Penalty Abatement

IRS Penalty Abatement: First-Time Abatement & Reasonable Cause

By the Sasquatch Tax team · Last updated July 6, 2026

IRS penalty abatement means asking the IRS to remove penalties, most often failure-to-file and failure-to-pay, either under the First-Time Abatement waiver or by showing reasonable cause. Penalties and the interest on them can add 25–50% to an old balance, which is why abatement is the first thing worth checking before you negotiate the underlying tax.

The penalties that stack on a late return

Two penalties do most of the damage:

Failure-to-file: generally 5% of the unpaid tax for each month or part of a month the return is late, capped at 25%. A minimum penalty also applies when a return is more than 60 days late.
Failure-to-pay: generally 0.5% of the unpaid tax per month, also capped at 25%. It drops to 0.25% per month while an approved installment agreement is in effect.

When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount for that month. Interest then accrues on the tax and the penalties. Self-employed taxpayers often also see the estimated-tax penalty for missed quarterly payments — that one is calculated differently and is not eligible for First-Time Abatement.

First-Time Abatement: the cleanest win in tax resolution

First-Time Abatement (FTA) is an administrative waiver. No hardship story required. You generally qualify for a tax period when:

You had no significant penalties in the prior three tax years (a clean compliance history).
All currently required returns are filed, or on a valid extension.
The tax is paid, or you are current on a payment arrangement such as an installment agreement.

FTA applies to failure-to-file, failure-to-pay and failure-to-deposit penalties for a single period. It can often be granted over the phone. If you owe for several years, FTA typically clears only the first qualifying year; the rest need reasonable cause.

Reasonable cause: when life got in the way

Reasonable cause is a facts-and-circumstances case that you exercised ordinary business care but still could not comply. Grounds the IRS recognizes include:

Serious illness, incapacitation, or a death in the immediate family.
Fire, casualty, natural disaster or other disturbance.
Inability to obtain necessary records.
Other circumstances showing the failure happened despite ordinary care, documented and tied to the specific filing or payment that was missed.

"I didn't have the money" alone rarely works for the filing penalty, because the IRS expects you to file on time even when you cannot pay. Relying on a preparer who missed the deadline is generally not reasonable cause for late filing either. Reasonable-cause requests rise or fall on paperwork: hospital records, insurance claims, dated correspondence.

How to request abatement

By phone. FTA requests are often resolved on a single call to the number on your notice.
In writing or on Form 843. Reasonable-cause requests should lay out the timeline, the grounds and the evidence.
On appeal. A denied request can generally be appealed, and a well-organized file often does better the second time.

Interest is not abated on its own except in limited cases (such as IRS error or delay), but when a penalty is removed, the interest charged on that penalty comes off with it.

Where abatement fits in a bigger resolution

Abatement shrinks the balance; it does not resolve the tax itself. It pairs naturally with a payment plan, and it matters before an Offer in Compromise too, since a smaller balance changes the math. If you have unfiled years, start with getting back-tax returns filed, because compliance is a gate for every relief program.

Penalty abatement FAQ

How much are IRS late-filing and late-payment penalties?

The failure-to-file penalty is generally 5% of the unpaid tax per month or part of a month, capped at 25%. The failure-to-pay penalty is generally 0.5% per month, also capped at 25%. When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount. Interest accrues on top of both.

What is First-Time Abatement?

First-Time Abatement (FTA) is an administrative waiver that removes failure-to-file, failure-to-pay or failure-to-deposit penalties for one tax period when you have a clean compliance history for the prior three years, all required returns filed, and the tax paid or under a payment arrangement.

Can the IRS remove interest too?

Generally no. Interest is set by law and is not abated on its own except in limited situations, such as IRS error or delay. However, when a penalty is abated, the interest that accrued on that penalty is removed along with it.

How do I request penalty abatement?

First-Time Abatement can often be requested by phone or in writing. Reasonable-cause requests are made in writing or on Form 843, with documentation of the events that prevented you from filing or paying on time. If the request is denied, you can generally appeal.

See how much of your balance is penalties

Pull your IRS transcripts, separate tax from penalties and interest, and check FTA eligibility before negotiating anything else. We do exactly that on a first call.

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