Specific Types of Representation · Penalties and/or interest abatement

Which penalties can be abated

Abatement work starts with identifying the penalty precisely, because the relief routes are not interchangeable. The administrative waiver that clears a late-filing penalty does nothing for an accuracy-related penalty, and the statutory defence that answers an accuracy penalty is not the same test as the one in the late-filing statute.

The rule

Failure to file adds 5% of the tax per month or part month, maximum 25%^TY2026 of the tax required to be shown, unless the failure is due to reasonable cause and not willful neglect (IRC § 6651(a)(1)). Failure to pay the amount shown adds 0.5% of the tax per month or part month, maximum 25%^TY2026, on the same reasonable-cause condition (IRC § 6651(a)(2)).

For a return filed more than 60 days late, the failure-to-file addition cannot be less than the lesser of $535 or 100% of the tax required to be shown, for returns required to be filed in 2027^TY2026 (IRC § 6651(a) flush language). That floor is indexed under § 6651(j) and rounded down to a multiple of five dollars, and it is keyed to the calendar year in which the return is required to be filed rather than the tax year it reports.

Where both additions run for the same month, the failure-to-file amount is reduced by the failure-to-pay amount for that month, though never below the 60-day floor (IRC § 6651(c)(1)).

Failure to deposit employment and certain other taxes carries its own penalty (IRC § 6656). Accuracy-related underpayments add 20% of the underpayment^TY2026 (IRC § 6662(a)); fraud adds 75% of the underpayment attributable to fraud^TY2026 of the portion attributable to fraud (IRC § 6663(a)).

The general abatement authority lets the Secretary abate the unpaid portion of an assessment that is excessive in amount, assessed after the limitations period expired, or erroneously or illegally assessed (IRC § 6404(a)).

First-time abate reaches three penalties and no others. IRM 20.1.1.3.3.2.1 provides administrative relief from the failure-to-file penalty under § 6651(a)(1), § 6698(a)(1), or § 6699(a)(1); the failure-to-pay penalty under § 6651(a)(2) or (a)(3); and the failure-to-deposit penalty under § 6656. Accuracy-related and fraud penalties are outside it entirely.

That waiver is being replaced. The IRS is transitioning first-time abate to Automatic Exemption from Penalty, beginning summer 2026. It covers the same three penalties, but it operates before assessment rather than after: a taxpayer who files or pays late in the current year, having timely filed and paid for the three prior years — or twelve consecutive quarters for quarterly filers — is not assessed the penalty at all, and receives a notice saying the relief was applied. It reaches Forms 1040, 1065, and 1120, the 940, 941, 943, 944, and 945 series, and Form CT-1, starting with 2025 tax year returns and 2026 quarterly returns.

Current figures

How it works in practice

Read the notice and name the penalty before choosing an argument. A transcript showing a late return, a balance, and deposits missed in a quarter can carry three separate penalties with three separate answers.

The interaction in § 6651(c)(1) matters when estimating what relief is worth. In a month where both additions apply, the combined rate is not 5.5 percent — the failure-to-file penalty absorbs the failure-to-pay amount, so the pair runs at 5 percent while both are live. The exception is the 60-day floor, which is not reduced by the offset.

The 60-day minimum is where small cases turn painful. A return filed late showing a modest balance can attract a floor penalty far exceeding the percentage calculation, because the floor is the lesser of the indexed amount or 100 percent of the tax — so it bites hardest where the tax shown is itself small but not trivial.

For accuracy and fraud penalties, the route is the statutory defence rather than an administrative waiver. That distinction decides which page of argument to write, and it is the single most common misstep in penalty work.

Sequencing matters as much as selection. First-time abate is checked against a compliance history, so spending it on a small penalty in an early year can leave nothing for a larger penalty later — the waiver is available the first time a taxpayer is subject to one of the covered penalties, and a client with several open years is better served by identifying the largest exposure before requesting anything. Where both a waiver and a reasonable-cause argument are available, leading with reasonable cause preserves the waiver.

Nor does removing a penalty remove what accrued on it. Interest runs on tax, and abating a penalty leaves the underlying interest computation intact; interest has its own, much narrower abatement grounds and its own outline item. A client told their penalties have been abated will often read the next notice expecting a zero balance, so it is worth saying plainly what the abatement does and does not reach before the notice arrives.

How this has changed

The rate structure in § 6651 is long-standing; what has moved is the floor. It began as a small fixed dollar amount, was raised repeatedly by statute, and is now indexed: § 6651(j), added by the Taxpayer First Act in 2019, adjusts the statutory base amount for returns required to be filed in calendar years after 2020, rounding down to a multiple of five dollars. That is why a figure quoted in older material is almost certainly stale, and why the figure on this page carries the filing year it applies to. First-time abate itself is not statutory at all — it is an administrative waiver the IRS introduced in 2001 for tax periods ending after 31 December 2000, and it could in principle be changed without legislation.

Exam focus

Know the four rates cold and the 60-day floor, including that it is the lesser of the indexed amount or 100 percent of the tax shown. The § 6651(c)(1) offset is regularly tested as an arithmetic trap. Above all, know which penalties first-time abate reaches — failure to file, failure to pay, failure to deposit — and that accuracy-related and fraud penalties require a statutory defence instead.

Check yourself

1. A return is filed three months late and the tax is paid late for the same months. For those months the combined § 6651 addition runs at: (A) 5.5 percent per month (B) 5 percent per month, the failure-to-file amount being reduced by the failure-to-pay amount (C) 0.5 percent per month (D) 25 percent immediately Answer: B. IRC § 6651(c)(1).

2. First-time abate is available for which penalty? (A) Accuracy-related under § 6662 (B) Fraud under § 6663 (C) Failure to deposit under § 6656 (D) All of these Answer: C. FTA reaches failure to file, failure to pay, and failure to deposit only.

3. The minimum failure-to-file addition for a return more than 60 days late is: (A) A fixed $435 (B) The greater of the indexed amount or 100 percent of the tax shown (C) The lesser of the indexed amount or 100 percent of the tax shown (D) 25 percent of the tax Answer: C, and the indexed amount depends on the year the return was required to be filed.

4. Which authority allows the Secretary to abate an assessment made after the limitations period expired? (A) IRC § 6651(a) (B) IRC § 6404(a) (C) IRC § 6664(c) (D) IRM 20.1.1 Answer: B. Section 6404(a)(2).