Can IRS penalties be removed or reduced?
Short answer
Often, yes. The IRS can remove some penalties through first-time penalty relief if your recent record is clean, or for reasonable cause if something outside your control caused the problem. Interest usually stays.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
First-time relief
Available for some penalties, like filing late or paying late, if you haven't had penalties in the previous three years. It generally doesn't apply to the penalty for underpaying quarterly estimates.
Reasonable cause
If a serious illness, a disaster, or in some cases a previous preparer's mistake caused the problem, you can ask the IRS to waive the penalty with an explanation and documents.
How we usually handle it:
- Confirm what the penalty is for and which year.
- Pay the balance, often including the penalty, so interest stops growing.
- Request relief by letter, form or phone, depending on the penalty.
- Follow up until the IRS responds, which can take months.
A common one for couples and co-creators: an LLC with two owners has to file a partnership return. When a previous accountant missed it, the late-filing penalty adds up per owner, per month.
If DeCypher prepared your return and you're on a bookkeeping and tax strategy plan, we handle IRS letters about it. Older years are a separate engagement.
These are not guarantees. Every creator's situation is different.