IRS Penalty Abatement: Reasonable Cause, First-Time Abatement, and How to Get Penalties Removed

By Yarik Yarosh, CPA ·September 5, 2026 ·7 min read

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

IRS penalties aren’t the final word on a tax liability. The Internal Revenue Manual (IRM) and the Internal Revenue Code provide multiple paths to penalty removal, and in practice, the IRS grants penalty abatement requests regularly when the taxpayer (or their representative) follows the correct procedure. The most commonly abated penalties are the failure-to-file penalty under IRC 6651(a)(1) (5% per month, up to 25% of unpaid tax), the failure-to-pay penalty under IRC 6651(a)(2) (0.5% per month, up to 25%), and the estimated tax penalty under IRC 6654. The first-time abatement (FTA) policy, codified in IRM 20.1.1.3.6.1, is purely administrative (not statutory), which means it’s available even if the taxpayer has no reasonable cause defense. The only requirements are a clean compliance history for the three years before the penalty year, current filing status, and payment (or arrangement to pay) any balance due. For penalties that do not qualify for FTA, reasonable cause under Treas. Reg. 301.6651-1(c) requires the taxpayer to demonstrate that the failure to comply was due to circumstances beyond their control, despite exercising ordinary business care and prudence.

✓Key takeaway

Common IRS penalties and rates:

Penalty	IRC Section	Rate	Maximum
Failure to file	IRC 6651(a)(1)	5% per month (or partial month)	25% of unpaid tax
Failure to pay	IRC 6651(a)(2)	0.5% per month	25% of unpaid tax
Combined (late file + late pay)	IRC 6651(c)(1)	If both apply, failure-to-file is reduced by failure-to-pay amount	Combined max: 47.5%
Accuracy-related (negligence/substantial understatement)	IRC 6662	20% of underpayment	No cap
Fraud	IRC 6663	75% of underpayment	No cap
Estimated tax (individual)	IRC 6654	Calculated at federal short-term rate + 3%	Varies
Estimated tax (corporation)	IRC 6655	Same as IRC 6654	Varies
Late deposit of payroll taxes	IRC 6656	2-15% of undeposited tax	Varies
Information return (late 1099, W-2)	IRC 6721/6722	$60-$310 per return	$1,261,000-$3,783,000 per year
International information return (FBAR, 5471, 3520)	Various	$10,000-$60,000+ per form	No cap on some

Penalty abatement paths:

Method	Authority	Best For
First-time abatement (FTA)	IRM 20.1.1.3.6.1	Taxpayers with clean 3-year compliance history
Reasonable cause	IRC 6651(a), Treas. Reg. 301.6651-1(c)	Specific circumstances prevented compliance
Statutory exception	IRC 6664(c), etc.	Accuracy penalties with good-faith reliance
Penalty reconsideration	IRM 20.1	If initial request was denied

How do you get IRS penalties removed?

Hypothetical example

Round numbers. A small business files its 2024 tax return 6 months late with $100,000 in unpaid tax.

Penalties assessed:

Penalty	Calculation	Amount
Failure to file (5% x 5 months, max after month 5)	$100,000 x 25%	$25,000
Failure to pay (0.5% x 6 months)	$100,000 x 3%	$3,000
Combined FTF reduced (IRC 6651(c)(1))	FTF reduced by FTP for overlapping months	Adjusted: $22,500 FTF + $3,000 FTP
Interest (not a penalty; can’t be abated except in rare cases)	~$4,000	$4,000
Total penalties + interest		$29,500

Path 1: First-time abatement (FTA)

Requirements:

Requirement	Met?
No penalties in prior 3 tax years (2021, 2022, 2023)	Check compliance history
All required returns filed (or on valid extension)	All current
Tax paid or on installment agreement	Paid (or agreement in place)

If all three are met:

Result	Amount
FTF penalty abated	$22,500 removed
FTP penalty	Generally also abated under FTA
Interest	Not abated (runs on underlying tax)
Total savings	$25,500

How to request: call IRS (or have CPA/EA call with POA) and request FTA verbally. No letter or Form required. If denied on the phone, follow up with a written request (Form 843 or letter).

Path 2: Reasonable cause

If FTA isn’t available (penalties in prior 3 years), demonstrate reasonable cause:

Acceptable Reasons	Documentation Needed
Serious illness (taxpayer or immediate family)	Medical records, doctor’s letter
Death of family member (around due date)	Death certificate, obituary
Natural disaster (hurricane, fire, flood)	FEMA declaration, insurance claim, photos
Fire or casualty destroying records	Police/fire report, insurance records
Reliance on a tax professional	Written engagement, evidence of providing complete information
Incarceration	Incarceration records
IRS error (bad advice from IRS)	Documentation of IRS communication
Unavoidable absence (military deployment)	Orders, deployment records

Factors the IRS evaluates (IRM 20.1.1.3.2.2):

Factor	What IRS Looks For
Timing	Did the event occur near the filing deadline?
Duration	How long did the impediment last?
Taxpayer’s efforts	Did the taxpayer try to comply as soon as the impediment was removed?
Compliance history	Strong compliance history strengthens reasonable cause
Ordinary business care	Would a reasonable person in the same situation have been unable to comply?

Path 3: Accuracy-related penalty (IRC 6662) abatement

If the IRS assesses a 20% accuracy penalty on a $50,000 underpayment:

Item	Amount
Underpayment	$50,000
20% penalty	$10,000

Defenses:

Defense	IRC Section	Standard
Reasonable cause and good faith	IRC 6664(c)(1)	Acted in good faith based on facts known
Substantial authority	IRC 6662(d)(2)(B)(i)	Position supported by substantial authority (stronger than “reasonable basis”)
Adequate disclosure (Form 8275)	IRC 6662(d)(2)(B)(ii)	Disclosed position on return with reasonable basis
Reliance on professional advice	Treas. Reg. 1.6664-4(b)	Relied on competent advisor; provided complete information

How to request penalty abatement:

Method	When to Use
Phone call to IRS	FTA requests; simple cases
IRS Online Account	FTA for individual returns (limited availability)
Form 843 (Claim for Refund)	Written request for abatement; if penalty already paid
Letter to IRS	If Form 843 isn’t applicable; include all facts and documentation
CDP hearing (IRC 6330)	If penalty is part of a collection action (lien or levy)
Tax Court petition	If penalty is part of a deficiency notice (90-day letter)
Penalty reconsideration	If initial abatement request was denied

Penalties that are hardest to abate:

Penalty	Difficulty	Why
Estimated tax (IRC 6654)	Very difficult	FTA does not apply; reasonable cause rarely accepted
Fraud (IRC 6663)	Extremely difficult	Requires proving no fraud (burden shifts to taxpayer)
International information returns (5471, FBAR)	Difficult but possible	Reasonable cause defense available; high penalties ($10K+)
Trust fund recovery (IRC 6672)	Very difficult	Personal liability for responsible persons; willfulness standard

Timeline for requesting abatement:

Situation	Deadline
Penalty assessed but not yet paid	Request before paying; include with response to CP notice
Penalty paid	File Form 843 within 2 years of payment or 3 years of filing (whichever is later)
Penalty on balance due notice	Respond within 60 days of the notice
After IRS denial	Request penalty reconsideration (no time limit, but sooner is better)

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

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Cite this page

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

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