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IRS Penalty Abatement

Remove Penalties That Exceed the Tax

We identify every available penalty relief mechanism and pursue abatement through administrative channels — before you pay a dollar more than the underlying tax.

Saved in taxes across all client matters

$ 0 B+

Penalties & interest eliminated

$ 0 M+

Audit clients represented

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Appeal victories across practice areas

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Sam BrotmanSam Brotman, J.D., LL.M.

Last updated July 2026

Key Takeaway

IRS penalties and interest now exceed the original tax owed?
First time you’ve had a compliance issue and want a clean slate?
Reasonable cause — illness, disaster, or bad professional advice — led to late filing?
Penalties assessed during an audit that you want to contest?

When IRS Penalties Become the Real Problem

IRS penalties are designed to encourage compliance, but in practice they often compound a tax problem into a financial crisis. A taxpayer who filed a return three months late and owed $50,000 in tax can easily face $20,000 or more in combined penalties — before interest begins accruing on both the tax and the penalties. When you add interest that compounds daily, the penalty component of an IRS balance frequently exceeds the original tax itself.

Penalty abatement is the process of requesting that the IRS remove or reduce penalties that have been assessed. The IRS has the authority to abate penalties under several provisions of the Internal Revenue Code, and it does so routinely — when the request is properly documented and grounded in the correct legal basis.

At Brotman Law, we handle penalty abatement as both a standalone service and as part of broader tax debt resolution strategies. Reducing the penalty component of a tax liability can be the difference between qualifying for an offer in compromise or an installment agreement that actually resolves the debt.

Types of IRS Penalties

The IRS imposes over 150 different penalties, but the vast majority of penalty abatement cases involve four categories.

Failure-to-File Penalty (IRC §6651(a)(1))

The failure-to-file penalty is 5% of the unpaid tax for each month the return is late, up to a maximum of 25%. This is the most expensive common penalty — a return filed six months late triggers the full 25% penalty on the unpaid balance. The penalty applies to each return separately, so multiple unfiled years can generate penalties that rival the underlying tax.

Failure-to-Pay Penalty (IRC §6651(a)(2))

The failure-to-pay penalty is 0.5% of the unpaid tax for each month the balance remains outstanding, up to 25%. While smaller per month than the failure-to-file penalty, it accrues for up to 50 months and runs concurrently with interest. If the IRS issues a notice of intent to levy and the taxpayer does not pay within 10 days, the rate increases to 1% per month.

Accuracy-Related Penalty (IRC §6662)

The accuracy-related penalty is typically 20% of the underpayment attributable to negligence, disregard of rules, or a substantial understatement of income tax. A substantial understatement exists when the understatement exceeds the greater of 10% of the correct tax or $5,000. This penalty frequently appears in audit assessments and can be challenged on the basis of reasonable cause and good faith.

Fraud Penalty (IRC §6663)

The civil fraud penalty is 75% of the underpayment attributable to fraud. Unlike accuracy-related penalties, the IRS bears the burden of proving fraud by clear and convincing evidence. This penalty is assessed in cases involving intentional wrongdoing — falsified records, fictitious deductions, or deliberate concealment of income. Fraud penalties cannot be abated through administrative channels and require formal challenge.

From Our Practice

$100M+

In penalties and interest eliminated across all client matters since 2013. Penalty abatement is one of the highest-impact, lowest-cost resolution tools available — and it is the most underutilized. Many taxpayers pay penalties they could have had removed simply because they did not know to ask.

The compounding effect: Because interest accrues on penalties as well as on tax, removing a $30,000 penalty that has been accruing interest for three years can reduce the total balance owed by $40,000 or more.

First-Time Abatement (FTA) Administrative Waiver

First-time abatement is an administrative waiver the IRS grants to taxpayers who have a clean compliance history. If you have filed all required returns on time and paid all taxes owed (or arranged to pay) for the three years preceding the penalty year, you may qualify for FTA relief for failure-to-file, failure-to-pay, or failure-to-deposit penalties.

FTA does not require a written request or formal documentation of reasonable cause. It can be requested by phone or in writing, and the IRS grants it as a matter of administrative policy under IRM 20.1.1.3.6.1. However, FTA applies to only one tax period at a time. If you have penalties across multiple years, FTA may cover one year while reasonable cause arguments are needed for the others.

The key advantage of FTA is speed and certainty. When eligibility requirements are met, the abatement is granted without subjective evaluation. We verify FTA eligibility before pursuing other abatement strategies because it provides the fastest path to penalty removal.

Reasonable Cause Penalty Abatement

When FTA is not available, the IRS can abate penalties if the taxpayer demonstrates reasonable cause — meaning the failure to comply resulted from circumstances beyond the taxpayer’s control, and the taxpayer exercised ordinary business care and prudence. The IRS evaluates reasonable cause on a case-by-case basis, considering factors outlined in IRM 20.1.1.3.2.

Common reasonable cause arguments include serious illness or incapacitation, natural disaster, death of an immediate family member, reliance on incorrect advice from a tax professional, inability to obtain records, and IRS error or delay. Each argument requires specific documentation — medical records, insurance claims, written correspondence with the prior preparer, or evidence of the IRS delay.

Reasonable cause requests are submitted in writing with supporting documentation. The quality of the written narrative and the specificity of the evidence directly affect the outcome. A vague statement that “I was dealing with personal issues” will be denied. A detailed chronology supported by medical records, correspondence, and a clear explanation of why compliance was impossible during the specific period — that gets approved.

Statutory Exceptions and Other Relief Paths

Beyond FTA and reasonable cause, the Internal Revenue Code provides statutory exceptions to certain penalties. IRC §6651(e) provides an exception to the failure-to-file penalty when the taxpayer can show the failure was due to reasonable cause and not willful neglect. IRC §6664(c) provides a reasonable cause exception to accuracy-related penalties when the taxpayer acted in good faith. These statutory provisions create additional grounds for abatement that the IRS must honor when the requirements are met.

Penalty Abatement During Audit vs. Collections

The timing of a penalty abatement request affects which IRS division handles it and what procedures apply. During an audit, penalty issues are raised with the examining agent and can be addressed in the 30-day letter response or at the IRS Appeals conference. In collections, penalty abatement requests are submitted to the revenue officer or the Automated Collection System (ACS). Each path has different documentation requirements and different decision-makers — and the strategy should be tailored accordingly.

How Penalties Compound with Interest

Interest on underpayments is not a penalty — it is a statutory charge under IRC §6601 that accrues from the due date of the return until the balance is paid. Interest compounds daily and applies to penalties as well as to the underlying tax. The IRS cannot abate interest except in cases of IRS error or delay under IRC §6404(e). This means that even after penalties are removed, the interest that accrued on those penalties during the period they were assessed remains on the account unless a separate interest abatement request is filed.

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Penalty Abatement Strategies We Pursue

Administrative Waiver

First-Time Abatement

Clean compliance history for three prior years qualifies you for automatic penalty removal. The fastest and most certain abatement path.

Documented Relief

Reasonable Cause Abatement

Illness, disaster, bad professional advice, or other circumstances beyond your control. We prepare the written narrative and supporting documentation the IRS requires.

Statutory Grounds

Statutory Exception Relief

IRC provisions that exempt penalties when specific conditions are met — including good faith reliance, reasonable cause, and IRS error or delay.

Related Tax Debt Resolution Services

Debt Settlement

Offer in Compromise

Full-service tax defense for individuals and businesses facing IRS audits, appeals, litigation, and enforcement actions.

Tax Court

Tax Litigation

When collection disputes escalate beyond administrative resolution, Tax Court provides an independent forum to challenge IRS actions.

Administrative Review

IRS Appeals

Challenge collection actions, CDP hearing outcomes, and rejected offers in compromise through the IRS Office of Appeals.

Fees & Costs

Transparent Pricing

See our published fee structure for lien and levy defense engagements. We discuss costs during your free initial consultation — before any engagement begins.

Frequently Asked Questions

Penalty Abatement Questions

What is first-time abatement and do I qualify?

First-time abatement (FTA) is an IRS administrative waiver that removes failure-to-file, failure-to-pay, or failure-to-deposit penalties for one tax period. To qualify, you must have filed all required returns, have no penalties for the three tax years preceding the penalty year, and have paid (or arranged to pay) any tax due. FTA does not require a showing of reasonable cause — it is granted based on compliance history alone.

Can the IRS remove penalties that have already been paid?

Yes. If the IRS abates a penalty that has already been paid, the amount is either refunded or applied as a credit to your remaining balance. The statute of limitations for requesting a penalty refund is generally two years from the date of payment or three years from the date the return was filed, whichever is later. We verify refund eligibility as part of every penalty abatement engagement.

How much can penalty abatement reduce my IRS balance?

The reduction depends on which penalties are assessed and how long they have been accruing interest. A failure-to-file penalty alone can add 25% to your balance. Combined with failure-to-pay penalties and the interest that accrues on both, penalties can represent 40–60% of the total amount the IRS says you owe. Removing penalties also stops the interest from continuing to compound on those amounts.

What counts as reasonable cause for penalty relief?

The IRS considers circumstances including serious illness or hospitalization, natural disaster, death of an immediate family member, inability to obtain records necessary to file, reliance on incorrect advice from a tax professional, and IRS error or delay. The key test is whether the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the required timeframe.

Can I request penalty abatement if I’m in an installment agreement?

Yes. Penalty abatement and installment agreements are separate processes. You can request penalty abatement while making installment payments, and if the abatement is granted, your remaining balance and monthly payment amount may be reduced. In fact, pursuing penalty abatement before or during an installment agreement is one of the most effective strategies for reducing total cost.

Does the IRS abate interest along with penalties?

Generally, no. Interest is a statutory charge under IRC §6601 and the IRS can only abate interest in limited circumstances — specifically, when the interest is attributable to IRS errors or delays under IRC §6404(e). However, when penalties are abated, the interest that would have continued to accrue on those penalties going forward is also eliminated, which reduces the total balance owed.

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Stop Paying Penalties You Don’t Owe

Every penalty abatement case starts with a 15-minute call. We’ll review your IRS account, identify which penalties are eligible for relief, and outline the abatement strategy — before any engagement.

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