IRS Penalty Abatement Help: A Guide to Reducing Tax Penalties

What Is an IRS Penalty Abatement?
  

What Is an IRS Penalty Abatement?

A penalty abatement is an official IRS request to remove or reduce penalties due to qualifying circumstances. The IRS does not automatically grant abatements, you must request them properly, cite the correct authority, and provide supporting documentation.

Penalty abatements are governed by the Internal Revenue Manual (IRM) and are reviewed on a case-by-case basis.

Common Penalties Eligible for Relief:

  • Failure to File: Charged when a return is not submitted by the deadline.
  • Failure to Pay: Charged when the tax owed is not paid by the due date.
  • Failure to Deposit: Common for business owners with payroll tax obligations.

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Why the IRS Charges Penalties

The IRS states that penalties exist to encourage voluntary compliance with the tax laws (IRM 20.1.1.2.1). In other words, penalties are meant to punish non-compliance—not to permanently cripple taxpayers who acted in good faith or faced circumstances beyond their control.

When a taxpayer makes a genuine effort to comply but is prevented from doing so, the IRS has discretion to remove penalties.

  

How to Qualify for Penalty Relief

Relief Type Primary Requirement Best For
First-Time Abatements (FTA) Clean compliance for the past 3 years. Minor oversights or one-time errors.
Reasonable Cause Proof of "Ordinary Business Care and Prudence." Illness, disasters, or deaths.
Statutory Exception Incorrect written advice from the IRS. Errors caused by the IRS itself.
Administrative Waiver Specific IRS-issued notices or delays. Widespread system issues or disasters.

 

  

First-Time Penalty Abatement (FTA)

Many taxpayers qualify for First-Time Penalty Abatement, even if they owe a large balance.

You may qualify if:

  • You have no penalties in the prior 3 tax years

  • You did not request penalty relief for the immediately preceding year

  • All required tax returns are filed or validly extended

  • You have paid the tax owed or are in an approved IRS payment arrangement

FTA commonly applies to:

  • Failure to File

  • Failure to Pay

  • Failure to Pay Estimated Tax

In some cases, it is strategic to wait until the tax is paid or under agreement before requesting FTA. This is something we evaluate carefully at Wolf Tax.

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Reasonable Cause: The 7 Most Succesful Arguments

If you don’t qualify for First-Time Abatement, penalties may still be removed based on reasonable cause.

The IRS defines reasonable cause as situations where a taxpayer exercised ordinary business care and prudence but was unable to comply (IRM 20.1.1.3.2.2).

Based on real-world IRS outcomes, the most successful reasonable-cause arguments include:

1. Ordinary Business Care and Prudence

The taxpayer made reasonable efforts to comply but was prevented by circumstances beyond their control.

The IRS evaluates:

  • Whether explanations align with the penalty dates

  • The taxpayer’s compliance history

  • How quickly compliance was restored

  • Whether the events were truly unavoidable

2. Death, Serious Illness, or Medical Incapacity

Death or serious illness of the taxpayer or an immediate family member is one of the most frequently accepted grounds for abatement (IRM 20.1.1.3.2.2.1).

Supporting documentation may include:

  • Medical records or physician statements

  • Proof of relationship

  • Timeline showing how the illness affected compliance

3. Fire, Flood, or Natural Disaster

Casualty events such as hurricanes, floods, fires, or other disasters often justify penalty removal—especially in federally declared disaster areas (IRM 20.1.1.3.3.5).

Loss of records or inability to access documents is a key factor here.

4. Incorrect Advice or IRS Error

If the taxpayer relied on:

  • Incorrect IRS advice

  • Written or verbal guidance from a tax professional

and penalties resulted, the IRS may remove them (IRM 20.1.1.3.3.4, 20.1.1.3.4).

Substantiation, such as emails, letters, or professional opinions, is critical.

5. Undue or Unjustifiable Hardship

Hardship must rise above inconvenience and typically involves:

  • Serious harm to health

  • Loss of primary residence

  • Inability to meet basic necessities for dependents

This argument is rare but powerful when properly documented (IRM 20.1.1.3.3.3).

6. Lack of Legal Knowledge

In limited cases, taxpayers may argue lack of knowledge—particularly when:

  • The taxpayer has limited education or tax experience

  • The obligation involved new or complex tax rules

  • The taxpayer made reasonable attempts to comply

The IRS considers prior experience, education, and compliance history (IRM 20.1.1.3.2.2.6).

7. Inability to Obtain Records

If required records were unavailable despite reasonable efforts—such as missing employer information—the IRS may remove penalties (IRM 20.1.1.3.2.2.3).

The IRS will evaluate:

  • When the taxpayer learned records were missing

  • What steps were taken to obtain them

  • Whether the delay was reasonable

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How to Request an IRS Penalty Abatement

Penalty abatements are typically requested using IRS Form 843 or through direct IRS representation. While taxpayers can attempt this themselves, many requests fail due to:

  • Incorrect legal authority

  • Poor documentation

  • Inconsistent timelines

  • Strategic mistakes

Need Professional Assistance? Wolf Tax specializes in matching your specific facts to IRM-approved criteria to maximize the likelihood of penalty removal.y

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