Can IRS Penalties Be Removed?

Often, yes. The IRS removes or reduces penalties in three main ways: an administrative waiver for people with a clean recent history (First Time Abate, which from summer 2026 is being replaced by an automatic exemption), reasonable cause, and a short list of statutory exceptions. Most relief has to be requested, and when a penalty comes off, the interest charged on that penalty comes off with it.

Penalties can make up a large share of what someone owes, so they are worth checking before deciding how to pay the rest. This page covers the penalties for filing, paying and depositing late. Kathryn Meyer's page on IRS collections and enforcement explains how penalty relief fits with the other ways of resolving a balance.

Which penalties can be removed, and how?

Penalty	How it is figured	Relief that can apply
Failure to file (IRC 6651(a)(1))	5% of the unpaid tax for each month or part of a month late, up to 25%	First Time Abate or the automatic exemption, reasonable cause, statutory exceptions
Failure to pay (IRC 6651(a)(2), (3))	0.5% a month, up to 25%; 0.25% during an approved payment plan if an individual filed on time; 1% a month starting 10 days after a notice of intent to levy	First Time Abate or the automatic exemption, reasonable cause
Failure to deposit employment taxes (IRC 6656)	2%, 5%, 10% or 15% of the late deposit, depending on how late	First Time Abate or the automatic exemption, reasonable cause
Accuracy-related (IRC 6662)	20% of the underpayment, more in some cases	Reasonable cause and good faith (IRC 6664(c)); not First Time Abate
Underpayment of estimated tax	Separate rules for individuals and corporations	Reasonable cause does not apply, the IRS says; it has separate pages on reducing this penalty

Accuracy-related penalties usually arrive after an audit and follow their own defenses, explained in what penalties the IRS can add after an audit.

What is First Time Abate, and what changes in 2026?

First Time Abate is an administrative waiver the IRS has used since 2001 for failure-to-file, failure-to-pay and failure-to-deposit penalties. Under the Internal Revenue Manual (IRM 20.1.1.3.3.2.1), you generally qualify if you filed the same type of return for the three years before the penalized period, and those years carry no unreversed penalties (other than an estimated tax penalty) and no penalty removed under this same waiver. You do not need to name the waiver or send documents; the IRS checks your account when you ask for relief.

Two limits matter. The waiver covers one tax period, so an employer with a clean history and four late quarters in one year can get it for the first quarter only and needs another basis for the rest. And it does not apply to returns filed once or infrequently, such as estate and gift tax returns, Form 8300, Form 3520 or Form 1099 information returns, which the IRM lists as examples.

Starting in summer 2026, the IRS is moving to the Automatic Exemption from Penalty. It applies to 2025 tax year returns and 2026 quarterly returns onward, on Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1. If your original return is late, or the tax is paid or deposited late, and you have three prior years (or 12 consecutive quarters) of timely compliance, the penalty is simply not assessed, and the IRS sends a letter saying so.

	First Time Abate	Automatic Exemption from Penalty
Periods	Earlier years and periods, plus eligible 2025 and 2026 returns not considered for the new relief	2025 tax year and 2026 quarterly returns onward
How you get it	You ask, by phone or in writing	Automatic; no action needed
Penalty	Assessed first, then removed	Never assessed
Failure-to-pay penalty	May keep accruing until the tax is paid	Does not accrue on the unpaid tax

If you receive a notice showing a penalty you think the new exemption should have prevented, the IRS asks you to contact it. The unpaid tax, interest and any other penalties remain due either way.

What counts as reasonable cause?

The law excuses these penalties when the failure was due to reasonable cause and not willful neglect. The IRS applies that as a test of ordinary business care and prudence: you tried to meet the obligation and still could not, because of circumstances beyond your control. It decides case by case. Its own lists look like this:

Reasons that may qualify: fire, natural disaster or civil disturbance; being unable to get records; the death, serious illness or unavoidable absence of the taxpayer or immediate family; system problems that delayed an electronic filing or payment.
Reasons that generally do not: relying on a preparer to file or pay, not knowing the rule, mistakes and oversights, and lack of money by itself, although other facts showing reasonable care may still help.

For a business, the IRS looks at the person who had authority to file the return or make the deposit. And the duty continues: the IRM expects a taxpayer to keep trying to comply even after the deadline passes, so the request should show what you did once the problem ended.

Penalties for late international information returns work differently; for a late Form 3520 reporting a foreign gift or bequest, the IRS considers a reasonable cause statement before it assesses a penalty, as explained in whether you have to report a gift or inheritance from abroad.

What are the statutory exceptions?

Some relief is written into the law rather than left to judgment. The IRS names the common ones:

Incorrect written advice from the IRS. Under section 6404(f), the IRS must remove a penalty caused by erroneous written advice it gave in response to your written request, if you relied on it. Keep a copy of the advice and of your request.
Mailed on time. A paper return or payment mailed in the United States by the deadline, correctly addressed, with proper postage, through the Postal Service or a designated private delivery service is on time. A timely e-filed return rejected by the system counts as on time if you resend it within 10 days of the rejection notice.
Disasters and combat zones. People in federally declared disaster areas and those serving in combat zones may qualify for relief.

How do you ask, and what should you send?

Start with the notice. Many requests can be handled by calling the number on it with the notice, the penalty you want removed and your reasons ready; the IRS says it will tell you on the call whether relief is approved, and that if you ask for reasonable cause but qualify for First Time Abate, it applies the waiver. If the phone route does not work, ask in writing with Form 843, Claim for Refund and Request for Abatement.

A written request should name each penalty and explain the reason for each one, because each penalty is for a different failure. Following the IRS's own guidance, cover:

What happened, and the dates it started and ended.
How it kept you from filing, paying or depositing on time.
What you did to comply, and how quickly you acted once you could.
Proof: hospital or court records, a doctor's letter with dates, disaster records, letters and receipts.

If you cannot pay the rest of the balance, a payment plan can run alongside the request and lowers the failure-to-pay rate for individuals who filed on time; see IRS payment plan options.

What if the IRS says no?

If you asked in writing to remove a failure-to-file or failure-to-pay penalty and the IRS denied it in a letter that gives you appeal rights, you can ask for a conference with the Independent Office of Appeals. The IRS says you generally have 30 days from the date of that letter, and that the letter states the exact deadline. Its penalty appeal page points to reasonable cause, statutory exceptions and administrative waivers as the grounds for removal.

If you have already paid the penalty, removing it means getting money back, so the request is a refund claim. The Code treats penalties as tax for this purpose (section 6665), and the time limits in how long you have to claim a tax refund apply.

Does removing a penalty remove the interest?

Only the interest charged on that penalty. The IRS says it reduces or removes the related interest automatically when a penalty is reduced or removed, and that by law it cannot remove interest unless the penalty is removed. Interest on the tax itself stays. A separate, narrow rule in section 6404(e) lets the IRS abate interest that built up because of an unreasonable IRS error or delay in a ministerial or managerial act, but only where no significant part of the error or delay is the taxpayer's, and only after the IRS has contacted the taxpayer in writing.

When a penalty traces back to a mistake on the return itself, fixing the return may matter as much as the penalty; amended return or voluntary disclosure explains the options.

The estimated tax penalty follows its own rules, and as the table above notes, the IRS says reasonable cause does not apply to it, so avoiding it starts with planning; see how a law firm owner should handle quarterly estimated taxes.

What changes the answer

Your compliance history. First Time Abate and the automatic exemption both depend on three clean prior years (or 12 consecutive quarters for the new exemption).
The kind of return. Returns filed once or infrequently, such as Form 3520 or estate and gift tax returns, are outside First Time Abate, so reasonable cause carries those requests.
How late a deposit was. The deposit penalty is 2 percent for 1 to 5 calendar days late, 5 percent for 6 to 15 days, 10 percent after 15 days, and 15 percent if still unpaid more than 10 days after the first notice; the tiers replace each other rather than adding up (IRS failure to deposit page).
Where the deposits went. Deposits are applied to the most recent period unless you designate otherwise within 90 days of the penalty notice (section 6656(e)), and the IRS may waive the penalty for some first-time depositors and for a first deposit sent to the IRS instead of the depository (section 6656(c), (d)).
Overlapping penalties. When failure to file and failure to pay both apply for a month, the filing penalty is reduced by the payment penalty.
Whether you have paid. Unpaid penalties are abated; paid ones are recovered through a refund claim with its own deadline.

For example: two penalties, two different routes

For example, imagine an individual with a clean three-year history who filed her 2024 return three months late after a hospital stay and paid the balance a month after that. She calls the number on her notice and asks for relief from both the failure-to-file and failure-to-pay penalties for reasonable cause, with her hospital admission and discharge dates ready. If the IRS finds she qualifies for First Time Abate, it applies the waiver even though she asked for reasonable cause. Now suppose she also had a late return for 2025 that the new automatic exemption should have covered but a notice shows a penalty anyway: the IRS asks her to contact it about that notice. Meanwhile her small business owes a 10 percent deposit penalty on a payroll deposit made 20 days late; because First Time Abate covers one period, she would need reasonable cause for any other late quarters. This is a hypothetical, not a real case.

Common mistakes with penalty relief

Never asking. Most relief before the automatic exemption has to be requested.
One explanation for several penalties. Each penalty is a separate failure and needs its own reason.
Blaming the preparer. The IRS says relying on a preparer generally does not establish reasonable cause.
Assuming the automatic exemption covers older years. It starts with 2025 returns and 2026 quarterly returns; earlier periods still need First Time Abate or another basis.
Letting the appeal window close. A denial letter with appeal rights generally gives 30 days.

What to do this week

List every notice with a penalty, the period, the type of penalty and the amount.
Check whether the three prior years (or quarters) were filed and paid on time.
For each penalty, write the dates of what happened and what you did once you could act.
Collect proof: medical, disaster, court or bank records, and copies of any IRS advice you relied on.
Call the number on the notice, or send Form 843 with a written statement.
If you cannot pay the remaining tax, set up a payment plan so interest and penalties do not keep building at the higher rate.

Frequently asked questions

Can you get First Time Abate if you have not paid yet?

Yes, you can ask, but the IRS notes that the failure-to-pay penalty may keep accruing until the tax is paid, so relief granted now may not cover later months.

Does reasonable cause cover the trust fund recovery penalty?

That penalty works differently: it is assessed against responsible people who willfully failed to pay over withheld taxes. See whether the IRS can make you personally pay your company's payroll taxes.

Can penalties be included in an offer in compromise?

Yes. An offer settles the unpaid tax, penalties and interest together; see whether you qualify for an IRS offer in compromise.

Do penalties extend the time the IRS has to collect?

No. The IRS says it generally has 10 years from the date the tax was assessed to collect the tax and any associated penalties and interest; see how long the IRS has to collect a tax debt.

What if a payroll deposit was sent to the IRS instead of the bank?

For the first deposit a business is required to make, section 6656(d) lets the IRS abate the penalty when the money was inadvertently sent to the IRS instead of the government depository.

Is interest on the tax ever removed?

Only in narrow cases, such as section 6404(e) delays caused by IRS ministerial or managerial errors after it contacted you in writing.

Getting help with a penalty request

Penalty requests turn on dates, documents and choosing the right basis for each period. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and can review your notices, the penalties on each period and the facts that support relief. To discuss a penalty, contact the firm or call (571) 560-8674.

Sources

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