Penalties aren’t the end of the road

As tax professionals, we’ve all encountered panicked clients staring down IRS penalties. But here’s the good news: Those penalties aren’t necessarily final. Understanding the strategies available for abatement, especially the IRS’s First Time Abate (FTA) program and reasonable cause standards, can be your client's lifeline. 

We put together a guide that walks you through the essentials of the FTA program and how to use reasonable cause arguments effectively to secure relief, helping you save your clients money and elevate your practice.

What is FTA?

FTA is an administrative waiver that removes certain penalties if the taxpayer has a clean history of compliance. This relief applies only to three types of penalties:

• Failure to file (FTF) - §6651(a)(1)
• Failure to pay (FTP) - §6651(a)(2)/(a)(3)
• Failure to deposit (FTD) - §6656

Eligibility requirements

To qualify for FTA: 

• The taxpayer must have filed all required returns or valid extensions.
• All current taxes must be paid, or arrangements (such as an installment agreement) must be in place.
• The taxpayer must have no penalties for the prior three years on the same return type. 

Pro tip: Always pull account transcripts first. Even a minor penalty in the prior three years can disqualify the client. 

Using reasonable cause when FTA does not apply

When FTA is not an option, we turn to the more nuanced but potentially even more powerful reasonable cause argument.

What is reasonable cause? 

The IRS defines reasonable cause as a situation where the taxpayer exercised ordinary business care and prudence but was unable to comply. 

Key factors considered by the IRS

• Is the explanation directly related to the penalty?
• Could the noncompliance have been avoided?
• Was it an honest mistake or neglect?
• Does the timeline make sense?
• Does the taxpayer have a good history of compliance?

Example one: A clear path to relief

Daniel Smith filed eight years of late returns, owing $145,000. At first glance, that’s not promising. But dig deeper: His teenage daughter was diagnosed with brain cancer in 2005. Medical documentation supported the story, and the timing aligned perfectly with the lapse in compliance. 

Result: Successful abatement. The IRS saw a genuine, uncontrollable hardship.

Example two: A closer call

Ruby Rose is a self-employed financial professional who stopped filing after his wife developed a serious mental illness. The case was compelling, had strong medical support, and a documented crisis timeline. 

Result: With a detailed, credible story, even self-employed financial professionals can demonstrate reasonable cause. 

Other common reasonable cause scenarios

While medical emergencies are among the most persuasive reasonable cause arguments, other situations can also qualify. Natural disasters, theft or destruction of records, reliance on incorrect professional advice, and unavoidable absence (such as military deployment) are all circumstances the IRS may consider. The key is to connect the event directly to the period of noncompliance and to provide as much documentation as possible.

Common pitfalls in FTA requests

One of the most common mistakes tax professionals make is failing to verify the client’s penalty history before submitting an FTA request. If the client had even a minor penalty in the prior three years, the request will be denied. Additionally, some practitioners overlook the requirement that all returns must be filed and all taxes paid, or arrangements made. Double-checking these requirements before submitting your request can save time and prevent unnecessary denials.

Building your request for abatement

When preparing the penalty abatement request:

• Tell the whole story background – Facts and supporting evidence.
• Make the reviewer’s job easy – Organize documentation, tab exhibits, and highlight the relevant evidence. 
• Don’t assume – Anything is known even if the auditor saw it, appeals may not have. 

Things you should include:

• Account transcripts
• Medical records, insurance claims
• Emails showing attempted compliance 
• Tax professional engagement letters or advice memos (if arguing reliance)

Form 843 and practice tips

Many abatement requests go through Form 843. It’s not complex, but the supporting narrative is everything. Always include a detailed letter with the request.

Practical tips

• Charge for the initial consultation and transcript review.
• Be honest if the case is weak but present all mitigation factors.
• Include a cover letter clearly outlining the periods, penalties, and reasoning. 

Advocate with clarity and compassion

FTA and reasonable cause are powerful tools, but they require strategy, preparation, and precision. Don’t let penalties derail your clients’ finances or trust. By mastering these techniques, you position yourself not just as a tax preparer, but as a problem-solver and advocate.