IRS Penalty Relief: Could You Qualify to Reduce Added Charges?

You may be able to reduce or remove certain IRS penalties if you qualify for penalty relief. Penalty relief can lower the added charges on a tax bill, but it usually does not erase the original tax or the interest that has already accrued.

The IRS considers each request based on the facts of your situation. Common types of relief include automatic administrative relief and relief for reasonable cause.

Penalties That May Qualify

Penalty relief may be available for several common IRS penalties, including:

• Failure to file a return

• Failure to pay tax on time

• Failure to make required tax deposits

• Information return penalties

• Accuracy-related penalties

• Dishonored check penalties

• Underpayment of estimated tax by corporations

Not every penalty qualifies. Penalties related to fraud, penalties included in an accepted Offer in Compromise, penalties in a closing agreement, or penalties finally determined by a court generally do not receive relief.

First-Time Penalty Relief

The IRS has historically offered First Time Abate, or FTA, relief to taxpayers with a strong compliance history. This relief can remove certain failure-to-file, failure-to-pay, and failure-to-deposit penalties.

To qualify, a taxpayer generally needed a clean compliance history for the prior three years, or 12 consecutive quarters for certain business returns. The taxpayer also needed to have filed all currently required returns and paid, or arranged to pay, any tax due.

The IRS is phasing out First Time Abate and replacing it with Automatic Exemption from Penalty, or AEP, for eligible returns with original due dates on or after January 1, 2027. Under AEP, qualifying taxpayers will not have certain penalties assessed in the first place.

Relief for Reasonable Cause

If you do not qualify for automatic relief, you may still request penalty relief for reasonable cause. The IRS may remove or reduce a penalty if you exercised ordinary care and prudence but were still unable to file or pay on time.

Examples of circumstances the IRS may consider include:

• A fire, natural disaster, or civil disturbance

• Serious illness, death, or unavoidable absence involving you or an immediate family member

• Inability to obtain necessary records

• A system issue that delayed an electronic filing or payment

• A mistake made despite using reasonable care

You must show that the problem was beyond your control and was not due to willful neglect. The IRS reviews reasonable-cause requests case by case.

Interest Usually Remains

Penalty relief does not usually remove interest. Interest generally continues to accrue until the tax, penalties, and interest are paid in full.

However, if the IRS reduces or removes a penalty, it will generally automatically reduce or remove the interest related to that penalty.

How to Request Relief

If you receive an IRS notice, read it carefully. It may explain the penalty, the amount owed, and the deadline for responding.

You can request relief by calling the IRS or submitting a written request. If the IRS cannot approve relief over the phone, you may need to submit Form 843, Claim for Refund and Request for Abatement.

Include a clear explanation of what happened, why you could not comply, and any supporting documents. The IRS may require documentation before it can make a decision.

Documents That Can Help

Bring together evidence that supports your explanation. Useful records may include:

• Hospital records or a death certificate

• Insurance claims, police reports, or disaster documentation

• Proof of a natural disaster or evacuation

• Records showing an IRS or filing-system error

• Bank statements or canceled checks showing payment

• Correspondence that explains a delayed filing or payment

A good-faith payment as soon as possible may also help show that your failure to pay on time was not due to willful neglect.

What Penalty Relief Does Not Do

Penalty relief is not the same as tax debt settlement. It may reduce added charges, but it does not automatically eliminate the original tax balance.

If you still cannot pay the remaining balance, review other IRS options such as a payment plan, temporary delay of collection, or an Offer in Compromise.

A Practical Next Step

Check the notice or bill from the IRS, identify the penalty type, and determine whether you qualify for automatic relief or reasonable cause. If you are unsure, contact the IRS using the number on your notice or review the IRS penalty relief page.

Acting early can help you avoid additional penalties and interest while your request is being reviewed.