Common IRS Penalties
The failure-to-file penalty (IRC 6651(a)(1)) accrues at 5% per month up to 25%. The failure-to-pay penalty (6651(a)(2)) is 0.5% per month, also capped at 25%. The estimated tax penalty (Section 6654) applies when quarterly payments are inadequate. Combined, these can add tens of thousands to a tax bill.
First Time Penalty Abatement
An administrative waiver for taxpayers with clean compliance: all returns filed, no penalties in the three preceding years, and current on payments or arrangements. FTA requires no reasonable cause showing. It can be requested by phone and can eliminate thousands in penalties instantly.
Reasonable Cause
When FTA is unavailable, the taxpayer can demonstrate reasonable cause: exercise of ordinary business care that still resulted in non-compliance. The IRM lists qualifying circumstances: serious illness, unavoidable absence, fire or casualty, inability to obtain records, reliance on erroneous professional advice, and death of a family member. The key is establishing a direct causal connection between the event and the failure to comply.
The Penalty Abatement Request
Submit in writing identifying the penalty, tax period, and specific basis. If based on reasonable cause, include a detailed narrative with supporting documentation. Penalty abatement can be combined with installment agreements or OICs, reducing total liability by 20-40% even when underlying tax and interest cannot be eliminated.
Penalties are not inevitable. The IRS abates billions in penalties every year. The difference is knowing how to ask.