First-time abatement
The IRS's first-time abatement policy can remove failure-to-file, failure-to-pay and failure-to-deposit penalties for one tax period if you:
- had no significant penalties in the prior three years,
- have filed all currently required returns (or valid extensions), and
- have paid, or arranged to pay, the tax owed.
It's an administrative waiver, so you don't have to prove why you were late. It doesn't apply to every penalty; for example, the estimated tax penalty and accuracy-related penalties generally aren't eligible.
Reasonable cause
If first-time abatement doesn't apply, penalties can be removed for reasonable cause: you exercised ordinary business care but couldn't comply because of circumstances such as serious illness, a death in the family, a natural disaster or the inability to obtain records. Documentation is what wins these requests.
The bonus: interest on penalties
When a penalty is removed, the interest that accrued on that penalty is generally removed too.
Timing
You don't have to wait for a notice. Penalty relief can generally be requested after the penalty is assessed, and refunds of penalties already paid can be claimed within the normal refund period.
Frequently asked questions
Do I qualify for first-time penalty abatement?
Generally, if you had no significant penalties in the prior three years, have filed all required returns, and have paid or arranged to pay the tax.
Can I get penalties removed if I already paid them?
Often yes, by requesting abatement and a refund within the refund statute of limitations.
Does penalty abatement remove interest?
Interest on the underlying tax generally remains, but interest charged on the removed penalty is removed along with it.
Which penalties can't be abated under first-time abatement?
Among others, the estimated tax penalty and accuracy-related penalties generally aren't eligible, though other relief may apply.