IRS Penalty Abatement Services in Sioux Falls, SD
Can Your IRS Penalties Be Removed? Here Is What Qualifies
An IRS penalty can make an already stressful tax bill feel much bigger. The good news is that some penalties can be reduced or removed when the facts support relief. But the rules matter. We first identify the penalty, check your history, and match the facts to the relief available for that specific charge.
At EDG CPA, we use the IRS account record, your filing and payment history, and the circumstances behind the penalty to decide which path makes sense. That may include IRS penalty abatement, administrative relief, reasonable cause, or another available procedure.
What Penalty Abatement Actually Means
Penalty abatement is the IRS process for reducing or removing a penalty that has been assessed on a tax account. It is important to separate the penalty from the underlying tax.
If the IRS removes a failure-to-file penalty, for example, that does not erase the tax you owed. It also does not automatically erase every other charge on the account. Interest is generally charged on penalties, and the IRS says related interest is automatically reduced or removed when the related penalty is reduced or removed.
Tax
the underlying amount due. Penalty abatement does not normally erase this balance.
Penalty
an additional charge created by a failure covered by the tax rules. Certain penalties may qualify for relief.
Interest
interest can accrue on tax and penalties. Relief from penalty-related interest generally follows a reduction or removal of the related penalty.
This distinction matters. If you are trying to understand a notice, we want you to know exactly which part of the balance we are discussing.
The Most Common Penalties That Can Be Abated
Different penalties have different rules. We do not treat every charge as if it qualifies for the same relief.
| Penalty | General Rule | What We Review |
|---|---|---|
| Failure to file | Generally, 5% of unpaid tax per month or part of a month, up to 25%, subject to specific rules and limits. | Whether the return was late, why it was late, compliance history, and whether reasonable cause or administrative relief may apply. |
| Failure to pay | Generally, 0.5% of unpaid tax per month or part of a month, up to 25%, with different rates in some circumstances. | Payment history, filing status, circumstances affecting payment, and the specific relief criteria. |
| Estimated tax underpayment | A separate penalty can apply when required estimated tax payments were not made in the required amount or on time. | The calculation, payment dates, safe-harbour rules where relevant, and whether a statutory exception or other relief applies. |
The rates above are general federal rules, not a promise about your account. Penalty calculations can change based on the tax type, payment history, notice date, filing date, and other facts.
First-Time Penalty Abatement and the 2026 IRS Change
First-Time Abate, often called FTA, has long been a major form of administrative penalty relief. It has generally been available to taxpayers with a strong prior compliance history who meet the IRS requirements for the specific penalty.
However, this page is being written in September 2026, and the IRS is changing how this relief works. The IRS began transitioning from the long-standing FTA process to a new Automatic Exemption from Penalty, or AEP, during summer 2026.
For eligible original returns beginning with tax year 2025, 2026 quarterly returns, and future periods, the IRS says AEP can automatically prevent certain failure-to-file, failure-to-pay, and failure-to-deposit penalties when the taxpayer has the required history of timely filing and payment for the prior three years, or 12 consecutive quarters for quarterly returns.
That means the old phrase first-time penalty abatement should not be treated as the only route for current taxpayers. Some eligible taxpayers may receive automatic relief without making a request. During the transition, some taxpayers may still receive penalty notices and may need to contact the IRS about FTA.
For older eligible periods
FTA may still be relevant, depending on the return, penalty, compliance history, and rules for that period.
For newer eligible periods
AEP may apply automatically when its requirements are met.
Outside those programs
reasonable cause or another statutory exception may be the better path.
We check the actual tax period and penalty before deciding which relief request makes sense.
Reasonable Cause Abatement
Reasonable cause is a fact-based form of penalty relief. The IRS says it considers whether the taxpayer exercised ordinary business care and prudence but was unable to comply because of circumstances beyond the taxpayer’s control. The exact test depends on the penalty involved.
Examples can include:
Serious illness, incapacitation, or death in the immediate family
Fire, casualty, natural disaster, or another major disturbance
An unavoidable absence
Inability to obtain needed records in circumstances recognised by the applicable rules
Other documented facts showing that reasonable care was taken but compliance was still not possible
A reasonable cause request works best when it explains the timeline clearly. What happened? When did it happen? How did it prevent timely filing or payment? What did you do once the problem was known? What documents support the explanation?
Simply saying, ‘I did not know the deadline,’ is usually not enough. The IRS looks at the facts and circumstances, including the taxpayer’s efforts to comply.
One important exception is estimated tax penalties. The IRS states that reasonable cause does not apply to certain penalties such as the estimated tax penalty. Those cases require a review of specific statutory exceptions and other available relief.
What Does Not Qualify
Penalty relief has limits. We would rather explain those limits clearly than create false hope.
Not every penalty is covered by every relief program
The IRS states that penalty relief categories do not apply equally to all civil penalties.
A different legal rule may require a different exception
The reason that works for one penalty may not work for another.
Willful neglect is a problem for reasonable cause relief
The taxpayer generally must show reasonable care and prudence.
Fraud or frivolous positions can involve separate penalty rules
These should not be treated like a routine late-filing penalty.
An unpaid tax balance remains a tax balance
Removing a penalty does not make the underlying tax disappear.
Use Power of Attorney when appropriate so we can communicate with the IRS within the authority you grant us.
The IRS states that penalty relief categories do not apply equally to all civil penalties.
A return that was never filed may create a larger compliance problem, but it does not mean that no penalty relief can ever be considered. The exact penalty, return status, tax period, and relief provision matter.
How EDG CPA Reviews a Penalty Abatement Case
We start with the IRS account. A notice may not show the full history of the penalty or all activity on the account.
Pull the IRS account records
We review relevant transcripts and notices to identify the tax year, penalty type, assessment, payments, and current balance.
Check the compliance history
For administrative relief such as FTA, we review prior periods and the requirements that apply to the tax period.
Test the facts for reasonable cause
We build the timeline and look for circumstances and documents that support the request.
Check for another relief provision
Some penalties have statutory exceptions or special rules that may be more appropriate.
Prepare the request
Depending on the case, relief may be requested by phone, written correspondence, Form 843, or another IRS process.
Follow the IRS response
We review an approval, request for more information, or denial and determine the next step.
With a valid Power of Attorney authorization, Daniel Foster, MPA, CPA can handle IRS communication and the penalty-relief process on the client’s behalf within the scope of that authorization.
We do not promise that the IRS will approve an abatement request. The aim is to present the facts clearly, use the correct relief path, and support the request with records that match the issue.
What Happens After an Abatement Request Is Filed
There is no single IRS response time for every penalty case. Timing can depend on the penalty, request method, supporting documents, and IRS workload.
The IRS may:
Approve the relief and remove or reduce the applicable penalty
Ask for additional information or documentation
Deny the request
If the IRS denies a penalty-relief request and the denial letter gives appeal rights, the taxpayer may generally request an Independent Office of Appeals conference. The IRS currently says taxpayers generally have 30 days from the date of the rejection letter to request an appeal, but the specific notice controls the applicable deadline.
Do not assume the deadline is 60 days. That timeframe can apply to other IRS procedures, but current IRS penalty-appeal guidance generally points to 30 days after the rejection letter. We review the actual notice before advising on the next step.
Who This Service Is For
Penalty abatement may be worth reviewing when an IRS notice shows penalties that add materially to a balance, especially when you have a strong filing history or a documented reason for the late filing or payment.
Taxpayers who received an IRS notice showing failure-to-file or failure-to-pay penalties
Individuals or businesses with a previously clean compliance history and a new penalty
Taxpayers who experienced illness, death, disaster, records problems, or another documented event affecting compliance
South Dakota small business owners reviewing payroll tax or other business penalties
Taxpayers in Sioux Falls, Lincoln County, Canton, Harrisburg, Brandon, Tea, and nearby communities who want a professional review before paying a penalty without checking whether relief is available
Anyone who wants to understand the difference between penalty relief and broader tax resolution options
A penalty review can also be useful when the underlying tax is already being paid through an arrangement. The key question is still whether the specific penalty qualifies under the rules that apply to it.
How do I know if I qualify for First-Time Penalty Abatement?
How do I know if my IRS problem is serious?
For periods where FTA applies, the IRS looks at compliance history and the specific penalty. Long-standing requirements generally include timely filing of the same return type for the prior three years and an appropriate penalty history, with additional requirements for certain business taxpayers.
Because the IRS is transitioning FTA to AEP in 2026, we first identify the tax year and return type. For eligible newer periods, AEP may apply automatically when the taxpayer has the required three-year or 12-quarter history. If AEP does not apply, another relief path may still be available.
Will requesting abatement trigger an audit?
Requesting penalty relief is not, by itself, a request for the IRS to audit your return. Taxpayers and authorized representatives routinely ask the IRS to reconsider penalties.
An abatement review can require us to examine the account and supporting records closely. If we find another tax issue while reviewing the file, we will tell you what we found rather than ignore it.
Can penalties be removed if I still owe the underlying tax?
Sometimes, but it depends on the penalty and the relief provision. Penalty relief does not generally erase the underlying tax. For failure-to-pay penalties in particular, the IRS and Taxpayer Advocate Service explain that the penalty may continue while tax remains unpaid, and abatement treatment can depend on whether the underlying tax has been paid.
If a penalty is reduced or removed, the IRS generally reduces or removes the interest associated with that penalty. Interest on the underlying tax can continue until that tax is paid.
What is the difference between abatement and an Offer in Compromise?
| Penalty Abatement | Offer in Compromise | Main Question |
|---|---|---|
| Targets qualifying penalties | Can address eligible tax debt under OIC rules | What part of the account is actually being addressed? |
| Usually does not erase underlying tax | May settle qualifying tax debt for less than the full amount | Is there a penalty issue or a broader collection issue? |
| May use administrative relief or reasonable cause | Requires its own eligibility analysis and application | Which IRS program fits the facts? |
These are different tools. We do not recommend an Offer in Compromise simply because a taxpayer has penalties. We first identify what is wrong with the account and which relief options fit.
Find Out If Your Penalties Can Be Reduced
Many taxpayers see a penalty on an IRS notice and simply add it to the amount they plan to pay. Sometimes the account deserves a closer look first.
At EDG CPA, we review the penalty history, tax period, account records, and facts behind the late filing or payment. Daniel Foster, MPA, CPA can help you understand whether the case may fit an administrative waiver, reasonable cause request, statutory exception, or another available path.
Call to schedule a free initial review. Bring the IRS notice if you have it. We can start there and determine what records and facts are needed next.