By Jon Call, EA: Enrolled Agent & NTPI Fellow • CLAW Tax Group
An IRS penalty is not always final. If the IRS charged you for filing late, paying late, or missing a payroll tax deposit, it can often remove or reduce that penalty, and the interest charged on the penalty comes off with it.
Short answer: IRS penalty abatement removes or reduces an IRS penalty. CLAW Tax Group’s Enrolled Agents request it three ways: First Time Abate if your prior three years are clean, reasonable cause if events beyond your control kept you from filing or paying, or a statutory exception such as incorrect written IRS advice. Interest on the removed penalty comes off too.
Which IRS penalties can be removed?
The most common are these three. Abatement does not touch the tax itself. It cuts the add ons, which grow quickly:
- Failure to file. 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. If the return is more than 60 days late, the minimum penalty is $525 for returns due after December 31, 2025, or 100% of the tax owed, if less.
- Failure to pay. 0.5% of the unpaid tax for each month or part of a month, up to 25%. If you filed on time, it drops to 0.25% a month during an approved payment plan.
- Failure to deposit payroll taxes. 2% to 15% of the unpaid deposit, depending on how late it is.
For example, if you filed on time but still owe $10,000, the late payment penalty generally adds $50 a month until it reaches $2,500. If the return was late too, the combined charge is 5% a month while both apply, or $500 a month on that same balance.
What is First Time Abate?
First Time Abate is for taxpayers with a clean record. You generally qualify if you filed the same type of return on time for the three prior tax years, and those years have no penalties other than an estimated tax penalty. You do not have to ask for it by name, and it applies to one tax period at a time.
Starting in summer 2026, the IRS is moving First Time Abate to the Automatic Exemption from Penalty for 2025 tax year returns and later. If you filed and paid on time for the three prior years, the IRS does not assess the late filing, late payment, or late deposit penalty at all.
What if something kept you from filing or paying?
That is called reasonable cause. The IRS asks whether you used ordinary business care and prudence and still could not file or pay on time. Situations that may qualify include:
- A fire, natural disaster, or civil disturbance.
- Not being able to get your records.
- Death, serious illness, or unavoidable absence of you or a member of your immediate family.
- System issues that delayed a timely electronic filing or payment.
On their own, relying on a tax professional, not knowing the rule, mistakes, and lack of funds generally do not qualify. Dated records, such as hospital or court records, carry the request.
The law also provides relief in some cases, for example when the IRS gave you incorrect written advice, when your return was mailed on time, or when you were in a federal disaster area or a combat zone.
How do we get penalties removed?
- Already paid the penalty? A refund claim is generally due within 3 years from the date you filed the return or 2 years from the date you paid, whichever is later.
- Interest. When a penalty comes off, the interest charged on that penalty comes off with it. Interest on the tax itself generally stays (see IRS interest on unpaid taxes).
- Denied? You can usually appeal. You generally have 30 days from the date of the rejection letter, and the letter states the exact deadline.
- Still owe tax? We pair the abatement with an installment agreement, an Offer in Compromise, or Currently Not Collectible status for the rest of the balance.
How CLAW Tax Group helps
Our team of Enrolled Agents handles your penalty case from start to finish. We pull your IRS records, check which relief you qualify for, make the request, and see it through. When your matter needs an attorney, we work with Matthew Wildes, JD, CPA, of Wildes At Law.
Call or text: (651) 323-2255
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You may also want to read failure to file vs failure to pay penalty, the substantial understatement penalty, the IRS underpayment penalty, and unfiled tax returns, or see all tax relief services.
CLAW Tax Group is a tax resolution firm based in White Bear Lake, Minnesota, serving clients in all 50 states. Affiliated with Wildes At Law.
References: IRC 6651, 6656, and 6404; Instructions for Form 843; IRS Penalty relief; IRS Administrative penalty relief; IRS Penalty relief for reasonable cause; IRS Penalty relief due to statutory exception; IRS Failure to file penalty; IRS Failure to pay penalty; IRS Failure to deposit penalty; IRS Accuracy related penalty; IRS Interest; IRS Penalty appeal.
Frequently asked questions
Can the IRS waive penalties if I cannot afford to pay?
CLAW Tax Group’s answer starts with the IRS rule: lack of funds by itself is not reasonable cause for paying late. Relief can still fit when other facts show you used reasonable care and tried to comply, and First Time Abate does not depend on why you paid late. If you filed on time, an approved payment plan cuts the failure to pay penalty from 0.5% to 0.25% a month while the plan is in effect. Interest keeps running on the unpaid balance.
Can I get First Time Abate over the phone?
CLAW Tax Group’s answer is yes: the IRS says you can call the toll free number on your notice to ask for penalty relief. You do not have to name First Time Abate or send documents, because the IRS reviews your account history. If you ask for reasonable cause and qualify for First Time Abate, the IRS applies First Time Abate. If the phone cannot approve it, ask in writing with Form 843.
Can First Time Abate be used more than once?
First Time Abate is a one period tool. The IRS applies it to a single tax period, and a First Time Abate granted in the three prior years blocks a new one. The IRS approval letter says future penalties will be judged on reasonable cause. When several periods have penalties, the IRS example applies First Time Abate to the first period, and the later periods need reasonable cause.
Does First Time Abate apply to the accuracy related penalty?
CLAW Tax Group’s answer is no. First Time Abate covers only the failure to file, failure to pay, and failure to deposit penalties. The 20% accuracy related penalty needs reasonable cause and good faith. The IRS weighs your efforts to report correctly, the complexity of the issue, your tax knowledge, and whether you gave a competent advisor all the facts.
Can the estimated tax penalty be removed?
This one works differently, because the IRS says the estimated tax penalty generally cannot be waived for reasonable cause. It may be removed or reduced if the underpayment came from a casualty, disaster, or other unusual circumstance that would make the penalty unfair. It may also come off if you or your spouse retired in the past 2 years after reaching age 62, or became disabled, and you had reasonable cause. The request needs a written explanation signed under penalty of perjury.
Is relying on my tax preparer reasonable cause?
CLAW Tax Group’s answer depends on the penalty. For failure to file and failure to pay, the IRS says reliance on a tax professional generally is not reasonable cause, because you stay responsible for filing and paying on time. For the accuracy related penalty, the IRS may consider reliance on an advisor if you gave the advisor all the needed information and the advisor was competent and experienced with your tax situation.
Can I get a refund of IRS penalties I already paid?
CLAW Tax Group’s answer is yes, when relief applies and the claim is on time. A claim for refund, usually on Form 843, is generally due within 3 years from the date you filed the original return or 2 years from the date you paid, whichever is later. For a penalty caused by incorrect written IRS advice, the request is due within the time allowed to collect the penalty or, if you paid it, the time allowed to claim a refund.
What should a reasonable cause letter include?
Build it around the questions the IRS asks: what happened and when, how it kept you from filing or paying, what you tried to do, and how you handled the rest of your affairs. Attach proof with dates, such as hospital or court records, a doctor’s letter with start and end dates, disaster records, or copies of letters. Show that you filed or paid promptly once the problem ended, because reasonable cause ends when you do not comply within a reasonable time.
Does the Automatic Exemption from Penalty apply to my 2025 return?
CLAW Tax Group’s answer is yes for eligible returns. AEP starts with 2025 tax year returns on Forms 1040, 1065, and 1120, and with 2026 quarterly returns such as Form 941. If you filed and paid on time for the three prior years, the IRS does not assess the failure to file, failure to pay, or failure to deposit penalty and sends a letter explaining the relief. If a notice shows an assessed penalty and you think you qualified, contact the IRS.
How long do I have to appeal a denied penalty abatement request?
Watch this deadline closely: you generally have 30 days from the date of the rejection letter to ask for an appeal, and the letter states the exact deadline. The appeal follows a written request that the IRS denied in a letter giving appeal rights. If you had proof that you filed or paid on time, send a copy with the appeal.
Do I need a tax attorney for IRS penalty abatement?
CLAW Tax Group’s answer is usually no. First Time Abate, reasonable cause, and Appeals requests are administrative work, and attorneys, CPAs, and Enrolled Agents all have unlimited representation rights before the IRS. Jon Call, EA and our Enrolled Agents handle these requests on Form 2848. When a penalty dispute moves to court, Matthew Wildes, JD, CPA handles it as attorney work through Wildes At Law.
