IRS penalties often feel automatic and unavoidable. Taxpayers open a notice and see thousands—or tens of thousands—of dollars added to their balance for late filing, late payment, accuracy issues, or information reporting failures. Many assume penalties are non-negotiable and focus only on paying the underlying tax.
That assumption is wrong.
IRS penalties are among the most frequently challenged—and most frequently reduced—components of a tax liability. Penalties are governed by statute, constrained by procedural rules, and subject to mandatory relief in many circumstances. When challenged correctly, penalties are often removed in whole or in part. When ignored, they quietly compound the problem and accelerate enforcement.
📘 Reference: IRS Penalties Overview
Why the IRS Assesses Penalties?
Penalties are designed to promote compliance, not to punish taxpayers for honest mistakes. The Internal Revenue Code authorizes penalties when taxpayers fail to file, fail to pay, understate tax, or violate reporting requirements. In theory, penalties encourage timely and accurate compliance. In practice, they are often applied mechanically.
The IRS’s systems assess penalties automatically when certain conditions are met, without evaluating intent, hardship, or reasonable cause. This means penalties are frequently imposed even when the law requires relief.
Once assessed, penalties accrue interest and become part of the enforceable balance unless affirmatively challenged.
📘 Reference:
- IRC §6651 – Failure to file tax return or to pay tax
- IRC §6662 – Imposition of accuracy-related penalty on underpayments
Reasonable Cause – The Most Powerful Penalty Defense
The most effective basis for penalty relief is reasonable cause. The law requires the IRS to remove penalties when the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply.
Reasonable cause is highly fact-specific. It may include serious illness, reliance on professional advice, natural disasters, unavoidable absence, or circumstances beyond the taxpayer’s control. The IRS must consider these factors, but only if they are presented properly.
Poorly framed explanations are often rejected even when the facts support relief. Successful challenges require aligning facts with legal standards.
📘 Reference: IRS IRM 20.1.1
First-Time Penalty Abatement – An Underused Tool
For taxpayers with a clean compliance history, the IRS offers first-time penalty abatement (IRS FTA). The
IRS FTA is a highly effective, underutilized administrative waiver that can remove penalties for failure-to-file, failure-to-pay, or failure-to-deposit. To qualify, taxpayers must have a clean history with no similar penalties in the preceding three years and be in current tax compliance. It acts as a “get-out-of-jail-free” card for compliant taxpayers.
Many taxpayers qualify but never request it. Others request it incorrectly or too late. When used strategically, first-time abatement can eliminate substantial penalties quickly.
📘 Reference: IRS First-Time Penalty Abatement
What Happens If Penalties Are Not Challenged?
Unchallenged penalties become part of the assessed balance. Interest accrues. Collection notices issue. Liens and levies follow. Penalties often represent the portion of a balance that pushes a case from manageable into crisis.
📘 Reference: IRS Collection Overview
How to Request Penalty Abatement Properly?
Penalty relief may be requested through written submissions, appeals, audit reconsideration, or as part of a broader collection resolution. The method matters.
The IRS evaluates penalty relief requests based on how clearly the facts satisfy statutory and administrative criteria. Vague explanations rarely succeed.
📘 Reference: IRS Penalty Relief Guidance
Why CPAs Alone Are Sometimes Not Enough?
CPAs play a critical role in reconstructing records and explaining financial issues. However, penalty abatement involves legal standards, evidentiary framing, and procedural timing. CPAs do not provide attorney-client privilege and may be limited in appeals and enforcement contexts.
When penalties are large, tied to audits, or intertwined with collection risk, legal counsel is often essential.
When to Hire a Tax Attorney for Penalty Defense?
A tax attorney should be consulted when penalties materially affect the balance owed, follow an audit, or contribute to imminent enforcement. Early intervention preserves appeal rights and prevents penalties from compounding enforcement risk.
📘 Reference: IRS Form 2848, Power of Attorney
Need help with a similar issue? Contact our firm today for a consultation.
IRS penalties can be challenged by requesting penalty relief.
Pelham PLLC represents taxpayers in IRS penalty abatement, appeals, audits, and enforcement defense.
Contact Pelham PLLC now if IRS penalties are inflating your tax debt or pushing your case toward collection.
FAQs
Can IRS penalties be removed entirely?
Yes. Penalties may be reduced or eliminated through reasonable cause relief or first-time abatement.
What is reasonable cause for IRS penalties?
Reasonable cause exists when you exercised ordinary care but were unable to comply due to circumstances beyond your control.
What is first-time penalty abatement?
It is an IRS administrative policy that removes certain penalties for taxpayers with a clean compliance history.
Do I have to pay penalties before challenging them?
No. Penalties can often be challenged administratively or through appeals before payment.
What happens if I don’t challenge IRS penalties?
Penalties accrue interest and become part of the enforceable balance, increasing collection risk.
Can penalties from an audit be challenged?
Yes. Audit penalties can be disputed during the audit, on appeal, or in some cases after assessment.
When should I hire a tax attorney for penalty defense?
When penalties are large, tied to an audit, or pushing your case toward liens or levies.
