IRS Penalty Abatement: First-Time Penalty Relief, Reasonable Cause, and How to Request It

By Yarik Yarosh, CPA ·September 5, 2026 ·Updated October 4, 2026 ·8 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

IRS penalties aren’t permanent. Under the IRS’s own Internal Revenue Manual (IRM 20.1) and IRC 6651, taxpayers can request abatement of most common penalties by demonstrating reasonable cause or qualifying for First-Time Penalty Abatement (FTA). The FTA program is the simplest and most underutilized relief option: it requires no explanation of why the penalty occurred, only a clean 3-year compliance history. Yet many taxpayers pay penalties that could be eliminated with a single phone call or letter because they don’t know the option exists. For businesses, the stakes are higher because penalties compound: a late-filed corporate return (Form 1120S or 1065) is penalized at $255 per partner/shareholder per month for returns due in 2026 (up to 12 months), which for a 4-member partnership means $255 x 4 x 12 = $12,240 in penalties for one late return. Reasonable cause abatement is available when FTA isn’t (because of penalties in the prior 3 years), but it requires documentation showing that the failure was due to circumstances beyond the taxpayer’s control despite exercising ordinary business care.

✓Key takeaway

Common IRS penalties and rates:

Penalty	Rate	Maximum	IRC Section
Failure to file (individual, 1040)	5% of unpaid tax per month	25%	IRC 6651(a)(1)
Failure to pay (individual)	0.5% of unpaid tax per month	25%	IRC 6651(a)(2)
Late filing (partnership, 1065)	$255 per partner per month (returns due in 2026)	12 months	IRC 6698
Late filing (S-Corp, 1120S)	$255 per shareholder per month (returns due in 2026)	12 months	IRC 6699
Accuracy-related (substantial understatement)	20% of the underpayment	No cap	IRC 6662
Fraud	75% of the underpayment	No cap	IRC 6663
Failure to deposit (payroll taxes)	2-15% of undeposited amount	15%	IRC 6656
Failure to file information returns (W-2, 1099)	$60-$330 per return	$1,261,000-$3,783,000	IRC 6721/6722

Two paths to penalty removal:

Method	Requirements	Best For
First-Time Penalty Abatement (FTA)	Clean compliance for 3 prior years; all returns filed	Taxpayers with an isolated penalty and clean history
Reasonable Cause	Demonstrate ordinary business care despite circumstances beyond control	Taxpayers with prior penalties who have a genuine reason

How do you get IRS penalties removed?

Hypothetical example

Round numbers. For current guidance, see IRS penalty relief information. A small business owner receives a $15,000 penalty for late filing of their S-Corp return (Form 1120S) and a $3,000 failure-to-pay penalty on their individual return.

First-Time Penalty Abatement (FTA):

Requirement	Check
Filed all currently required returns	Yes
No penalties in the 3 prior tax years (2022, 2023, 2024)	Yes (first penalty in 4+ years)
Not requesting relief for a fraud penalty	Correct (filing/payment penalty only)

FTA eligible? Yes. The $15,000 late filing penalty can be abated.

How to request FTA:

Method	Details
Phone call	Call IRS at 800-829-1040 (individual) or 800-829-4933 (business); request First-Time Penalty Abatement; reference IRM 20.1.1.3.6.1
Written request	Letter to the IRS address on the penalty notice; cite FTA and state compliance history
Form 843	Claim for Refund and Request for Abatement (if penalty was already paid)

Sample phone script: “I am calling to request First-Time Penalty Abatement for [tax year]. I have filed all required returns and have no penalties in the prior three years. I am requesting abatement under IRM 20.1.1.3.6.1.”

FTA limitations:

Limitation	Details
One penalty type per period	FTA can abate one penalty type (e.g., late filing) per tax year
Interest not abated	FTA removes the penalty but not the interest that accrued on it (though the interest is recalculated on the reduced balance)
Must have filed the return	Can’t get FTA if the return hasn’t been filed
Doesn’t apply to estimated tax penalties	IRC 6654 (underpayment of estimated tax) isn’t eligible for FTA
Does not apply to fraud penalties	IRC 6663 penalties can’t be abated under FTA

Reasonable cause abatement (when FTA isn’t available):

If the taxpayer had a penalty in the prior 3 years, they must demonstrate reasonable cause.

Reasonable Cause Category	Examples	Documentation Needed
Serious illness or injury	Hospitalization, incapacitation	Medical records, doctor’s letter
Death of family member	Death of spouse, child, parent, or dependent	Death certificate, obituary
Natural disaster	Hurricane, flood, fire, tornado	FEMA declaration, insurance claim
Unavoidable absence	Incarceration, military deployment, extended travel for emergency	Court records, deployment orders
Fire, casualty, or other destruction of records	Business records destroyed	Police report, insurance claim, fire department report
Reliance on professional advice	CPA or attorney gave incorrect advice about filing deadline or tax treatment	Written engagement letter, emails, documentation of advice given
Inability to obtain records	Records held by third party who failed to provide them	Correspondence requesting records, documentation of efforts
IRS error	IRS provided incorrect guidance, processed a payment incorrectly	IRS notice, transcript showing IRS error

How to write a reasonable cause letter:

Element	What to Include
Identify the penalty	Tax year, penalty type, penalty amount
State the reasonable cause	Specific facts and circumstances that prevented compliance
Show ordinary business care	What steps you took to try to comply despite the circumstances
Show the cause was beyond your control	Why you could not have avoided the failure
Provide documentation	Attach supporting evidence (medical records, letters, etc.)
Request specific relief	”I respectfully request abatement of the [penalty type] penalty for tax year [year] under IRC 6651(a)”

Estimated tax penalty (IRC 6654, different rules):

Penalty Type	Abatement Available?
Underpayment of estimated tax	Limited: waiver only for casualty, disaster, or unusual circumstances; retirement after age 62; disability
FTA available?	No
Reasonable cause available?	Limited (IRS rarely grants; the safe harbors are the primary protection)

Penalty abatement for partnerships and S-Corps (IRC 6698/6699):

Rule	Details
Penalty rate	$255 per partner/shareholder per month (returns due in 2026), up to 12 months
5-partner S-Corp, 3 months late	$255 x 5 x 3 = $3,825
FTA available?	Yes (same 3-year clean history requirement)
Reasonable cause?	Yes (common: reliance on CPA who missed the deadline; illness of the person responsible for filing)
Rev. Proc. 84-35 (small partnership relief)	Partnerships with 10 or fewer partners (all individuals, estates, or C-Corps) where each partner timely reported their share of income may qualify for automatic penalty relief

Interest abatement (IRC 6404):

Rule	Details
General rule	Interest is rarely abated; it compensates the government for the time value of money
Exception	IRS error or unreasonable delay by the IRS in performing a ministerial or managerial act
How to request	Form 843 specifically requesting interest abatement under IRC 6404(e)
Success rate	Low unless the IRS clearly caused the delay

Strategic considerations:

Strategy	When to Use
Request FTA first (save reasonable cause for later)	If you have a clean history but may need reasonable cause in the future
Request reasonable cause first (save FTA for a bigger penalty)	If the current penalty is small but you anticipate a larger one
Pay the penalty and file Form 843 for refund	If the penalty is generating additional interest; stopping the interest accrual by paying first
Don’t ignore the penalty notice	Penalties accrue interest and may trigger collection action; respond within the deadline on the notice

Illustrative numbers only, not a real client and not advice for your facts.

What options are available if I can’t pay my tax bill in full?

The IRS offers several payment alternatives. An installment agreement (Form 9465) lets you pay over time, with guaranteed approval for balances under $10,000 if you can pay within 3 years, and streamlined approval for balances under $50,000 payable within 72 months. An Offer in Compromise (Form 656) settles the debt for less than owed, but the IRS accepts only about one-third of applications because you must prove you can’t pay the full amount through income or assets. Currently Not Collectible (CNC) status suspends collection when you demonstrate that paying would create financial hardship, though interest and penalties continue accruing. Penalty abatement (first-time or reasonable cause) can reduce the amount owed by removing failure-to-file and failure-to-pay penalties, which often constitute 25-47% of the balance. Interest is charged on all unpaid balances and generally cannot be abated, which makes resolving tax debt sooner always less expensive.

Related guides:

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Cite this page

Yarik Yarosh, CPA. "IRS Penalty Abatement: First-Time Penalty Relief, Reasonable Cause, and How to Request It." Blue Cloud CPA, September 5, 2026, updated October 4, 2026. https://bluecloudcpa.com/guides/small-business-irs-penalty-abatement-first-time-reasonable-cause

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.