How Do You Get IRS Penalties Removed? Two Kinds of Relief, and the IRS Picks for You

TL;DR: The IRS has two main ways to take a penalty off your account, and they are not interchangeable. First-time abatement is a clean-record waiver. Reasonable cause is relief you earn by showing what happened to you. The IRS checks for the waiver first, before anyone reads your explanation, and the waiver covers one tax period. So a year you could have won on the facts can quietly burn the one free pass you had. Knowing which relief you are asking for, and saying so out loud, is most of the job.

Key Takeaways

• First-time abatement covers the failure to file, failure to pay, and failure to deposit penalties. It does not cover accuracy-related penalties.
• To qualify, the same return type has to have been filed on time for the prior three years, with no penalty assessed in that window other than the estimated tax penalty.
• The IRS applies the waiver before it considers reasonable cause. The Internal Revenue Manual says so in those words.
• The waiver applies to a single tax period. Spending it on an easy year costs you a hard year later.
• The IRS does not remove interest for reasonable cause or as first-time relief. It only drops the interest that was riding on a penalty it removed.
• If you already paid the penalty, you can still ask for it back, inside the normal refund window.

What penalty is the IRS actually charging you?

You cannot ask for the right relief until you know which penalty you have. The notice will tell you, and the three you are most likely to see work very differently.

The failure to file penalty is the expensive one. The IRS charges "5% of the tax due" for each month or part of a month the return is late, up to a maximum of 25%, according to its page on the failure to file penalty (last reviewed October 5, 2026). If your return lands more than 60 days late, there is a floor as well. For returns due after December 31, 2025, the minimum is $525 or 100% of the underpayment, whichever is less.

The failure to pay penalty is smaller and slower. It runs 0.5% of the unpaid tax for each month or part of a month, also capped at 25%. Two things move that number. File on time as an individual and get an approved payment plan, and it drops to 0.25% a month. Ignore a notice of intent to levy for more than 10 days, and it climbs to 1% a month.

When both penalties apply in the same month, they do not simply stack. The failure to file penalty gets reduced by the failure to pay penalty, so the month costs you 5% rather than 5.5%. After five months the file penalty is capped out and the pay penalty keeps running on its own.

Then there is the failure to deposit penalty, which hits businesses on payroll taxes. Different trigger, same relief paths below.

What is first-time abatement, and who qualifies?

First-time abatement is the IRS waiving a penalty because your record is clean, not because your reason was good. The agency calls it First Time Abate, and it is an administrative waiver rather than anything written into the tax code.

It covers three penalties, and the IRS lists the code sections for each. Failure to file, under section 6651(a)(1) for returns generally, 6698(a)(1) for partnership returns, and 6699(a)(1) for S corporation returns. Failure to pay, under 6651(a)(2) and 6651(a)(3). Failure to deposit, under 6656.

Qualifying comes down to what the IRS calls a timely compliance history. The same return type has to have been filed on time for the prior three years. And in that window, either no penalty was assessed other than the estimated tax penalty, or a penalty was assessed and later removed for reasonable cause or IRS error. Businesses carry one more condition: the IRS must not have waived their failure to deposit penalty four or more times in the prior three years.

Some penalties are off the table entirely. The waiver does not reach returns you file once or infrequently, the kind tied to a single event. It does not reach the daily delinquency penalty, or information reporting that depends on another filing. And it does not touch accuracy-related penalties, which is where a lot of people get surprised.

Here is the line that matters most, straight from the IRS page on first-time abate and other administrative waivers (last reviewed July 14, 2026): you "don't need to specify FTA as the relief sought or provide supporting documents in your request." Read that again. You do not have to ask for it. The IRS looks for it on its own.

What counts as reasonable cause?

Reasonable cause is the other road, and it runs on your facts instead of your record. There is no three-year clean history requirement and no once-only limit. You have to earn it.

For a late filing or a late payment, the standard is that you used ordinary care and prudence and still could not get it done. For an accuracy penalty, the IRS weighs how hard you tried to report the right number, how complicated the issue was, how much tax knowledge you have, and whether you went and got advice.

One sentence on the IRS reasonable cause page (last reviewed June 21, 2026) ends more of these requests than any other: "By itself, lack of funds is not reasonable cause for failing to pay or deposit taxes due." Being broke is not the argument. What happened that made you broke, or made you miss the deadline, might be.

Why does the order you ask in matter?

This is the part almost nobody tells you, and it is written down in plain language.

The Internal Revenue Manual, at section 20.1.1.3.3.2.1, says "penalty relief under Administrative Waivers, including FTA, is to be considered and applied before reasonable cause." It repeats the point: "If FTA criteria are met, the FTA waiver will be applied before reasonable cause." The same section, at paragraph 10, sets the limit that makes this expensive. "Penalty relief under the FTA waiver only applies to a single tax period."

Now picture how that plays out. Something real happened to you. A hospital stay, a fire, records sitting in six inches of water. You write a careful letter and attach the proof. You also happen to qualify for the waiver, because your prior three years are clean.

The IRS removes the penalty on the waiver. Nobody rules on your facts. The manual even instructs the employee to tell you that the penalty came off because of your compliance history, not because of the explanation you sent in.

It looks like a win, and the money is real. But two years later you get hit again. Your three-year window now has a penalty sitting in it, and the waiver is spent. The explanation you had ready the first time never got used, and now there is nothing automatic left.

So say what you are asking for. Put the reasonable cause case in writing, attach the documents, and state plainly that you are requesting relief on reasonable cause grounds and asking for a determination on that basis. The manual's sequence is the agency's default handling, not a wall.

Be clear-eyed about the trade, though. Pushing for a reasonable cause determination can end in a denial where the waiver would have been automatic. That is a judgment call on your specific facts, and it belongs to your tax professional, not to a blog post. The reason to know any of this is so you can raise it with them before the letter goes out.

Can the IRS remove the interest too?

Mostly no, and the IRS is blunt about it. Its page on interest (last reviewed April 26, 2026) says "We don't remove or reduce interest for reasonable cause or as first-time relief."

What does happen is narrower and still worth money. When a penalty comes off, the interest that was charged on that penalty comes off with it, automatically. The interest on the underlying tax keeps running until the tax is paid.

There is one real exception. The IRS "may reduce the amount of interest you owe only if the interest is applied because of an unreasonable error or delay" by one of its own employees. That is a specific claim about something the agency did, not a hardship argument, and it is rare.

What if you already paid the penalty?

Paying it does not end the conversation. You can ask for it back.

The general refund window the IRS describes is three years from the date you filed the return, or two years from the date you paid the tax, whichever is later. That is the rule stated in IRS Topic no. 308, last reviewed September 24, 2026, where it is written around an amended return. A penalty claim is normally made on Form 843 and runs on the same refund period. The exact dates on your account depend on when you filed and when you paid, so have your tax professional confirm them before you count on a deadline.

The deadline math is its own subject, and I went through it in detail in how far back you can amend a return and the rule that beats the usual deadline.

How do you actually ask?

Start with the phone. Call the toll-free number in the top right corner of the notice, with the notice in front of you, the penalty identified, and your reasons ready. A good share of first-time abatements get granted on that call, without a letter and without documents.

Go to writing when the call does not get there, or when reasonable cause is your argument and the facts need paper behind them. That means Form 843, Claim for Refund and Request for Abatement, or a signed written statement laying out what happened.

And if the real problem is that you cannot pay the balance at all, penalty relief is the wrong tool. That is a collection question with its own options, and I compared the two main ones in how installment agreements stack up against an offer in compromise. For the wider version of that conversation, including what the first call with the IRS should sound like, there is an episode of the podcast on what to do when things go sideways with the IRS.

Frequently Asked Questions

Does first-time abatement cover accuracy-related penalties?

No. First-time abatement reaches the failure to file, failure to pay, and failure to deposit penalties only. An accuracy-related penalty has to be fought on reasonable cause or on the merits of the position itself.

How many times can you use first-time abatement?

The Internal Revenue Manual says relief under the waiver applies to a single tax period. It is not a once-in-a-lifetime bar, because eligibility rests on a rolling three-year clean record, but you cannot spread one waiver across several years at once.

Is a lack of money reasonable cause for paying late?

Not on its own. The IRS states that lack of funds by itself is not reasonable cause for failing to pay or deposit taxes due. The circumstances behind the shortage can still support a request if they show you used reasonable care.

Will the IRS remove the interest if it removes the penalty?

It will remove the interest that was charged on that penalty, automatically. It will not remove interest on the tax itself for reasonable cause or as first-time relief.

Before you write that letter

Penalty relief is your tax professional's work, and this post exists so you walk into that conversation knowing which relief is on the table and what asking for the wrong one costs. Bring the notice, bring the three prior years, and ask them which road fits your facts.

Where I can help is further upstream. If you own investment or commercial property, or your business develops or improves products, processes or software, there is often tax you are paying that you do not owe. I deliver cost segregation, 179D, and R&D tax credit studies through my relationship with CSSI (Cost Segregation Services, Inc.), and the first step is a no-cost analysis.

Want to know whether a study would even pay for itself on your property or your business? That is what the no-cost analysis is for. No obligation, no pitch, and if the numbers do not work I will tell you so. Book a short intro call at calendly.com/david-wiener/cs, or call 770-224-8504 and choose option two. You do not need to gather anything first.

This article is for educational purposes only and is not tax, legal, or accounting advice. Penalty relief turns on the specific facts of your account and your filing history. Talk with a qualified tax professional about your own situation before acting on anything here.