The IRS issues millions of penalties annually, most often for late filings or missed payments. Additional penalties may result from payroll tax errors, bounced checks, or other compliance issues. These charges, combined with interest, can quickly escalate a manageable tax debt into a significant financial burden.
Fortunately, several options exist to reduce or eliminate penalties. Whether you are a first-time offender or facing penalties due to exceptional circumstances, understanding the latest rules is essential.
First-Time Penalty Abatement (FTA): Still Available, But More Specific
The IRS continues to offer First-Time Penalty Abatement for taxpayers with a history of good tax compliance. As clarified by the IRS earlier this year:
- You must have filed the same return type, if required, for the past three tax years.
- You must not have incurred penalties during those years, or any removed penalties must not have been abated under FTA.
Notably, the IRS eliminated the requirement to file all missing returns, which previously disqualified many taxpayers from FTA.
Other Paths to Penalty Relief
If you do not qualify for FTA, consider these alternatives:
1. Reasonable Cause Relief
Granted when circumstances beyond your control—such as natural disasters, serious illness, or loss of records—prevent compliance.
2. Statutory Exceptions
The IRS will abate any penalty attributable to erroneous written advised by the IRS. Additionally, taxpayers in federally declared disaster areas or involved in military operations in a combat zone may qualify for penalty relief.
3. Innocent Spouse Relief
If you filed jointly and face a penalty due to your spouse’s or ex-spouse’s errors, you may be eligible for relief. The IRS must determine that you had no knowledge, or reason to know, of the error.
How to Request Penalty Relief
You can request relief by:
- Calling the IRS directly using the number listed on your penalty notice.
- Submitting Form 843, Claim for Refund and Request for Abatement, with supporting documentation.
If multiple relief programs apply, the IRS will automatically grant the most favorable one.
What’s New in 2025?
- Forms 1040/1120 Late Filing Penalty: For 2025 tax returns filed more than 60 days late, the IRS will assess a minimum penalty of $510.00.
- Forms 1065/1120-S Late Filing Penalty: For untimely filed 2025 tax returns, the late filing penalty is $245.00 per partner/shareholder, per month the return is late, for up to 12 months.
- Information Return Penalties: Most information return penalties are assessed on a per-return basis. For information returns due in 2026 for the 2025 tax year, the late filing penalties per return range from $60 to $680, depending on when the return is filed and the reason for the delay. Maximum penalty caps may apply for certain businesses, except in cases of intentional disregard.
Murray Moyer Can Assist
Penalty abatement can significantly reduce your tax burden. Whether you’re seeking relief for the first time or navigating a complex situation, understanding the IRS’s updated rules and procedures is essential. For expert guidance on penalty abatement and comprehensive tax services, contact Murray Moyer at (919) 846-6779 for a consultation. With offices in Raleigh and Beaufort, we help individuals and businesses maximize tax benefits while maintaining the highest standards of professional representation.