IRS Penalty Abatement: First-Time Abate and Reasonable Cause, Explained

by | Jun 17, 2026 | Penalty Relief | 0 comments

The short version

The IRS adds penalties to a great many tax bills, but a penalty is not always final. Penalty abatement simply means getting a penalty removed or reduced. There are two main routes. The first is First-Time Abate, an IRS administrative break for taxpayers with a clean recent record. The second is reasonable cause, which applies when something outside your control kept you from filing or paying on time. This article explains who qualifies for each, what the law and the IRS actually require, and how to ask. Abatement removes penalties, not the underlying tax, so it is worth understanding before you pay a notice in full.

What the law actually says (primary authority first)

Start with the penalties themselves, because the relief route depends on which one you were charged.

  • Failure to file, Internal Revenue Code (IRC) section 6651(a)(1): 5 percent of the unpaid tax for each month or part of a month a return is late, up to 25 percent.
  • Failure to pay, IRC section 6651(a)(2): 0.5 percent of the unpaid tax per month, up to 25 percent. When both penalties run in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined charge is 4.5 percent plus 0.5 percent rather than 5.5 percent. For a return filed more than 60 days late, the failure-to-file penalty is at least the lesser of 435 dollars (adjusted for inflation) or 100 percent of the tax due.
  • Failure to deposit employment taxes, IRC section 6656: a tiered penalty of 2, 5, 10, or 15 percent depending on how late the deposit is.
  • Accuracy-related penalty, IRC section 6662: 20 percent of the underpayment (40 percent in certain defined situations), for conduct such as negligence or a substantial understatement of income tax.
  • Erroneous claim for refund or credit, IRC section 6676: 20 percent of the excessive amount claimed.

Each of these statutes contains its own escape hatch. The failure-to-file, failure-to-pay, and failure-to-deposit penalties do not apply where the failure was “due to reasonable cause and not due to willful neglect” (IRC sections 6651 and 6656). The accuracy-related penalty does not apply to any portion of an underpayment for which “there was a reasonable cause” and the taxpayer “acted in good faith” (IRC section 6664(c)). The erroneous-refund-claim penalty likewise falls away if the excessive claim was due to reasonable cause. (Note that this last standard changed: for claims filed after December 18, 2015, the test is reasonable cause, not the older “reasonable basis” wording.)

What does “reasonable cause” mean in practice? The Treasury regulations supply the standard. For a late return or payment, you must have “exercised ordinary business care and prudence” and still been unable to comply (Treas. Reg. section 301.6651-1(c)). For the accuracy penalty, the determination is made on all the facts and circumstances, where “the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax liability” (Treas. Reg. section 1.6664-4).

First-Time Abate is different, and the difference matters. It is not in the tax code at all. It is an IRS administrative waiver, created in 2001 and set out in the Internal Revenue Manual at section 20.1.1.3.3.2.1. Because it is agency policy rather than a statute, the IRS sets its own eligibility rules, and you can qualify for it even if you have no “reasonable cause” story to tell. Reasonable cause, by contrast, is the statutory standard described above, applied through the Manual at section 20.1.1.3.2.

Finally, the controlling case on one common mistake. In United States v. Boyle, 469 U.S. 241 (1985), the Supreme Court held that relying on an agent, such as your attorney or accountant, to actually file your return by the deadline is not reasonable cause, because meeting a filing deadline is your own non-delegable duty: “It requires no special training or effort to ascertain a deadline and make sure that it is met.” The Court drew a careful line, though. Relying on a professional’s substantive advice about a genuine question of law, for example whether a return was required at all, can be reasonable cause. The practical lesson is that “my preparer missed the deadline” will not remove the penalty, while “my advisor told me no return was due” might.

How it works in practice

Check First-Time Abate first. It is usually the fastest route because it does not require you to prove anything about why you were late. Per the IRS First-Time Abate page, you qualify on the basis of a clean record: you filed the same type of return (or a valid extension) for each of the past three years, and you had no penalties in the prior three years (or any penalty was removed for a reason other than First-Time Abate). The waiver covers the three most common penalties, failure to file under section 6651(a)(1), failure to pay under section 6651(a)(2) and (a)(3), and failure to deposit under section 6656. You can request it even if you have not paid the tax in full yet, although the failure-to-pay penalty keeps accruing until you do. First-Time Abate is often handled by phone or in a written response to the notice.

If First-Time Abate does not fit, build a reasonable-cause case. This is the path when you do not have the clean three-year history, or when the penalty is one First-Time Abate does not cover, such as the accuracy-related penalty. The IRS asks whether you exercised ordinary care and prudence but were still unable to comply. Reasons that can qualify include a fire, natural disaster, or other disturbance; an inability to obtain your records; or the death, serious illness, or unavoidable absence of you or an immediate family member. A lack of funds by itself is not reasonable cause, but the reason you lacked funds, such as a sudden medical crisis, may be. Documentation carries the argument: the IRS weighs the timeline, the reason, and what you did to get back into compliance.

How to request it. First-Time Abate and many reasonable-cause requests can be made by phone or in reply to the notice. For a written claim, or to recover a penalty you have already paid, the operative form is Form 843, Claim for Refund and Request for Abatement.

A worked example. Suppose you filed your 2024 return five months late and owed 20,000 dollars that you had not paid.

  • Failure to file: 5 percent per month, reduced by the failure-to-pay penalty in each overlapping month, so 4.5 percent for 5 months, or 22.5 percent. That is 4,500 dollars.
  • Failure to pay: 0.5 percent per month for 5 months, or 2.5 percent. That is 500 dollars.
  • Combined penalties: roughly 5,000 dollars, before interest.

If this is your first slip and your prior three years are clean, First-Time Abate can remove both penalties. If you do not qualify for First-Time Abate but a documented serious illness kept you from filing, reasonable cause may remove them instead. Either way, the underlying 20,000 dollars of tax, and the interest on that tax, still has to be paid. Abatement clears the penalty, not the bill that triggered it.

The numbers

Every figure below comes from the cited primary source.

Metric Figure Source (year)
Failure-to-file penalty rate 5% of unpaid tax per month, up to 25% IRC section 6651(a)(1); IRS Failure to File Penalty page
Failure-to-pay penalty rate 0.5% per month, up to 25% (0.25% on an approved payment plan) IRC section 6651(a)(2); IRS Failure to Pay Penalty page
Minimum failure-to-file penalty, return over 60 days late Lesser of 435 dollars (inflation-adjusted) or 100% of the tax due IRC section 6651(a)
Accuracy-related penalty 20% of the underpayment (40% in defined cases) IRC section 6662
Erroneous refund-claim penalty 20% of the excessive amount claimed IRC section 6676
Individual, estate, and trust income-tax penalties assessed 46.7 million penalties, about 33.1 billion dollars IRS Data Book FY2025, Table 4-2
Individual, estate, and trust income-tax penalties abated 3.9 million abatements, about 7.5 billion dollars IRS Data Book FY2025, Table 4-2
Projected First-Time Abate waivers from automation 350,000 rising to 1.7 million penalties a year (578 million to 848 million dollars) IRS Office of Chief Counsel, PMTA-2018-2 (2017)

What this means for you

  • Read the notice and identify the exact penalty. The relief path depends on it. First-Time Abate covers failure to file, failure to pay, and failure to deposit. It does not cover the accuracy-related penalty, which turns on reasonable cause and good faith instead.
  • Check First-Time Abate before anything else. It is the simplest path, and it asks only that you have a clean three-year history, not that you explain yourself. Many taxpayers who qualify never ask. A 2012 Treasury Inspector General for Tax Administration review (Reference Number 2012-40-113) found the waiver was significantly underused, which is part of why the IRS later moved toward applying it automatically.
  • If you go the reasonable-cause route, lead with your effort to get it right. The regulations treat that effort as the most important factor. Assemble the what, the when, the why it was outside your control, and the steps you took to become compliant again.
  • Do not plan to blame your preparer for a missed deadline. Under Boyle, that is not reasonable cause. Relying on a professional’s bad substantive advice is a different and potentially stronger argument.
  • Remember what abatement does and does not do. It removes penalties. It does not erase the underlying tax, and interest on that tax generally is not abatable just because the penalty was removed.
  • You can argue in the alternative. It is reasonable to request First-Time Abate and to present a reasonable-cause case as a backup in the same matter.

Related reading

Primary sources used above are linked inline: the Internal Revenue Code penalty sections, the IRS First-Time Abate page, the IRS reasonable-cause page, and United States v. Boyle.

How Sheepdog Tax Resolution can help

If you are looking at an IRS penalty notice and are not sure which form of relief applies, that is the kind of problem I handle. I am Noah Green, a CPA and Certified Fraud Examiner (CFE), running a veteran-owned solo practice. The starting point is a diagnostic review of your notices and your recent compliance history, to see whether First-Time Abate, reasonable cause, or both give you a path to relief, and to map out the request and the documentation it needs. You can reach me at noah@sheepdogtax.com.

Every case is different, and I cannot guarantee any specific outcome. What I can do is build the strongest, properly documented penalty-abatement request the facts will support.

Sources (primary authority first, then secondary commentary)

  1. IRC section 6651, Failure to file tax return or to pay tax. https://www.law.cornell.edu/uscode/text/26/6651
  2. IRC section 6656, Failure to make deposit of taxes. https://www.law.cornell.edu/uscode/text/26/6656
  3. IRC section 6662, Imposition of accuracy-related penalty on underpayments. https://www.law.cornell.edu/uscode/text/26/6662
  4. IRC section 6664(c), Reasonable cause exception for underpayments. https://www.law.cornell.edu/uscode/text/26/6664
  5. IRC section 6676, Erroneous claim for refund or credit. https://www.law.cornell.edu/uscode/text/26/6676
  6. Treas. Reg. section 301.6651-1(c), Reasonable cause for failure to file or pay. https://www.ecfr.gov/current/title-26/section-301.6651-1
  7. Treas. Reg. section 1.6664-4, Reasonable cause and good faith exception to the accuracy-related penalty. https://www.ecfr.gov/current/title-26/section-1.6664-4
  8. United States v. Boyle, 469 U.S. 241 (1985). https://www.law.cornell.edu/supremecourt/text/469/241
  9. Internal Revenue Manual section 20.1.1.3.3.2.1 (First Time Abate) and section 20.1.1.3.2 (Reasonable Cause). https://www.irs.gov/irm/part20/irm_20-001-001r
  10. IRS, Penalty Relief due to First Time Abate or Other Administrative Waiver. https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver
  11. IRS, Penalty Relief for Reasonable Cause. https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
  12. IRS, Failure to File Penalty. https://www.irs.gov/payments/failure-to-file-penalty
  13. IRS, Failure to Pay Penalty. https://www.irs.gov/payments/failure-to-pay-penalty
  14. IRS, About Form 843, Claim for Refund and Request for Abatement. https://www.irs.gov/forms-pubs/about-form-843
  15. IRS Data Book FY2025, Table 4-2, Civil Penalties Assessed and Abated by Type of Tax and Type of Penalty. https://www.irs.gov/statistics/soi-tax-stats-civil-penalties-assessed-and-abated-by-type-of-tax-and-type-of-penalty-irs-data-book-table-28
  16. IRS Office of Chief Counsel, Program Manager Technical Advice PMTA-2018-2 (2017). https://www.irs.gov/pub/lanoa/PMTA-2018-2.pdf
  17. Treasury Inspector General for Tax Administration, Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance, Reference Number 2012-40-113 (September 19, 2012), as discussed in Jim Buttonow, Using the First-Time Penalty Abatement Waiver, The Tax Adviser (July 2013). https://www.thetaxadviser.com/issues/2013/jul/buttonow-july2013/

Prepared by Noah Green, CPA, CFE.

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