A client owes $4,200 in penalties after a late-filed return. Knowing which ground reaches which penalty, and the order the IRS applies them in, tells you what to ask for and how much comes off.
When the IRS adds a penalty or interest to a taxpayer's account, the taxpayer can often ask to have it taken off. Abatement is the IRS removing an assessed amount before payment; a refund returns an amount already paid. Only a defined list of penalties is subject to abatement, and interest follows narrower rules than penalties do.
These are the penalties subject to abatement that come up most often:
TRAP: You can't argue reasonable cause against the estimated tax penalty under IRC 6654. The only relief comes from the statutory waivers written into the law: casualty, disaster, unusual circumstance, or retirement after age 62 or disability in the current or prior year.
To get a penalty abated or refunded, you need a basis, meaning a reason the IRS accepts for removing it.
Common mistakes
- Treating FTA as a per-taxpayer lifetime waiver. FTA works per tax period and reaches only the earliest year in a delinquent run of late years. A client late for 2023 through 2025 gets FTA for 2023, not $12,000 across all three.
- Arguing reasonable cause against interest. Hardship never abates IRC 6601 interest, however sympathetic the facts. Only ministerial or managerial delay, an erroneous refund of $50,000 or less, or an illegal assessment qualifies. Erroneous written advice under IRC 6404(f) abates penalties, not interest.
- Using Form 843 to recover income tax. Income tax overpayments are claimed on Form 1040-X. Form 843 covers penalties, interest, additions to tax, and certain fees.
Bottom line
- FTA covers failure to file, failure to pay, and failure to deposit only; never accuracy or fraud penalties.
- FTA conditions: clean three prior years, all returns filed, balance paid or under an installment agreement. When they're met, the IRS applies FTA before reasonable cause.
- Reasonable cause requires ordinary business care and prudence; Boyle bars agent-reliance for missed filing deadlines.
- Interest abates only for ministerial or managerial delay after written contact, an erroneous refund of $50,000 or less, or an illegal assessment. IRC 6404(f) written-advice relief reaches penalties, not interest.
Exam shortcut
Read the stem for the penalty name first. See "accuracy-related" or "fraud" and eliminate every FTA answer instantly. See "interest" plus a hardship story (illness, fire, divorce) and eliminate every abatement answer; hardship reaches penalties, never interest. Three signal words drive the routing. "IRS wrote me a letter saying" points to IRC 6404(f) penalty relief, never interest relief.
The full lesson (about 4,041 words, 27 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 2
Browse all free EA Part 3 lessons or jump into free EA Part 3 practice questions.