If you owe the IRS, penalties can add up fast. The failure-to-file penalty alone can reach 25% of the unpaid tax, and the failure-to-pay penalty keeps growing every month the balance sits there. The good news is that many penalties can be removed, a process the IRS calls penalty abatement. The less welcome news is that interest is a different story. In most cases, the IRS cannot waive interest just because you had a good reason for paying late.
Below, we walk through the main types of penalty relief, explain why interest is usually off the table, and cover the narrow situations where interest relief is possible.
1. First-Time Abatement (and the new automatic version)
First-Time Abatement (FTA) is the easiest relief to get because you don't need to explain why you were late. It rewards a clean track record. You generally qualify if:
- You filed the same type of return on time for the prior three years (or 12 consecutive quarters for quarterly filers).
- You had no penalties in those years, other than an estimated tax penalty or a penalty that was later removed for reasonable cause.
- You have filed all currently required returns and paid, or arranged to pay, the tax due.
FTA covers the failure-to-file, failure-to-pay, and failure-to-deposit penalties, regardless of the dollar amount. It does not cover accuracy-related penalties or most information-return penalties.
What's changing in 2026: In July 2026, the IRS announced the Automatic Exemption from Penalty (AEP) program. Under AEP, the IRS checks your eligibility while processing your return and simply doesn't assess a qualifying penalty, so you don't have to ask. It starts with 2025 tax year returns and 2026 quarterly returns, and it fully replaces FTA for returns originally due on or after January 1, 2027. During the transition, some eligible taxpayers may still receive penalty notices. If that happens, you can still request FTA for older years, or for any year where the automatic relief wasn't applied.
2. Reasonable cause relief
If you don't qualify for first-time relief, or you need relief for a second year, reasonable cause is the next option. You must show that you used ordinary business care and prudence but still couldn't comply because of circumstances beyond your control. Common examples include:
- Fire, natural disaster, or civil disturbance
- Serious illness, death, or unavoidable absence of you or an immediate family member
- Inability to obtain the records you needed
- System problems that prevented a timely electronic filing or payment
Some reasons usually fall short on their own. These include not knowing the rules, simple oversight, relying on someone else to file, and lack of funds. That said, the IRS looks at all the facts, so a combination of circumstances can still support relief.
Documentation matters. A strong request explains what happened and when, how it prevented you from filing or paying, and what you did to comply once you could. Back it up with hospital records, insurance claims, death certificates, or similar proof.
3. Statutory exceptions and IRS error
Sometimes the penalty isn't your fault at all. The most common statutory exception covers incorrect written advice from the IRS. Under IRC §6404(f), the IRS must remove a penalty if:
- You asked the IRS a question in writing,
- You gave the IRS complete and accurate facts,
- The IRS answered in writing and got it wrong, and
- You reasonably relied on that answer.
One caveat: this relief removes the penalty, not the tax. You still owe the underlying tax and the interest on it. Bad advice over the phone or from an IRS website generally doesn't qualify, although it may help a reasonable cause argument.
The IRS also corrects penalties that result from its own processing mistakes. For example, it may have misapplied a payment or failed to post an extension you filed. In those cases, you're not asking for forgiveness. You're asking the IRS to fix its records.
4. Disaster relief and other blanket waivers
When a federally declared disaster strikes, the IRS usually postpones filing and payment deadlines for everyone in the covered area. The IRS automatically identifies taxpayers with an address in that area, so most people don't need to ask. If you still receive a late-filing or late-payment notice for a deadline that fell within the postponement period, call the number on the notice to have the penalty removed.
The IRS also grants event-specific waivers through notices and news releases, often after new legislation or a widespread processing problem. These typically apply automatically to everyone affected.
What about interest?
Here's the part that surprises many people: interest generally cannot be removed, even when your reason for paying late is excellent. A penalty is a punishment, so the IRS has room to forgive it when you weren't at fault. Interest is different. It is the cost of using the government's money, and the law requires the IRS to charge it on any unpaid tax from the original due date until you pay in full. A serious illness or a house fire can win penalty relief, but it won't erase the interest on the tax itself.
That said, "generally" is doing real work in that sentence. There are a few narrow exceptions.
Interest on a removed penalty goes away automatically. The IRS charges interest on penalties too. When a penalty is reduced or removed, the IRS automatically reduces or removes the interest on that penalty. This is often where penalty abatement saves the most money. The interest on the tax itself stays.
IRS errors or delays (§6404(e)). The IRS can abate interest caused by an unreasonable error or delay by an IRS employee. The bar is high. The error must involve a "ministerial" act (a routine procedural step) or a "managerial" act (such as losing your file or reassigning your case to an employee who sat on it). It must also occur after the IRS contacted you in writing, and you can't have contributed to the delay. Disagreements about how the tax law applies don't count. Only the interest that built up during the delay is removed. Employment taxes are not eligible.
Late IRS notices (§6404(g)). If you're an individual who filed on time and the IRS doesn't notify you of additional tax within 36 months, interest is suspended until 21 days after the IRS sends the notice. This does not apply to tax shown on your own return, to failure-to-file or failure-to-pay penalties, or to cases involving fraud.
Disaster postponements. When the IRS postpones deadlines for a federally declared disaster, the postponement period is generally disregarded when interest is calculated.
How to request relief
- Read your notice. It tells you which penalty was charged, for which year, and how much.
- Call first for simple cases. First-time abatement can often be granted over the phone using the number on your notice.
- Put it in writing for everything else. Reasonable cause, erroneous advice, and interest abatement requests generally go on Form 843, Claim for Refund and Request for Abatement, or in a signed letter, with supporting documents.
- Appeal a denial. If the IRS says no, you can usually take the request to the IRS Independent Office of Appeals.
Penalty relief is one of the most valuable and most overlooked tools for reducing an IRS balance. Knowing which kind of relief fits, and what to expect on interest, can save you thousands. If you're facing IRS penalties, contact Bryson Law Firm to review your options.
