How Does The IRS Penalty Abatement Work?

If you have higher debts because of penalty fees, you can request a penalty abatement from the IRS. Most taxpayers hate paying penalty fees even more than they hate paying taxes. Penalty charges from the IRS can often seem unjust, but the IRS policy for charging penalties is clear. The IRS charges penalties to discourage taxpayer noncompliance, rather than generate revenue. For that reason, more than ten years ago the IRS created the first-time penalty abatement administrative waiver. This waiver allows typically compliant individual and business taxpayers to request abatement of certain penalties the IRS charges. The IRS rewards typically compliant taxpayers with one-time penalty amnesty. Penalty abatement can save taxpayers hundreds, sometimes thousands, of dollars. However, many taxpayers don’t know about the first-time penalty abatement program. Additionally, most taxpayers aren’t aware of:

  • How penalty abatement works
  • The process for requesting penalty abatement
  • That penalty abatement exists


When Did The IRS Start Offering Penalty Abatements?

The IRS began offering penalty abatements to taxpayers in 2012. During that year, the IRS assessed 37.9 million penalties against taxpayers, equaling $26.8 billion. Individuals, businesses, and payroll penalties accounted for 74 percent of all penalties in 2012.


How Can I Request A Penalty Abatement?

Taxpayers can request a first-time penalty abatement from failure to file, failure to pay, and failure to deposit penalties. There are three ways to request an abatement for these penalties, which we describe below.

  • Prior to IRS assessment of the penalty, a taxpayer can file a penalty non-assertion request. The penalty non-assertion request asks the IRS to not automatically assess a penalty.
  • After the IRS assesses a penalty, the taxpayer can request penalty abatement. The taxpayer will typically draft a penalty abatement letter or call the IRS. Tax professionals can also request penalty abatements for their clients using e-services.
  • Once the taxpayer pays the penalty, he or she can request a refund using Form 843. The taxpayer must file the claim within three years of the return due date or filing date. Additionally, the taxpayer has two years to file the claim from the date they paid the penalty.


Why Should I Request A Penalty Abatement?

Penalty abatement requests will typically fall into four categories:

  • Reasonable cause
  • Statutory exceptions
  • Administrative waivers
  • Correction of IRS error


In an administrative waiver, the IRS interprets a provision to provide administrative relief from a penalty it would otherwise assess. The IRS can address an administrative waiver in a policy statement, news release, or other formal communication. First-time abatement waiver is the most widely available administrative waiver.


First-Time Abatement Waiver

The first-time abatement waiver was established by the IRS in 2001 to:

  • Administer the abatement of penalties consistently and fairly
  • Reward past compliance
  • Promote future compliance


The administrative penalty waiver allows first-time noncompliant taxpayers to request penalty abatement from certain penalties. Taxpayers can request first-time penalty abatement for a single tax period.

What Penalties Are Eligible for First-Time Abatement?

The first-time penalty abatement applies to certain penalties and filed tax returns. A tax relief professional will first determine if the first-time penalty abatement applies to the client’s situation.

  • Individual taxpayers can request first-time penalty abatement for failure-to-file and failure-to-pay penalties. Estate and gift tax returns don’t qualify for penalty abatement.
  • Businesses can request penalty abatement for failure to file, failure to pay, and failure to deposit penalties.
  • Individuals and business taxpayers cannot waive estimated tax and accuracy-related penalties


How To Qualify for Penalty Abatement

A tax professional must determine if a client qualifies to receive a first-time penalty abatement. To qualify, the client must demonstrate filing and payment compliance and a three-year clean penalty history. The taxpayer must also file, or file an extension for, all current tax returns. Additionally, the IRS must not have an outstanding request from the IRS for an unfiled return. The individual must also have paid, or arranged to pay, any outstanding tax balances. Taxpayers can have open installment agreements, as long as they’re current.

How To Request A First-Time Penalty Abatement

If your tax professional determines whether you qualify for a first-time penalty abatement, they have several ways to request it. When your case doesn’t involve a compliance function, the tax professional will call the IRS directly. When an IRS compliance unit assesses the penalty, requesting a penalty abatement electronically or by phone will not work. If a compliance unit assesses a penalty, you must request relief directly from that unit. For reasonable-cause determination, the IRS can require taxpayers to send in documentation to support their claim.  


You can also request a penalty abatement in writing. If you have a clear reasonable cause for the penalty, your tax professional will present the reasonable-cause argument first. After that, the tax professional will request that the IRS abate the penalty on those grounds.

You may not qualify for a penalty abatement because of a penalty in the past three years. However, if you are otherwise compliant, you can present this history with other arguments to the IRS for penalty abatement. If you have multiple years of penalties, your tax professional will request an abatement for the first year. You can request an abatement for the first year if the prior three have a clean compliance history.


Call Platinum Tax Defenders for Help With Penalty Abatement

Are you paying more in back taxes because of penalties? You may be eligible for first-time penalty abatement. Penalty fees can make it nearly impossible to settle back taxes with the IRS. To see about your options, contact the professionals at Platinum Tax Defenders. We have years of experience helping our clients get out of paying large sums to the IRS in penalties. We’re currently offering free consultations to new customers. Call us today to see how we can help you avoid costly IRS penalty charges.

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