IRS says it will tell you during the call whether relief is approved.
3. If phone relief is denied, write. Use Form 843, Claim for Refund and Request for Abatement, with your explanation and documents, sent to the address in the Form 843 instructions.
4. Keep the paper trail. A written request is one of the conditions for a later appeal.

The IRS warns callers to prepare for long wait times. A representative with a signed Form 2848 power of attorney can make the call for you.

Does abatement remove interest?

The IRS charges interest on penalties, and it states that it will “automatically reduce or remove the related interest” when a penalty is reduced or removed. Interest on the underlying tax is statutory and stays, with one narrow exception: under IRC 6404(e) the IRS may abate interest caused by an IRS employee’s unreasonable error or delay in a ministerial or managerial act, after the IRS contacted you in writing, and only if you did not contribute to the delay (IRS: Interest abatement).

What if IRS penalty abatement is denied?

A denial is not the end. If the IRS assessed a failure-to-file or failure-to-pay penalty, you asked in writing for removal, and you received a denial letter with appeal rights, you can request a conference with the IRS Independent Office of Appeals. The IRS says you generally have 30 days from the date of the rejection letter, and the letter states your specific deadline (IRS: Penalty appeal).

To strengthen an appeal:

• Read the stated reason for the denial and answer it directly.
• If you filed or paid on time, include proof, such as both sides of a cancelled check.
• Point to the matching section of the IRS Penalty Handbook (IRM 20.1.1), for example 20.1.1.3.2.2.1 on death, serious illness, or unavoidable absence, or 20.1.1.3.2.2.2 on fire, casualty, and natural disaster.

If you cannot resolve a penalty on your own, the Taxpayer Advocate Service and Low Income Taxpayer Clinics are also options the IRS points to.

Why professional representation helps

Penalty abatement is rarely complex law, but the framing and sequencing matter. It is one part of our IRS tax resolution service, which also handles audits, notices, and collection actions.

• Picking the right ground. A request written as “reasonable cause” may qualify for FTA, which needs no proof of hardship, or may already be covered by AEP on a 2025 return.
• Multi-year sequencing. Because an FTA removal counts against later clean-history checks, the order of requests across several years changes the result.
• Documentation. Dates, records, and disaster declarations that line up with the missed deadlines.
• Handling the calls. With Form 2848 on file, we sit on hold and follow up so you can run your business.

Results depend on your records and on the IRS’s determination, so treat this page as general information and talk to a professional about your own situation.

After the abatement

Removing penalties is usually one step, not the finish line. The unpaid tax still needs a plan.

• For a balance you can’t pay in full, compare the Offer in Compromise vs Installment Agreement.
• For missing prior-year returns, start with how to handle unfiled back taxes.
• If the penalty arrived on a balance-due bill, see what to do about an IRS CP14 notice.
• Book a free consultation and bring your notice. We’ll review your IRS account and tell you which relief path fits.

Sources (retrieved 2026-09-17): IRS, Penalty relief; IRS, Penalty relief due to First Time Abate or other administrative waiver; IRS, Penalty relief due to reasonable cause; IRS, Failure to file penalty; IRS, Failure to pay penalty; IRS, Interest abatement; IRS, Penalty appeal.