What the IRS Actually Requires for Penalty Abatement

What are IRS penalties?

IRS penalties are mathematical charges added to your tax bill when you don't comply with tax laws. They are distinct from interest. Interest is calculated daily on unpaid tax and penalties. Penalties are fixed charges (or percentage-based) applied for specific violations.

The IRS imposes penalties for filing late, paying late, underpaying estimated tax, failing to report income, and other violations. Penalties can range from $25 for bounced checks to 75% of underpaid tax for fraud. Most penalties fall between 5% and 25% of the unpaid tax.

Importantly, the IRS can abate (remove or reduce) penalties under specific circumstances. Abatement is not forgiveness. It's a formal process with documented standards and requirements.

Types of penalties and abatement criteria

Different penalties have different abatement rules. The three most common are:

Failure-to-file penalty

Applies when you don't file by the due date (typically April 15). The penalty is 5% per month of unpaid tax, up to 25% maximum.

Abatement available if: (1) you filed before the statute of limitations runs (usually three years), or (2) you have reasonable cause.

Failure-to-pay penalty

Applies when you don't pay by the tax deadline. The penalty is 0.5% per month of unpaid tax, up to 25%.

Abatement available if: (1) you paid within 10 calendar days of receiving notice, or (2) you have reasonable cause. The failure-to-pay penalty is harder to abate than failure-to-file.

Accuracy-related penalty

Applies when you underreport income or overstate deductions due to negligence or substantial understatement (20% of underpayment). This is different from fraud and is applied by exam/audit.

Abatement available if: (1) you had reasonable basis for the position, (2) you properly disclosed it, or (3) you show reasonable cause. This penalty is the most difficult to abate.

Reasonable cause standard

"Reasonable cause" is the threshold for most penalty abatements. The IRS doesn't define it as precisely as taxpayers would like. It generally means you exercised ordinary business care and prudence but still violated the law.

The IRS has published standards. Reasonable cause typically requires:

• Good faith effort to comply — You made a genuine effort to file and pay
• Reasonable explanation — A circumstance beyond your control prevented compliance (serious illness, death, natural disaster, etc.)
• Prompt corrective action — You filed or paid immediately when you discovered the problem
• No pattern of non-compliance — This is your first violation in several years

First-time abatement (FTA)

The IRS has an administrative policy called First-Time Abatement. If you have a clean compliance history (no penalties in the prior three years), you may automatically qualify for abatement of one penalty without having to prove reasonable cause. This is not guaranteed but is commonly granted.

Reasonable cause is harder when

• You've been penalized before in the prior three years
• You rely on a tax professional but the professional made an error (this is debated but generally weakens your case)
• The violation was clearly within your control (e.g., you were lazy, not incapacitated)
• You underreported substantial income or took aggressive positions

Filing Form 843

To request penalty abatement, you file Form 843: Claim for Refund and Request for Abatement. This is the formal mechanism. You cannot simply call the IRS and request abatement (though the IRS can recommend it during collection calls).

Filing requirements

• Timing — Must file within three years of the penalty assessment date
• Where to file — Mail to the IRS office that issued the penalty notice. The notice will specify the address
• Documentation — Include evidence supporting your reasonable cause claim
• One claim per issue — File separate Forms 843 for different penalty periods if needed

What to include

The Form 843 itself is simple. The critical part is the narrative explanation and supporting documents:

• Description of the penalty (which tax year, which penalty type)
• Why you believe it should be abated (your reasonable cause claim)
• Timeline of events (when you discovered the problem, when you corrected it)
• Documents proving your claim (medical records, death certificates, business closure documents, etc.)
• If applicable, explanation of why you rely on tax professionals

Documentation requirements

The strength of your penalty abatement request depends entirely on documentation. The IRS does not accept excuses without proof.

Strong documentation

• Medical records — Hospital admission, doctor letters, prescription records proving serious illness during filing period
• Death certificates — For death of family member that caused distraction
• Court documents — Custody orders, divorce decrees, bankruptcy papers
• Business records — Lease termination, business closure notice, disaster insurance claims
• Bank statements — Showing deposits made and payments attempted if you claim you paid but it wasn't credited
• Correspondence — Emails to/from tax professional showing you requested extension or sought help
• IRS acknowledgment — Prior approved abatement requests for similar circumstances

Weak documentation

• Vague statements ("I was busy," "I forgot," "I didn't know")
• Unverified claims without supporting records
• Blame on tax professional without documentation of your communication or reliance
• Claims contradicted by bank statements or other records
• Pattern of prior penalties or prior abatement requests

The "reliance on professional" claim

Many taxpayers claim they relied on a CPA or tax preparer. The IRS is skeptical of this unless you can document it. You need to show:

• Written engagement letter stating the professional would handle filing/payment
• Email or letter requesting deadline extension
• Communication showing you asked the professional about compliance
• Payment of the professional's fee, proving the engagement was real

Even with documentation, the IRS may deny abatement if the professional's mistake was foreseeable or if you failed to follow up. This is not a bulletproof defense.

Common mistakes in penalty relief requests

Most penalty abatement requests are denied because of preventable errors:

Filing too late

Form 843 must be filed within three years of the penalty assessment (not the tax year). Many people don't realize this and file after the deadline, making the claim non-viable.

Providing no supporting documentation

Filing Form 843 with only a narrative explanation, no documents. The IRS has no way to verify your claim. Without proof, the request is rubber-stamped as denied.

Providing irrelevant documentation

Sending 50 pages of documents unrelated to the penalty. The IRS reviewer is looking for specific evidence: medical records for illness claims, death certificates for death claims, etc. Everything else is noise.

Contradicting yourself

Claiming you were incapacitated but tax returns show you filed other returns that year. Claiming you paid but bank statements show no payment. Inconsistencies trigger denial.

Not addressing the penalty type

Filing a generic Form 843 without specifically addressing which penalty is being claimed and which abatement rule applies. The IRS needs you to state your legal theory.

Including new tax positions or disputes

Using Form 843 to dispute the underlying tax amount or take new tax positions. Form 843 is for penalty abatement only. Mix this with a tax dispute and your abatement request gets delayed or denied.