Penalty Abatement
Written in plain language for general understanding. This is educational content, not legal advice. Based on federal statutes and official sources.
What is this right?
The IRS charges penalties for late filing, late payment, and accuracy issues — but you have the right to request that penalties be removed ("abated"). If you have a good reason for the failure, such as a serious illness, natural disaster, or bad advice from a tax professional, the IRS may remove the penalty entirely.
The IRS also offers First Time Penalty Abatement (FTA) — an administrative waiver for taxpayers with a clean compliance history.
When does it apply?
This right applies when:
- The IRS assessed a penalty on your account (failure to file, failure to pay, estimated tax penalty, accuracy penalty)
- You have a reasonable cause for the failure (illness, death in family, natural disaster, fire, IRS error, bad professional advice)
- You have a clean compliance history (3 prior years of on-time filing and payment — qualifies for First Time Abatement)
Common misconceptions:
- "IRS penalties are final" — No. You have the right to request abatement for any penalty, and the IRS grants them regularly.
- "You need a lawyer to get penalties removed" — Not usually. Many penalty abatement requests can be handled with a phone call or a simple letter.
- "First Time Abatement only works once" — Technically yes, but the 3-year lookback resets. If you stay compliant for another 3 years, you can qualify again.
What should you do?
Step 1: Identify the penalty. Review your IRS notice to understand which penalty was assessed and the amount.
Step 2: Check if you qualify for First Time Abatement (FTA). You qualify if you filed on time and paid on time for the 3 prior tax years. Call the IRS at 1-800-829-1040 and simply ask for FTA.
Step 3: If FTA doesn't apply, submit a reasonable cause request in writing. Use Form 843 or write a letter explaining why you failed to file/pay, what steps you took to comply, and attach supporting documentation.
Step 4: If the IRS denies your request, you can appeal to the IRS Office of Appeals. Use Form 12203 (Request for Appeals Review).
Step 5: Interest on underpayment generally cannot be abated unless caused by IRS error or delay. But removing the penalty also stops interest from accruing on the penalty amount.
What should you NOT do?
Don't accept the penalty without asking. Many taxpayers pay penalties they could have had removed simply by asking.
Don't make vague excuses. "I was busy" or "I forgot" generally don't qualify as reasonable cause. Be specific: doctor's notes, death certificates, FEMA disaster declarations, etc.
Don't pay the penalty and assume it's over. You can request abatement even after you've already paid. The IRS will refund the penalty amount if approved.
Don't ignore the deadline. Generally, you must request abatement within 3 years of the tax return filing date or 2 years from the date you paid the penalty.
How Texas differs from federal law
Texas penalty abatement applies to franchise tax and sales tax, not personal income tax:
- No personal income tax penalties: Since Texas has no income tax, there are no income tax penalties to abate.
- Franchise tax penalties: Late filing penalties (5% per month, max 25%) can be waived by the Comptroller for reasonable cause.
- Sales tax penalties: Businesses that fail to timely remit sales tax face penalties. The Comptroller can waive penalties for first-time offenses or reasonable cause.
- Property tax penalties: Delinquent property tax penalties are set by statute and are generally not subject to abatement. However, some counties offer "tax amnesty" programs periodically.
Additional Steps in Texas
For franchise or sales tax penalties, contact the Texas Comptroller at (800) 252-5555. Submit a penalty waiver request in writing with supporting documentation.
Relevant Law: Texas Tax Code § 111.065 (penalty waiver authority), § 171.362 (franchise tax penalties)
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