Penalty Abatement

Penalty Abatement

What is Penalty Abatement?


The Internal Revenue Code authorizes penalties imposed by the IRS for failure-to-file tax, failure-to-pay tax, and failure-to-deposit. If the IRS has assessed a penalty against you for failure to comply with the tax rules, you are not alone. Penalty abatement is one of the easiest methods for reducing your tax debt if penalties have caused your tax liabilities to increase. You must provide legitimate reasons for failure-to-file tax and failure-to-pay tax. Once approved, the IRS may grant relief from some or all of your tax penalties depending on certain criteria.


Forgiveness of penalties (or IRS Penalty Abatement) is decided on a case-by-case basis. Generally, if the taxpayer conducted ordinary business with care and prudence but was unable to file the return on time, this delay would be considered as a reasonable cause. Similarly, if the taxpayer exercised ordinary business with care and prudence yet was unable to pay the tax liability, this failure-to-pay may be considered a reasonable cause. The IRS will determine if failure-to-pay or failure-to-file was due to a reasonable cause and not willful neglect. You may still be responsible, however, for the underlying tax owed along with interest if the determination of reasonable cause is invalid.

Types of Tax Penalties

There are three types of assessments that are eligible for IRS penalty relief

  • Failure-to-file
  • Failure-to-pay
  • Failure-to-deposit


Penalties are not assessed in these two cases:

  • An extension on your tax return is granted. Extensions allow taxpayers to submit tax returns at a later date in order to avoid violations of IRS rules.
  • You are paying the taxes you owe through an installment plan. If you fall behind on your payments, however, the IRS could assess a failure-to-deposit penalty.


Interest, on the other hand, will still be charged and will continue until your account is fully paid.


Types of IRS Penalty Abatements

Just as there are different types of penalties, there are different types of IRS penalty abatements:


1. First-Time Penalty Abatement Waiver

First-time penalty abatement can help you reduce your balance owed. If your penalties are abated, any interest charged on those penalties will also be eliminated. To qualify for First-time Penalty Abatement, you need a clean compliance history for the previous three tax years. Consult with our tax professionals to determine whether you may be eligible for the first-time abatement waiver along with the amount of penalty relief you could receive.


2. Reasonable Cause

Let us say you are involved in an accident, have to spend a few weeks in the hospital causing you to miss a tax filing deadline, and could not pay your taxes on time. In this case, you may be a candidate for penalty abatement due to a reasonable cause. Other reasonable causes may include fires, natural disasters, other events that cause your financial records to be lost or destroyed, or the death of an immediate family member.


3. Statutory Exception

One common statutory exception is used when the IRS gives you bad advice. If you follow advice received from the IRS and receive a tax penalty, you can request penalty abatement under a statutory exception.


IRS penalties accrue every month, so getting penalty relief for a full tax year can result in big savings. This reduces the total amount you owe, which can then be paid off in installments or using another tax relief strategy.

We can assist you with all the penalty relief options you may have…

Though not impossible, it may be more difficult to receive reasonable cause penalty abatement if you have past penalties on your record. The IRS may be reluctant to offer assistance if you have a history of violating the rules.


The IRS is clear that simple lack of funds is not enough to qualify for a reasonable cause abatement for a failure-to-deposit or failure-to-file penalty. However, these situations may qualify for first-time penalty abatement.


If your request for a first-time penalty abatement is rejected but you still believe you qualify, you should ask your assigned IRS agent to reconsider the assessment. This is because the IRS uses a decision-support software tool to decide who qualifies for this form of penalty relief, and it has a known history of inaccuracy.


Let Us Stand Up for You 

If you do not qualify for abatement, there may be other tax relief options available.

Find out what we can do for you at Ultimate Tax Relief.

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