The tax-relief industry loves to make IRS problems sound impossible without them. They're not. I'm Darrin Mish. I've been representing taxpayers before the IRS for 32 years. Let me explain how this actually works.<\/p>\n
When taxpayers add up what they actually owe the IRS, the math usually breaks down something like this. Roughly half the balance is the underlying tax. The other half is penalties and interest, with penalties typically making up the larger share.<\/p>\n
After 32 years of working IRS resolution cases, I have seen taxpayers owe $50,000 on a $20,000 tax problem because the penalties stacked up for years before anyone addressed it. I have seen $200,000 balances where over $100,000 was penalties.<\/p>\n
Here is the part most taxpayers do not know. A meaningful share of those penalties can be removed. The IRS has two formal paths for penalty abatement<\/a>, and either one (used correctly) can eliminate tens of thousands of dollars in penalties from a tax account.<\/p>\n The two paths are First Time Abatement and Reasonable Cause. Most taxpayers qualify for one or the other on at least some of their penalties. Most never ask.<\/p>\n Here is how each one actually works.<\/p>\n Before talking about removal, it helps to know what you are dealing with. The most common IRS penalties on individual accounts are:<\/p>\n Failure to File Penalty (Section 6651(a)(1))<\/strong> – 5% of unpaid tax per month, capped at 25%. This is the big one for taxpayers who file late.<\/p>\n Failure to Pay Penalty (Section 6651(a)(2))<\/strong> – 0.5% of unpaid tax per month, capped at 25%. Charged when you file on time but cannot pay.<\/p>\n Estimated Tax Penalty (Section 6654)<\/strong> – charged when self-employed taxpayers or others with non-wage income do not pay enough quarterly estimated tax.<\/p>\n Accuracy-Related Penalty (Section 6662)<\/strong> – 20% of the understatement when negligence, substantial understatement, or certain other conditions apply.<\/p>\n Failure to Deposit Penalty (Section 6656)<\/strong> – charged to businesses that fail to deposit payroll taxes on time, ranging from 2% to 15%.<\/p>\n Fraud Penalty (Section 6663)<\/strong> – 75% of the underpayment attributable to fraud. Rare, but devastating when assessed.<\/p>\n Failure to File, Failure to Pay, Failure to Deposit, and Accuracy-Related penalties can all be abated under the right circumstances. Fraud penalties almost never get abated. Estimated tax penalties have more limited relief options.<\/p>\n First Time Abatement, or FTA, is the IRS’s administrative waiver program. It allows the IRS to remove penalties for taxpayers with a clean compliance history, without requiring any showing of reasonable cause.<\/p>\n FTA is governed by Internal Revenue Manual 20.1.1.3.6. It is essentially a “first one’s free” policy.<\/p>\n To qualify for FTA, you must meet three criteria:<\/p>\n Clean three-year history.<\/strong> No penalties (other than estimated tax penalties) in the three tax years preceding the year you are seeking abatement. If the IRS removed a penalty in those years through FTA itself, that still counts as “clean” – the FTA does not disqualify you from future FTAs.<\/p>\n All returns filed.<\/strong> Every required return for every year must be filed at the time of the FTA request.<\/p>\n Current with payment obligations.<\/strong> You must either be paid in full or have an installment agreement<\/a> in place that you are paying on time.<\/p>\n That is it. No proof of hardship. No documentation of why you fell behind. No story to tell. Just an administrative waiver if you meet the criteria.<\/p>\n FTA can be applied to Failure to File, Failure to Pay, and Failure to Deposit penalties. It applies for one tax period at a time. If you have penalties on multiple years, you typically get FTA on the earliest qualifying year, not all of them.<\/p>\n FTA is one of the most underutilized IRS programs. Taxpayer Advocate reports have documented that the majority of taxpayers who qualify for FTA never request it. The reasons:<\/p>\n The IRS does not affirmatively offer it. You have to know to ask.<\/p>\n Taxpayers (and many tax preparers) do not know it exists.<\/p>\n Even some IRS employees do not remember to apply it without prompting.<\/p>\n If your account has any penalties at all and you have not been assessed penalties in the prior three years, FTA should be the first step.<\/p>\n You can request FTA by phone, in writing, or through your representative. The phone request is often easier than the written request. Call the IRS at the number on your most recent notice, ask for First Time Abatement, identify the specific tax year, and request that the FTA be applied.<\/p>\n If the IRS agent confirms you qualify, they can usually process the abatement on the spot. The penalty removal posts to your account within a few weeks.<\/p>\n If the phone request gets denied or kicked back, you can submit Form 843 (Claim for Refund and Request for Abatement) in writing with a brief explanation that you are requesting First Time Abatement for the specific year.<\/p>\n Reasonable Cause is the IRS’s other path for penalty abatement. It requires showing that you exercised “ordinary business care and prudence” but were still unable to meet your tax obligations due to circumstances beyond your control.<\/p>\n The legal authority is Treasury Regulation Section 301.6651-1(c)(1) and various IRS guidance documents. The basic standard: a reasonable, careful person in your situation would have done the same thing.<\/p>\n The IRS recognizes a number of categories that can support reasonable cause:<\/p>\n Serious illness or death.<\/strong> Major illness, hospitalization, or death of the taxpayer or an immediate family member during the relevant tax period.<\/p>\n Natural disasters.<\/strong> Hurricane, flood, fire, earthquake, or other casualty that disrupted the ability to file or pay.<\/p>\n Unable to obtain records.<\/strong> Records destroyed in a disaster, held by a third party that refused to provide them, or otherwise unavailable through no fault of the taxpayer.<\/p>\n Reliance on professional advice.<\/strong> Bad advice from a tax professional, when the taxpayer provided complete and accurate information and followed the advice in good faith.<\/p>\n Mistake of law in good faith.<\/strong> Limited application, but reasonable misunderstanding of complex tax provisions can support abatement in specific circumstances.<\/p>\n Other unique circumstances.<\/strong> The IRS has discretion to find reasonable cause based on the specific facts even when the situation does not fit a named category.<\/p>\n Some arguments that almost never work:<\/p>\n Forgot to file.<\/strong> Not reasonable cause. The IRS expects you to remember.<\/p>\n Cash flow problems.<\/strong> Generally not reasonable cause. Inability to pay is what installment agreements and OIC are for.<\/p>\n Did not know about the deadline.<\/strong> Ignorance of the law is not reasonable cause for adults handling their own tax affairs.<\/p>\n Tax preparer was incompetent.<\/strong> This can work, but only with specific showing that the taxpayer provided complete information and relied in good faith. “My CPA was bad” without more is not enough.<\/p>\n Marriage troubles, divorce.<\/strong> Sometimes works, but only when combined with specific factual circumstances showing inability to handle tax matters during a specific period.<\/p>\n Reasonable cause requests are made in writing. Either by letter to the IRS address on your most recent notice or via Form 843.<\/p>\n The letter must:<\/p>\n Identify the specific tax year and the specific penalty being abated.<\/p>\n Lay out the facts that constitute reasonable cause, in chronological order, with specific dates.<\/p>\n Explain how those facts prevented compliance during the relevant period.<\/p>\n Demonstrate that compliance was restored as soon as the circumstances ended.<\/p>\n Attach supporting documentation – medical records, insurance claims, death certificates, disaster declarations, professional correspondence, anything that proves the facts you are asserting.<\/p>\n The single biggest predictor of success on a reasonable cause request is documentation quality. The IRS does not abate penalties based on unsupported assertions. They abate when the file shows the story is true.<\/p>\n After years of writing these, certain patterns produce results.<\/p>\n Specific dates. Specific events. Specific documentation. The narrative establishes that compliance was impossible during a defined period and resumed as soon as it became possible.<\/p>\n Example structure: “On March 15, 2023, I was diagnosed with stage 3 cancer (medical records attached as Exhibit A). I underwent surgery on April 2, 2023 (hospital records attached as Exhibit B) and began chemotherapy that lasted through November 2023 (treatment records attached as Exhibit C). During this period I was physically unable to handle my tax obligations. The 2022 return was due April 15, 2023, two weeks after my surgery. I was discharged from active treatment in November 2023 and filed the 2022 return on December 8, 2023, within 30 days of medical clearance.”<\/p>\n That kind of submission gets penalties abated.<\/p>\n Vague timelines. General descriptions of difficulty. No documentation. Emotional language without supporting facts.<\/p>\n Example: “I was going through a really tough time during 2022. My marriage was falling apart and I just could not deal with my taxes. I tried my best but it was overwhelming. I hope you can understand and waive these penalties because I really cannot afford them.”<\/p>\n That kind of submission gets denied.<\/p>\n The most effective penalty abatement strategy often uses both paths.<\/p>\n For the earliest year of your tax debt, request First Time Abatement. This removes penalties for that year without requiring any factual showing.<\/p>\n For subsequent years, develop reasonable cause arguments specific to the circumstances of each year. The facts that supported the earlier filing problems may continue to support reasonable cause for the years that followed.<\/p>\n If the IRS denies a reasonable cause request, request that they apply FTA to a year that qualifies. If they have already applied FTA, escalate the reasonable cause request to the Appeals Office.<\/p>\n The total potential abatement on a multi-year tax debt can be substantial. I have worked cases where over $80,000 in penalties came off the account through a combined FTA-plus-reasonable-cause strategy.<\/p>\n If the IRS denies your penalty abatement request, you have the right to appeal to the IRS Office of Appeals. The appeal is filed in writing within 30 days of the denial letter.<\/p>\n The Appeals Office reviews the file fresh, often takes a more flexible view of reasonable cause, and frequently grants abatements that were denied at the initial review level. The appeals process adds 60 to 180 days but materially increases the success rate.<\/p>\n Tax Court is also an option for some penalty disputes, particularly when the underlying tax is also disputed. The Tax Court has jurisdiction over deficiency cases that include penalties, and the penalty issues get litigated alongside the tax issues.<\/p>\n Penalty abatement is most valuable when:<\/p>\n You have significant penalties relative to the underlying tax.<\/p>\n You have a clean compliance history that qualifies for FTA.<\/p>\n You have specific factual circumstances that support reasonable cause.<\/p>\n You are resolving the underlying tax debt and want the total balance reduced.<\/p>\n Penalty abatement is less useful when:<\/p>\n The penalties are small relative to the tax debt.<\/p>\n Your account has multiple years of penalties and a poor compliance history.<\/p>\n You cannot document the facts you would need to assert.<\/p>\nThe Penalties the IRS Charges (and Which Are Abatable)<\/h2>\n
Path 1: First Time Abatement (The Underused One)<\/h2>\n
Who Qualifies<\/h3>\n
What FTA Covers<\/h3>\n
Why Almost Nobody Uses It<\/h3>\n
How to Request FTA<\/h3>\n
Path 2: Reasonable Cause (The Harder One)<\/h2>\n
What Counts as Reasonable Cause<\/h3>\n
What Does NOT Count as Reasonable Cause<\/h3>\n
How to Request Reasonable Cause Abatement<\/h3>\n
What Reasonable Cause Letters That Actually Work Look Like<\/h2>\n
The Strong Pattern<\/h3>\n
The Weak Pattern<\/h3>\n
Penalty Abatement Strategy: Combining the Paths<\/h2>\n
The Appeals Fallback<\/h2>\n
When to Pursue Penalty Abatement<\/h2>\n