How to Waive Your IRS Penalty and Avoid Paying More Than You Should

In 2023, the IRS assessed more than $25.6 billion in additional taxes for returns not filed timely and collected almost $2.8 billion with delinquent returns. These figures highlight the substantial impact of penalties on taxpayers. However, many are unaware that the IRS offers avenues for penalty relief in some instances, which allow you to reduce or even eliminate these additional costs.

If you’ve been hit with tax penalties, you may not have to pay them. Knowing how to qualify and adequately request IRS tax penalty relief can save you from paying more than necessary.

Understanding the IRS Late Penalty

IRS late penalties are additional charges imposed when taxpayers fail to meet their tax obligations. These penalties encourage compliance with tax laws by discouraging late filings, underpayments, and inaccuracies in tax returns. The IRS applies penalties in various situations, such as:

• When taxpayers file their returns late

• Fail to pay owed taxes on time

• Make significant errors in reporting their income and deductions

Penalties can vary in severity. It ranges from small percentage-based fees to substantial financial consequences, depending on the type of violation and the amount of unpaid tax. In addition to penalties, interest accrues on unpaid taxes and penalties, compounding the total debt owed to the IRS over time. Learning how the IRS calculates interest on tax penalties can provide better insight into how it affects your overall tax balance and the total amount owed.

Common Types of IRS Tax Penalties

The IRS enforces various penalties based on different types of noncompliance. Below are some of the most common:

IRS Late Filing Penalty

This penalty applies when you do not file your tax return by the due date (April 25th) and owe taxes. The penalty is 5% of the unpaid monthly taxes up to a maximum of 25% of your unpaid balance.

If your return is more than 60 days late, you may face a minimum penalty of $485 or 100% of the unpaid tax (whichever is lower).

Failure to Pay Penalty

Failure to pay a penalty applies if you fail to pay your tax bill by the due date. It accrues at 0.5% per month on the unpaid tax, up to a maximum of 25% of the total tax owed. However, using an IRS payment plan can reduce this penalty to 0.25% per month.

Accuracy-Related Penalty

The IRS may impose a 20% penalty on the underpaid tax if there are errors due to negligence or “substantial understatement.” A substantial understatement occurs when the tax owed is understated by more than 10% of the correct tax liability or at least $5,000.

Estimated Tax Penalty

If you are self-employed or have income not subject to withholding (such as investments), you are required to make quarterly estimated tax payments. Failing to pay enough throughout the year can result in an estimated tax penalty. Remember that this varies based on how much you underpaid and how long it remained unpaid.

Trust Fund Recovery Penalty (TFRP) (For Business Owners and Employers)

Employers must withhold federal income tax, Social Security, and Medicare taxes from employees’ wages and submit them to the IRS. If an employer fails to remit these taxes, the IRS can impose a Trust Fund Recovery Penalty, which can equal 100% of the unpaid trust fund taxes. Business owners, officers, or anyone responsible for collecting and submitting payroll taxes can be held personally liable.

Types and Qualifications for IRS Penalty Relief

Here are the four main types of IRS penalty relief and their requirements for qualification:

First-Time Penalty Abatement (FTA)

The First-Time Penalty Abatement (FTA) program is available to taxpayers with a clean compliance history. You may qualify if you have not received an IRS penalty in the past three years, have filed all required tax returns, and have either paid or arranged to pay any owed taxes. This relief applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties.

Note: FTA does not apply to accuracy-related penalties, fraud penalties, or estimated tax penalties.

Reasonable Cause Relief

If unforeseen circumstances prevent you from meeting your tax obligations, the IRS may waive penalties under Reasonable Cause Relief. Valid reasons include serious illness, natural disasters, financial hardship, or reliance on incorrect professional advice. To justify your claim, you must provide supporting documentation, such as medical records, disaster reports, or evidence of economic hardship.

Statutory and Administrative Waivers

Specific penalties can be waived due to IRS policies or legal provisions. Disaster relief waivers are automatically granted to taxpayers in federally declared disaster areas, extending filing deadlines and penalty relief. 

For example, if you live in an area affected by hurricanes, wildfires, floods, or other federally declared disasters, the IRS may automatically waive penalties and extend tax deadlines. Taxpayers can check eligibility on the IRS Disaster Relief page.

In addition, the IRS has provided special COVID-19 relief in the past, and new penalty relief initiatives may be introduced periodically.

Correction of IRS Errors

The IRS occasionally makes mistakes when assessing penalties. You can dispute the penalty if you believe you were unfairly penalized due to an IRS miscalculation, payment misapplication, or incorrect notice. You may challenge the error by calling the IRS Penalty Abatement Hotline or submitting IRS Form 843, along with supporting evidence.

For a detailed breakdown of each penalty relief type and how to apply, visit our complete guide on IRS penalty relief options.

Steps to Request IRS Penalty Relief

Following the proper steps can improve your chances of success for getting a penalty. Here’s how:

Step 1: Determine If You Qualify for IRS Penalty Relief

The IRS offers penalty relief under specific circumstances, but not all taxpayers qualify. Before submitting a request, first confirm your eligibility based on factors such as prior compliance, reasonable cause, or IRS policy changes.

If you’re unsure whether you qualify, you can consult a J. David Tax Law tax professional for guidance. Understanding your eligibility will help you choose the right approach and avoid unnecessary delays.

Step 2: Gather Supporting Documentation

IRS penalty relief is not automatic—you must provide evidence that supports your request. The type of documentation required depends on the relief category. 

For example, reasonable cause relief will require medical records, death certificates, and, in some cases, FEMA reports, foreclosure notices, bankruptcy filings, or unemployment records.

On the other hand, you will need to submit IRS notices and tax transcripts, bank statements or proof of payment, and correspondence with the IRS for IRS error disputes. Providing clear and well-organized documentation increases your chances of success and helps avoid unnecessary delays.

Step 3: Submit Your Penalty Abatement Request

The IRS allows taxpayers to request penalty relief using three main methods:

Call the IRS (Best for First-Time Penalty Abatement)

If you qualify for First-Time Penalty Abatement, calling is the fastest way to request relief. IRS agents may approve your request immediately if you meet the criteria. Record your call, including the agent’s name and reference number.

Write a Penalty Abatement Request Letter (Best for Reasonable Cause Relief)

A written letter is often the best approach if your request requires a detailed explanation. Your letter should include:

• Your name, SSN or EIN, tax year, and penalty amount.

• A clear explanation of why you’re requesting penalty relief.

• Supporting evidence (attach copies, never send originals).

• A request for a written response from the IRS confirming their decision.

The mailing address is listed on your IRS penalty notice, or you can check the IRS website for the correct submission location. 

File IRS Form 843 (Best for Formal Requests & IRS Error Corrections)

If you need a structured approach, use IRS Form 843, Claim for Refund and Request for Abatement.

Here’s how to complete the IRS Form 843:

• Fill in your personal or business information.

• Indicate the tax year and penalty amount being contested.

• Provide a detailed explanation of why the penalty should be removed.

• Attach supporting documents and mail the form to the IRS.

Step 4: Follow Up with the IRS

Once you submit your request, the IRS will review your case. Processing times vary:

• Phone requests (FTA): Immediate approval or within a few weeks.

• Written requests (letters or Form 843): Typically 30–90 days, but complex cases may take longer.

If you haven’t received a response within 90 days, call the IRS to check the status of your request. Be sure to have your case reference number and any correspondence ready.

Due to IRS backlogs, response times may be delayed. If your case is time-sensitive, working with a J. David Tax Law professional can help speed up the process.

Step 5: If Denied, Consider an Appeal with J. David Tax Law

If the IRS denies your penalty relief request, that doesn’t necessarily mean the case is closed. Many taxpayers give up after receiving a denial, assuming no further options exist. However, working with a tax debt attorney from J. David Tax Law can significantly improve your chances of success. 

A tax attorney can analyze the IRS’s reasoning, strengthen your case with additional legal arguments, and negotiate directly with the IRS on your behalf. This can be particularly beneficial in complex cases with substantial penalties or when dealing with IRS appeals procedures.

Conclusion

IRS tax penalties can significantly increase your tax debt, but many taxpayers don’t realize they may qualify for relief. Taking the proper steps can improve your chances of penalty reduction or removal. If your request is denied, appealing the decision or seeking reconsideration may still lead to a favorable outcome.

Dealing with the IRS penalty abatement process can be challenging, but you don’t have to handle it alone. J. David Tax Law has the experience to advocate on your behalf and negotiate with the IRS to help you secure the best possible outcome.