Penalty Relief

What is penalty relief

Penalty relief is a reduction or removal of IRS penalties when you meet specific criteria. Common penalties include failure-to-file, failure-to-pay, and accuracy-related penalties. Interest generally cannot be removed unless a related penalty is abated.

First Time Abatement FTA

First Time Abatement is a one-time administrative waiver for certain penalties when you have a clean compliance history.

• Applies to failure-to-file and failure-to-pay for a single tax period in many cases.
• Requires all prior returns filed and no penalties in the prior three years for the same issue.
• Current return or extension must be filed and taxes paid or in a plan.

Reasonable cause

Reasonable cause relief is available when you exercised ordinary business care but could not comply due to events outside your control.

Common grounds

• Serious illness or incapacity affecting the taxpayer or an immediate family member.
• Records unavailable due to events like fire, natural disaster, or theft.
• Reliance on incorrect written advice from a qualified professional or the IRS.
• Other unusual events where paying or filing on time would have been unreasonable.

Documentation to include

• Medical letters, hospital records, or caretaker documentation.
• Police reports, insurance claims, or third-party statements.
• Copies of correspondence showing timelines, extensions, and efforts to comply.

Statutory relief

In limited situations, specific statutes or IRS initiatives authorize relief. Examples include written advice penalties or system-wide penalty relief related to extraordinary events. These are evaluated case by case based on published guidance.

How to request penalty relief

1. Confirm all returns are filed and current year obligations are up to date.
2. Identify the penalty type and the period. Verify eligibility for FTA or reasonable cause.
3. Prepare a concise letter or use the relevant IRS form detailing facts, dates, and supporting evidence.
4. If you owe a balance, decide whether to enter a payment plan or pursue an Offer in Compromise and request penalty relief alongside.

How penalty relief interacts with payment plans and OIC

Penalty relief can reduce the overall balance and lower the payment needed in an installment agreement. For Offers in Compromise, correcting penalties first can improve the acceptance range by reducing the assessed amount. If you qualify for FTA, request it early so interest on penalties stops accruing.

• Payment plans
• Offer in Compromise
• Currently Not Collectible

FAQ