How to Remove the Late Filing Penalty for Form 1040

The Internal Revenue Service (IRS) assesses a late filing penalty when a Form 1040 is not submitted by its due date, including any valid extensions. Understanding the conditions under which this penalty can be removed, a process known as abatement, is helpful for any taxpayer.

Calculating the Late Filing Penalty

The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month that a return is late. This charge accrues monthly until it reaches a maximum of 25% of the unpaid tax liability.

A more severe penalty applies for returns filed more than 60 days after the due date or an extended due date. In these cases, a minimum penalty is imposed. For tax returns due in 2024, this minimum is the lesser of $485 or 100% of the tax owed.

This penalty is different from the one for failing to pay. The late payment penalty is 0.5% of the unpaid taxes for each month the tax remains unpaid, also capped at 25%. When both penalties apply in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. A taxpayer who is due a refund will not be subject to a late filing penalty.

Options for Penalty Abatement

Taxpayers have two primary avenues to seek removal, or abatement, of a late filing penalty. The first is the First-Time Abatement (FTA) policy, an administrative waiver offered by the IRS. To be eligible, a taxpayer must have a history of good tax compliance, defined as having no penalties for the three tax years before the penalty was assessed. The taxpayer must also have filed all required returns and paid or arranged to pay any tax due.

The second option is to establish “Reasonable Cause.” This requires a taxpayer to show they exercised ordinary business care but could not file on time due to circumstances beyond their control. Accepted reasons include:

• A fire, natural disaster, or other disturbance that destroyed records.
• The death or serious illness of the taxpayer or a member of their immediate family.
• An unavoidable absence.
• An inability to obtain necessary records.

How to Request Penalty Removal

Once a taxpayer determines they may qualify for relief, there are several methods to formally request penalty abatement. A request can often be handled over the phone by calling the toll-free number on the IRS notice you received. When calling, have the notice, your Social Security number, and the relevant tax year information available. You should clearly state that you are requesting penalty relief and explain the basis for your request, whether for a first-time abatement or due to reasonable cause.

A request can also be made in writing by sending a letter to the IRS service center where the return was filed. The letter must include your name, address, Social Security number, the tax year in question, and the notice number. It should provide a clear explanation of the reasons for the late filing, addressing the criteria for either First-Time Abatement or Reasonable Cause.

A more formal written request can be submitted using Form 843, Claim for Refund and Request for Abatement. On this form, you must specify the tax period and penalty amount and explain the grounds for your claim. The completed Form 843 should be mailed to the IRS address specified in the form’s instructions or on your notice. If claiming reasonable cause in a written request, attaching supporting documentation, such as hospital records, can strengthen the request.