Specific Types of Representation · Penalties and/or interest abatement

Grounds for abating or refunding a penalty

There are four distinct grounds for removing a penalty, and they are not ranked versions of one another. Each attaches to particular penalties, demands particular evidence, and fails in a particular way. Choosing the wrong one wastes the request and, in the case of first-time abate, can waste something the client cannot get back.

The rule

Reasonable cause, in the § 6651 additions. The failure-to-file and failure-to-pay additions do not apply where the failure is due to reasonable cause and not due to willful neglect (IRC § 6651(a)(1), (a)(2)). The burden is the taxpayer’s, and the test looks to whether ordinary business care and prudence were exercised.

Reasonable cause and good faith, in the accuracy and fraud penalties. No penalty is imposed under § 6662 or § 6663 for any portion of an underpayment where it is shown that there was reasonable cause for that portion and the taxpayer acted in good faith with respect to it (IRC § 6664(c)(1)). This is a two-part test, and it does not reach portions attributable to transactions described in § 6662(b)(6) or disallowances described in § 6662(b)(10) (§ 6664(c)(2)).

First-time abate, an administrative waiver. IRM 20.1.1.3.3.2.1 grants relief from the failure-to-file, failure-to-pay, and failure-to-deposit penalties the first time a taxpayer is subject to one of them for a single return. The criteria are compliance-based: the taxpayer filed the same return for the three years preceding the penalised period, or had no filing requirement; those returns were processed with no unreversed penalties other than an estimated tax penalty and with no notice issued showing an assessed penalty; and no penalty in those years was suppressed or reversed under the reason codes the IRM lists for prior waivers or tolerance.

Automatic exemption, replacing the waiver. From summer 2026 the IRS is moving this relief from request to automation. Under Automatic Exemption from Penalty, a taxpayer who files or pays late but has timely filed and paid for the three prior years — twelve consecutive quarters for quarterly filers — is not assessed the failure-to-file, failure-to-pay, or failure-to-deposit penalty, and is told by notice that the relief was applied. No call, no Form 843, no request. It applies to Forms 1040, 1065, 1120, the 940 through 945 series, and Form CT-1, beginning with 2025 tax year returns and 2026 quarterly returns.

Erroneous written advice from the IRS. The Secretary shall abate any portion of a penalty attributable to erroneous advice furnished in writing by an IRS officer or employee acting in an official capacity — but only if the advice was reasonably relied on and was in response to a specific written request by the taxpayer, and the penalty did not result from the taxpayer’s failure to provide adequate or accurate information (IRC § 6404(f)).

Erroneous or untimely assessment. The general authority in IRC § 6404(a) reaches an assessment that is excessive in amount, made after the limitations period expired, or erroneously or illegally assessed.

How it works in practice

Match the ground to the penalty first. Reasonable cause under § 6651 answers a late return; reasonable cause and good faith under § 6664(c) answers an accuracy penalty; first-time abate answers neither of the accuracy penalties at all.

The transition changes what a representative should do first. Where the automatic exemption applies, the penalty should never appear; if it does, the question is whether the client’s three prior years really were compliant, not whether to draft a reasonable-cause narrative. Where it does not apply — an older year, a return series outside the list — first-time abate still has to be requested, by telephone or by a written statement or Form 843, and the IRS checks the account rather than asking for documents.

Where more than one ground is available, order them. First-time abate is quick and needs no narrative, which makes it tempting — but it is consumed by use, and a client with several open years may need it for the largest penalty rather than the first one to arrive. Leading with reasonable cause, and holding the waiver in reserve, is usually the better sequence.

Evidence follows the ground. Reasonable cause is a story with documents: the hospital admission, the destroyed records, the death in the family, the adviser’s engagement letter and the information given to them. First-time abate is not a story at all — it is a transcript check. The § 6404(f) route requires producing the written request and the written answer, which is why so few claims under it succeed: taxpayers rely on telephone advice, and the statute does not reach it.

Where the penalty has already been paid, the vehicle is a refund claim on Form 843, and the limitations rules for refunds apply to it.

How this has changed

The reasonable cause standard in § 6651 is original to the section and has been elaborated by case law and the Penalty Handbook rather than by amendment. Section 6664(c) arrived with the 1989 restructuring of the accuracy penalties, which replaced a scatter of separate additions with the unified § 6662 and gave it a single defence. Section 6404(f) was added in 1988 as part of the first Taxpayer Bill of Rights, and its written-request limitation has been the practical constraint ever since. First-time abate is the newest and the least secure: an administrative waiver introduced in 2001, restated in IRM 20.1.1 as most recently revised in November 2025, and capable of being narrowed without any change in the law.

Exam focus

Distinguish the two reasonable-cause formulations precisely — willful neglect belongs to § 6651, good faith to § 6664(c). Know that first-time abate is administrative, covers the three failure penalties only, and turns on a three-year clean compliance history. Section 6404(f) is examined on its limitations: written advice, specific written request, reasonable reliance, and no failure by the taxpayer to give adequate information. Remember Form 843 as the vehicle where the penalty has been paid.

Check yourself

1. The exception in IRC § 6664(c)(1) requires the taxpayer to show: (A) Reasonable cause and no willful neglect (B) Reasonable cause and good faith (C) Substantial authority (D) A clean three-year compliance history Answer: B. Willful neglect belongs to the § 6651 additions.

2. First-time abate requires that, for the three preceding years, the taxpayer: (A) Owed no tax (B) Filed the same return with no unreversed penalties other than an estimated tax penalty, or had no filing requirement (C) Was represented by a practitioner (D) Had no examinations Answer: B. IRM 20.1.1.3.3.2.1.

3. A taxpayer relied on incorrect advice given by an IRS employee over the telephone. Section 6404(f): (A) Requires abatement (B) Requires abatement if the call was documented (C) Does not apply, because it reaches written advice given in response to a specific written request (D) Applies only to accuracy penalties Answer: C. The argument must instead be made as reasonable cause.

4. A penalty has already been paid and the client wants it back. The vehicle is: (A) Form 2848 (B) Form 9423 (C) Form 843 (D) Form 12153 Answer: C. Claim for Refund and Request for Abatement.