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Eliminate IRS Penalties

A third of many balances is removable penalty and penalty-interest. The FTA targeting move, the reasonable-cause file, and the appeal expectation.

By Darrin T. Mish, tax attorneyPublished June 11, 20264 min read

Penalties and the interest riding on them are routinely a third of an IRS balance - and they are the most removable layer of the debt. Two moves do nearly all the work, and the order and aim of each changes the recovery.

Move One: First-Time Abatement, Aimed

FTA removes one tax period's failure-to-file, failure-to-pay, and failure-to-deposit penalties on request when the prior three years show clean compliance - no story, no documentation war, and the interest that accrued on the abated penalties dies automatically with them. The aim matters: FTA covers one period per qualifying window, so multi-year debts compute which period carries the largest combined stack - usually the first delinquent year, where failure-to-file hit its full 25 percent - and spend the waiver there, preserving the merits argument for the rest. The test looks only at the three prior years, which makes the long-compliant taxpayer whose trouble started recently the ideal candidate.

Move Two: The Reasonable-Cause File

The merits route removes penalties where ordinary care was defeated by circumstances - serious illness, a death close to you, disaster, destroyed records, qualified reliance on professional advice. The move is evidentiary: the event dated, the causal connection to each specific compliance failure made explicit, the documents attached - medical records establishing incapacity during the filing window, the death certificate and your role in the aftermath, the declaration and the insurance claim - framed by clean history before and prompt correction after, both shown from transcripts. What loses: vague hardship narratives, and 'the economy was bad,' which explains non-payment but rarely excuses non-filing.

Run Them in Sequence, Built for the Appeal

Penalty work runs before any resolution, because every agreement and offer downstream prices against the post-abatement balance. And it gets built for the appeal from day one: initial screening denies meritorious requests routinely, sometimes by automated scoring, and the appeal is where a human reads the file you constructed. A full penalty review of your transcripts takes a day here and routinely finds five figures. That review is free - send them over.

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