IRS Penalty Relief: How to Reduce or Remove Penalties on Your Tax Bill

Receiving an IRS notice can make a manageable tax balance feel overwhelming. The original tax may be only part of what you owe. Late-filing penalties, late-payment penalties, accuracy-related penalties, and interest can increase the total over time.

The good news is that IRS penalty relief may be available in certain situations. Relief is not automatic in every case, and approval is never guaranteed. However, taxpayers who acted responsibly, maintained a strong compliance history, or experienced circumstances beyond their control may have options.

This guide explains IRS penalty abatement, IRS penalty relief, First-Time Penalty Abatement, and reasonable-cause requests in plain English.

“You may qualify to have certain penalties removed or reduced if you acted with reasonable cause and in good faith.” : Internal Revenue Service

What types of IRS penalties can increase your tax bill?

The IRS may assess different penalties depending on what happened. Understanding the penalty listed on your notice is the first step toward determining whether relief may be possible.

What is the failure-to-file penalty?

The failure-to-file penalty applies when a required tax return is filed after its due date, including extensions.

This penalty can become significant because it is generally based on the unpaid tax shown on the return and may increase for each month or partial month the return remains late. The penalty is generally subject to a maximum, but the exact calculation depends on the type of return and the circumstances.

Filing a late return is usually better than leaving it unfiled. Even if you cannot pay the full balance, submitting missing returns can help stop additional failure-to-file penalties from accumulating.

Learn more about the IRS rules for the failure-to-file penalty.

What is the failure-to-pay penalty?

The failure-to-pay penalty generally applies when tax is not paid by the due date.

Unlike the failure-to-file penalty, the failure-to-pay penalty can continue while the balance remains unpaid. Interest may also be charged on unpaid tax and penalties. This means that delaying action can make the account more expensive to resolve.

If you cannot pay in full, the IRS advises taxpayers to pay as much as possible and consider an online payment plan. A payment arrangement does not erase the balance, but it may help establish a structured path toward compliance.

What is an accuracy-related penalty?

An accuracy-related penalty may apply when the IRS determines that a return contains a substantial understatement of tax, negligence, or another reporting issue covered by the tax rules.

These penalties are different from late-filing or late-payment penalties. First-Time Penalty Abatement generally does not apply to accuracy-related penalties. However, reasonable-cause relief may be available when a taxpayer acted in good faith and made reasonable efforts to report the correct tax.

The IRS considers factors such as:

The complexity of the tax issue
The taxpayer’s education, experience, or knowledge
Efforts made to understand the tax obligation
Whether complete information was provided to a tax professional
Whether professional advice was reasonable under the circumstances

The IRS provides additional information about the accuracy-related penalty.

How can penalties and interest make a tax bill grow?

A tax bill can increase through several separate charges:

Unpaid tax remains due.
Failure-to-file penalties may apply when the return is late.
Failure-to-pay penalties may apply when the tax remains unpaid.
Interest may accrue on unpaid tax and penalties.
Additional penalties may apply if payroll deposits, estimated payments, or information returns were not handled correctly.

The IRS states that it charges interest on penalties and that interest increases the amount owed until the balance is paid. If a penalty is reduced or removed, the related interest may also be reduced or removed automatically.

This is why opening an IRS notice promptly matters. Ignoring the notice does not pause the calculation. It may also cause you to miss a deadline for responding or appealing.

You can review the IRS overview of penalty relief and the IRS guidance on interest.

What is First-Time Penalty Abatement?

First-Time Penalty Abatement, commonly called FTA, is an administrative waiver that may remove certain penalties for taxpayers with a history of timely compliance.

FTA generally applies to:

Failure-to-file penalties
Failure-to-pay penalties
Failure-to-deposit penalties, which may affect employers and businesses

FTA does not generally apply to accuracy-related penalties or estimated-tax penalties.

The IRS explains that FTA has traditionally been available to taxpayers with three years of timely compliance history. As of 2026, the IRS is also transitioning some eligible returns to an automatic process called Automatic Exemption from Penalty, or AEP.

Under the IRS’s current administrative penalty relief guidance, AEP begins with eligible 2025 tax-year returns and subsequent returns, as well as eligible 2026 quarterly returns and subsequent quarterly returns. When IRS records show the required compliance history, qualifying penalties may not be assessed in the first place.

The rules depend on the return type and tax period. Taxpayers should review the specific notice and current IRS guidance rather than assume that automatic relief applies.

Do I meet the typical First-Time Abatement criteria?

For traditional FTA, the IRS generally reviews the taxpayer’s account history. Typical criteria include the following:

1. Do you have a clean compliance history?

The IRS generally looks at the same type of return for the prior three years. The taxpayer usually must have:

Filed the required returns on time
Paid tax on time or avoided disqualifying penalties
Had prior penalties removed because of reasonable cause or IRS error, where applicable

For quarterly business returns, the IRS may review 12 consecutive quarters instead of three annual periods.

2. Have you filed all required returns?

Before requesting penalty relief, make sure all required returns are filed. This may include individual returns, business returns, payroll tax returns, or information returns.

A payment plan does not substitute for filing missing returns. Filing compliance is often a necessary first step in resolving an IRS account.

3. Have you paid the balance or arranged to pay?

Owing money does not necessarily prevent a taxpayer from requesting FTA. However, the taxpayer generally must have paid the tax or arranged to pay it.

Possible arrangements may include:

Paying the balance in full
Establishing an IRS installment agreement
Using another approved payment arrangement when appropriate

FTA is a penalty waiver. It does not eliminate the underlying tax or necessarily remove every charge on the account.

You can review the IRS’s administrative penalty relief and FTA guidance.

What if I do not qualify for First-Time Penalty Abatement?

Not qualifying for FTA does not necessarily end the discussion. A taxpayer may be able to request relief based on reasonable cause.

The IRS evaluates reasonable cause on a case-by-case basis. Its guidance generally asks whether the taxpayer exercised ordinary care and prudence but was still unable to file, pay, or deposit taxes on time.

Examples that may support reasonable-cause relief include:

Serious illness or incapacity
Death of the taxpayer or an immediate family member
Fire, natural disaster, or civil disturbance
Inability to obtain necessary records despite reasonable efforts
Certain electronic filing or payment system problems
Other events outside the taxpayer’s control

Documentation is important. Depending on the situation, supporting records may include medical documentation, disaster records, court documents, correspondence, payment receipts, or evidence of efforts to obtain missing information.

The IRS also explains that the following factors, by themselves, generally do not establish reasonable cause:

Lack of funds
Not knowing the filing requirement
Relying only on a tax professional
A general mistake or oversight

That does not mean these facts are irrelevant. Additional circumstances may matter. The IRS evaluates the complete situation, including what happened before, during, and after the missed deadline.

How do you request IRS penalty abatement?

The process usually begins with the IRS notice.

Step 1: Read the notice carefully

Confirm:

The tax period
The type of penalty
The amount assessed
The response deadline
The address or phone number provided by the IRS

If the information is incorrect, follow the response instructions in the notice.

Step 2: Determine the possible relief category

Depending on the facts, the request may involve:

First-Time Penalty Abatement
Automatic Exemption from Penalty
Reasonable cause
A statutory exception
Correction of an IRS processing error

Step 3: Contact the IRS or submit a written request

Some requests may be handled by phone using the number on the notice. Have the notice, tax information, penalty details, and explanation available.

If relief cannot be granted by phone, taxpayers may generally submit Form 843, Claim for Refund and Request for Abatement.

A written request should clearly explain:

What happened
When it happened
How it prevented timely compliance
What steps were taken to file or pay
What documentation supports the explanation

Step 4: Review the IRS response

The IRS may approve, partially approve, or deny the request. If the request is denied, the taxpayer may have appeal options depending on the notice and the type of penalty.

Penalty relief requests are a normal part of working with the IRS. Asking for relief does not mean that a taxpayer is admitting wrongdoing or attempting to avoid a valid tax obligation. It means the taxpayer is asking the IRS to apply its relief rules to the facts of the case.

When should you seek professional help?

Consider getting assistance when:

Several years of returns are missing
You received multiple IRS notices
The account includes payroll tax penalties
An accuracy-related penalty is involved
You are unsure whether the balance is correct
You need a payment arrangement
The IRS has issued a final notice or collection warning
You previously requested relief and were denied

Merge Tax – Bayonne Tax Preparation & Fractional CFO can help you organize tax records, understand the notice, address filing compliance, and evaluate available tax resolution steps. The appropriate strategy depends on the tax period, penalty type, account history, and supporting facts.

What is the next step toward peace of mind?

Do not ignore an IRS notice or assume that the amount shown is impossible to change. First, confirm the information. Then identify the penalty, review your compliance history, and determine whether FTA, reasonable cause, or another form of relief may apply.

No taxpayer should rely on a guarantee of approval. IRS decisions are based on applicable rules and the facts supported by the account and documentation.

For help reviewing your situation, schedule a consultation with Merge Tax or contact Merge Tax.

Merge Tax – Bayonne Tax Preparation & Fractional CFO
Nazaret Medina, EA, MBA, CAA
1000 Broadway, Bayonne, NJ 07002
Email: Info@mergetax.com
Office: 201-574-9490
Website: mergetax.com

Tax situations are unique. Contact Merge Tax for personalized guidance. Mi propósito es tu tranquilidad.

Sources and related tax resolution resources

This article is for general educational purposes and reflects IRS guidance available as of August 27, 2026. It is not legal or tax advice, does not create a client relationship, and does not guarantee that the IRS will approve penalty relief. IRS rules, procedures, and account-specific outcomes may change.