Getting a penalty notice from the IRS can feel like a punch in the gut, especially when you’ve been trying to do things right. Still, even the most diligent business owners run into setbacks. Illness, miscommunication, bad advice, or unexpected emergencies can throw off your filing or payment timeline.
The good news is that the IRS knows life isn’t perfect. In certain cases, you can ask for penalties to be reduced or removed entirely.
This article explains what the IRS means by “reasonable cause,” which situations might qualify, and how to build a strong case if you’re requesting relief.
What kinds of IRS penalties can be removed?
Not every IRS penalty is permanent. If there was a reasonable cause for the penalty, business owners can ask the IRS to reduce or eliminate penalties through a process called abatement. The penalties most commonly eligible for abatement include:
- Failure to file your tax return on time
- Failure to pay the taxes you owe
- Failure to deposit payroll taxes on schedule
- Accuracy-related penalties tied to underreporting income or other major errors
Keep in mind that this relief typically applies to penalties, not the interest attached. Interest often continues to accrue unless the related penalty is removed. When asking for relief, focus on addressing the penalty first. That’s the part you have the most control over.
What does “reasonable cause” mean?
The IRS doesn’t expect perfection. What they care about is whether you made a genuine effort to follow the rules and something truly beyond your control got in the way.
That’s the heart of “reasonable cause.” It’s not about being busy, falling behind, or forgetting a deadline. It’s about proving that you acted in good faith and took steps to fix the issue once you could.
The IRS isn’t working from a rigid checklist here. They review your specific situation, your timing, and the steps you took. If your explanation makes sense to a reasonable third party, it may make sense to the IRS, too.
What situations count as “reasonable cause”?
The IRS doesn’t hand out penalty relief for every late filing or missed payment, but certain situations do rise to the level of reasonable cause.
Here are the most common reasons the IRS accepts:
- Serious illness, incapacity, or a death in the family that made it impossible to meet your tax obligations
- Natural disasters or other emergencies that damaged your records or disrupted your ability to file or pay
- Good-faith reliance on incorrect advice from a qualified tax professional
- Loss or theft of key documents, as long as you took steps to recover or replace them
- Significant financial hardship; not just a cash flow dip, but a crisis that put your business or livelihood at risk
- Unusual events like IRS processing errors, riots, or postal issues that caused a delay
On the other hand, these reasons usually don’t qualify:
- “I got busy” or “I was traveling”
- “I didn’t know the rule”
- “I didn’t have the money” (unless you can show the hardship was extreme)
When in doubt, ask yourself: Would an objective outsider agree that this was out of your control, and you did your best to stay compliant?
How do I request penalty relief from the IRS?
Requesting penalty relief is about presenting the facts clearly and following a few key steps. A thoughtful explanation, backed by solid documentation, can go a long way with the IRS.
Here’s how to approach it:
- Read the IRS notice carefully: Identify what the penalty is for, the tax period it covers, and any important deadlines
- Gather your supporting documents: This could include medical records, disaster declarations, written advice from a professional, or police reports; anything that helps explain your situation
- Write a clear, honest explanation: Walk through the timeline, what happened, and what steps you took (or are taking) to resolve the issue
- Send your request: You can respond directly to the notice or submit Form 843 to formally request abatement. Be sure to use the correct IRS address listed for your situation.
- Keep copies of everything: If you haven’t heard back after a few weeks, follow up. It’s perfectly acceptable to check in.
Reasonable Cause vs First-Time Penalty Abatement
If this is your first time getting hit with a penalty, there’s a simpler path to relief called First-Time Penalty Abatement (FTA). It’s not about hardship or special circumstances. It’s about meeting a basic track record of compliance.
You might qualify if:
- You haven’t received this kind of penalty in the past three years
- You’ve filed all required tax returns
- You’ve paid, or set up a payment plan for, your tax balance
When those boxes are checked, FTA can remove the penalty without needing to explain anything more. If you’re not eligible for FTA, that’s when reasonable cause comes into play.
What kind of evidence matters to the IRS?
The IRS isn’t looking for emotional appeals. They want facts they can verify. The stronger and clearer your documentation, the better your chances.
Here’s what they take seriously:
- Medical records or statements from your doctor
- Official disaster declarations
- Letters or emails from a tax professional you relied on
- Police or insurance reports documenting theft or damage
- Financial statements that show you couldn’t reasonably pay
Label everything clearly and include a simple list of the documents you’re submitting. The easier you make it to understand your story, the more likely it is to be reviewed fairly.
Should I handle this myself or get professional help?
Plenty of business owners can manage a simple penalty relief request on their own. If your situation is straightforward, your paperwork is in order, and your timeline is clear, it’s often just a matter of writing a letter and sending it in.
With that said, there are situations when bringing in a tax professional is the better move. Consider getting help if:
- The penalty amount is significant and the financial risk is high
- Your documentation is incomplete or disorganized
- The circumstances are complex or involve multiple tax periods
- You’re feeling unsure, overwhelmed, or frustrated by the process
A qualified tax expert can help you build a stronger case, avoid common mistakes, and communicate more effectively with the IRS. Even a one-time consultation can offer clarity and direction.
Getting support is not a sign of failure. It is often the smartest way to protect your business and peace of mind.
What happens after I file?
Once you send in your penalty relief request, the waiting begins. The IRS review process can take several weeks, and in some cases, a few months. You will receive a written response explaining whether your request was approved or denied.
If you do not hear back, follow up. You can call the number listed on your IRS notice or check your tax transcript online. Staying proactive can help you avoid unnecessary delays.
If your request is denied, you still have options. You can respond with additional information, clarify anything that may have been misunderstood, or file a formal appeal. Many business owners are successful on their second try, especially when they consult with a tax professional.
The process may take time but staying engaged and persistent gives you the best chance of relief.
The Bottom Line
Getting hit with an IRS penalty can feel discouraging, but it’s often fixable. The IRS does consider real-life circumstances, and they provide clear paths for business owners to explain what happened and request relief.
Whether your situation qualifies for First-Time Abatement or falls under reasonable cause, the most important thing is to stay calm, stay organized, and act early. A strong explanation, paired with the right documents, can go a long way.
Not sure where to start or what to say? That’s exactly what we’re here for.
If you schedule a free call with DiMercurio Advisors, we’ll help you understand your options, gather what you need, and submit a strong, accurate request, so you can stop worrying about penalties and get back to running your business.
