How to Get IRS Penalties Removed: First-Time Abatement and Reasonable Cause

An IRS penalty notice can feel final, but it usually isn't. The IRS has well-established ways to remove late-filing, late-payment and late-deposit penalties after they've been charged, and many business owners and individuals qualify without realizing it. The key is knowing which type of relief fits your facts and asking for it the right way.

This is general information, not individual tax advice — the right treatment depends on your specific situation.

The Three Main Paths to Penalty Relief

The IRS groups penalty relief into three categories: administrative relief (most commonly First-Time Abate), reasonable cause, and statutory exceptions. Administrative relief rests on your compliance track record; reasonable cause looks at the circumstances that kept you from complying; statutory exceptions apply when the law itself provides relief. Under the IRS's own procedures, administrative waivers like First-Time Abate are considered before reasonable cause.

First-Time Abate: Relief for a Clean Track Record

First-Time Abate (FTA) is the closest thing the IRS has to a one-time pass. It covers three penalties: failure to file, failure to pay and failure to deposit (the penalty employers face for late payroll tax deposits). It does not apply to accuracy-related penalties or estimated tax penalties.

To qualify, you generally need a clean compliance history for the three years before the penalized period (or 12 consecutive quarters for quarterly filers like Form 941):

Timely filing. You filed the same type of return on time for each of the prior three years, or you weren't required to file.

No significant prior penalties. No penalties were assessed during that lookback period, other than estimated tax penalties, unless a prior penalty was removed for reasonable cause or IRS error. For businesses, the IRS also looks at whether failure-to-deposit penalties were previously waived four or more times.

Current compliance. You should have filed all currently required returns (or an extension) and paid, or arranged to pay, the tax due. Because the failure-to-pay penalty keeps accruing until the balance is paid in full, it usually makes sense to pay first or request FTA once the balance is resolved.

You don't have to explain why you were late or send supporting documents. The IRS reviews your account history and decides.

What's New: Automatic Exemption from Penalty (AEP)

In 2026 the IRS began rolling out an automatic version of this relief, called the Automatic Exemption from Penalty (AEP). Starting summer 2026, if you file or pay late but have a timely filing and payment history for the prior three years (or 12 quarters), the IRS won't assess the failure-to-file, failure-to-pay or failure-to-deposit penalty in the first place, and you'll receive a notice explaining that the penalty was not assessed. Under AEP, the failure-to-pay penalty does not accrue on the unpaid tax.

According to the IRS, AEP applies to 2025 tax year returns and later, and 2026 quarterly returns and later, across Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1. Traditional FTA, which you must request, remains available for prior years and for returns not considered for AEP.

Reasonable Cause: When Circumstances Were Beyond Your Control

If you don't qualify for FTA, or you want to preserve FTA for another year, reasonable cause is the next avenue. The standard is whether you exercised ordinary business care and prudence but still couldn't comply. The IRS weighs each request on its facts. Reasons the IRS recognizes include:

Fires, natural disasters or civil disturbances; inability to obtain necessary records; death, serious illness or unavoidable absence of the taxpayer or an immediate family member; and delays in electronic filing or payment systems.

Just as important is what typically won't work on its own: relying on a tax professional to file or pay, not knowing about a requirement, simple mistakes or oversights, and lack of funds. Documentation matters — records showing when the obstacle began and ended, and how quickly you got compliant afterward.

Statutory Exceptions, Including IRS Written Advice

Some relief is written directly into the law. Common statutory exceptions include a paper return or payment properly mailed on or before the deadline, federally declared disaster relief and combat zone service. Another is erroneous written advice from the IRS under Internal Revenue Code section 6404(f). It applies only if you reasonably relied on the advice, the advice responded to your specific written request, and the penalty didn't result from your giving the IRS inaccurate or incomplete information. You request this relief on Form 843 and attach your original request, the IRS's advice and any related adjustment report.

How to Request Penalty Removal

By phone. Many requests, especially FTA, can be granted on a call to the toll-free number on your notice. Have the notice, the specific penalty and your reason ready.

In writing. You can respond to the notice with a letter, following its instructions, or file Form 843, Claim for Refund and Request for Abatement. Writing is often better for reasonable cause requests that depend on documentation.

If the IRS denies your request, you can generally appeal the decision through the IRS appeals process.

What About Interest?

Interest on the underlying tax generally stays even when a penalty is waived. However, when a penalty is reduced or removed, the IRS automatically reduces or removes the interest that accrued on that penalty. Interest keeps running on any remaining balance until it's paid.

How VarStan Helps

Penalty relief is often left on the table because nobody asks, or because the request is framed the wrong way. Our CPA-led team reviews your IRS account transcripts, identifies whether FTA, AEP, reasonable cause or a statutory exception fits, and handles the call or written request on your behalf. If you've received a penalty notice for your business or nonprofit, reach out and we'll tell you whether it's worth contesting.