How to Get IRS Penalties Waived

The IRS may remove or reduce penalties if a taxpayer proves they had a reasonable cause (something beyond their control) for not complying with the tax law. Eliminating or reducing tax penalties can significantly reduce how much you owe, especially if a big portion of your debt is from the accrued penalties.

Like every IRS tax relief option, there’s a catch: the IRS reviews reasonable cause requests case by case, so there’s no set of criteria to go with, per se. You have to present your “why” as best you can and let the IRS decide whether you qualify. A tax attorney can be critical if you want the IRS to approve your penalty abatement claim.

At McLaud Law P.C., we’ve successfully requested reasonable cause relief for clients by ensuring we focus on the evidence, arguments, and documents aligned with IRS policies. It is a high standard to achieve, though, and we never apply for reasonable cause unless we believe you’re eligible. If you’re not, we help you pursue other relief options.

Contact us about our penalty abatement services to learn more about our support for reasonable cause requests.

Key Takeaways

What Penalty Abatement Actually Means

Penalty abatement is the process by which the IRS removes or reduces penalties from a taxpayer’s bill. These could be penalties incurred for filing late, paying late, or making significant accuracy-related errors.

To be clear, penalty abatement only removes penalties and the interest accrued on them. Your original tax debt and the interest accrued on that remain intact.

Which IRS Penalties Can Be Removed?

Not all penalties can be abated. Here are the penalties that are currently eligible for relief, per the IRS:

• Failure-to-file: It applies when you fail to file your tax return by the due date; the penalty is 5% of the unpaid tax for each month or part of the month the return was late, and can go up to 25%.
• Failure-to-pay: It applies when you fail to pay the tax you owe by the due date; the penalty is 0.5% for each month or part of the month the tax remains unpaid, and can accrue up to 25%.
• Accuracy-related: This audit penalty applies when you fail to report all your income or claim tax credits and deductions you don’t qualify for. The penalty is 20% of the underpaid tax amount.
• Information return: It applies if you don’t file information returns or provide payee statements correctly and on time. The IRS charges separate penalties for failing to file a correct information return on time and failing to provide correct payee statements on time.
• Failure-to-deposit penalty: It applies when you fail to deposit employment taxes accurately or in time. The penalty can range from 2% to 15% of the tax due, depending on how late the deposit is. If a quarterly deposit and Form 941 both come in late, each penalty clock runs from its own due date: the deposit deadline for failure to make the deposit, and the return deadline for failure to file the return.

What “Reasonable Cause” Really Means

For the IRS, reasonable cause means you exercise ordinary business care and prudence, but you are still unable to meet your tax obligations due to circumstances beyond your control. The Internal Revenue Code (IRC) doesn’t list situations that qualify for relief; instead, the IRC outlines the standard for exercising ordinary care.

Here are some examples of when the IRS or state is often willing to abate penalties through reasonable cause:

It’s important to note that just because you feel an issue was beyond your control, the IRS may not share the same opinion. Here are factors that don’t generally qualify as valid reasons for failing to file or pay taxes on time:

That being said, there are records of thousands of approved reasonable cause cases that weren’t in this list. There are also thousands of denied reasonable cause requests that matched the IRS example. Approval heavily relies on the evidence presented, supporting documents, and how well the explanation is written. If you’re vague, the IRS will automatically deny your request.

Automatic Exemption from Penalty (f.k.a. First-Time Abatement)

In some cases, taxpayers qualify for automatic penalty relief. This was once known as first-time penalty abatement. As of summer 2026, it has been replaced with the Automatic Exemption from Penalty (AEP) program. 

Taxpayers who have filed and paid on time for three years, or 12 consecutive quarters if dealing with payroll taxes, can now have their penalties automatically waived by the IRS during the processing of their tax return. This applies to the eligible tax year 2025, 2026 quarterly returns, and future tax periods.

While first-time abatement did require the taxpayer to request relief, the AEP option is meant to be automatic. However, this program is still in transition. If you are seeking relief for penalties from previous tax years or you do not qualify for Automatic Exemption from Penalty relief, reasonable cause may be a viable option.

How to Request Penalty Relief

It really depends on the kind of penalty relief you’re requesting. For AEP, the IRS will automatically apply the relief if you’re eligible (for tax year 2025 and 2026 quarterly returns) and send you a notice letting you know your penalties were removed or eliminated. No action is required.

For reasonable cause, you need to file Form 843 and write a penalty abatement letter. You need to write a detailed explanation and provide supporting documents and evidence. The IRS receives a lot of reasonable cause requests, so any requests with vague explanations are automatically rejected.

Keep in mind that to the IRS, everything is hearsay unless you can prove it; add any relevant evidence you can gather to support your explanation. Lastly, you need to act promptly; even with a reasonable cause, the IRS may reject your request if you take too long. There’s a time limit on how long you have to request refunds and abatement.

Will This Reduce My Interest Too?

Penalty abatement can indirectly reduce your interest. It does not remove interest charged on the tax debt itself. However, it does remove the interest accrued by the penalties.

What About New York State Penalties?

New York State has its own penalty abatement program for taxpayers who can show reasonable cause. It’s fairly similar to the IRS program in its documentation requirements; you should be able to provide a clear, concise explanation backed up by documentation. 

The state allows for penalty relief when there’s evidence of reasonable cause and an absence of willful neglect. However, some types of penalties, such as penalties for unpaid sales taxes, are significantly harder to get waived.

When It’s Worth Talking to a Professional

Not all penalty abatement cases require professional guidance. If you have one standard late-filing or late-payment penalty and an otherwise clean tax history, you may qualify for the Automatic Exemption from Penalty program. In that case, if you don’t get the penalties removed automatically, you may be able to clear it up with a call to the IRS in one phone call.

If your request has already been denied, you likely have a limited time to request a review by the IRS Independent Office of Appeals. In this situation, working with a tax professional can help strengthen your request.

Frequently Asked Questions (FAQs)

Here are common questions we get on reasonable cause requests: