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.
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:
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.
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.
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:
On the other hand, these reasons usually don’t qualify:
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?
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:
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:
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.
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:
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.
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:
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.
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.
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.