How to Request an Underpayment Penalty Waiver

Owing money to the IRS is stressful, and additional penalties for underpayment only add to the burden. Fortunately, the IRS offers penalty waivers in certain situations, allowing eligible taxpayers to avoid extra charges.

Requesting a waiver isn’t automatic—you must understand the process and provide the necessary documentation.

Who’s Eligible for a Penalty Waiver

The IRS grants penalty waivers to taxpayers who meet specific conditions, primarily those with a history of compliance. If tax returns have been filed and paid on time in previous years, the chances of receiving relief improve. The IRS typically reviews the past three years of filings to assess eligibility.

Another key factor is whether the underpayment resulted from circumstances beyond the taxpayer’s control. If someone made a good-faith effort to pay the correct amount but faced unexpected issues—such as an employer’s withholding error or incorrect advice from a tax professional—they may qualify. The IRS evaluates whether reasonable steps were taken to comply with tax laws.

Income level and total tax liability also play a role. If the amount owed falls below a certain threshold, penalties may be automatically reduced or eliminated. These thresholds change periodically, so checking the latest IRS guidelines is essential.

Reasons a Waiver May Be Issued

Penalty waivers are granted under specific circumstances, including first-time abatement, reasonable cause, and disaster relief. Each has its own criteria and documentation requirements.

First-Time Abatement

The First-Time Abatement (FTA) program provides relief for taxpayers with a clean compliance history. To qualify, a taxpayer must have filed all required returns, paid or arranged to pay any outstanding taxes, and not incurred penalties for the same type of tax in the past three years.

This waiver applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties but does not cover estimated tax penalties. For example, if a taxpayer missed a payment deadline for 2023 but had no penalties in 2020, 2021, or 2022, they may qualify. The IRS often grants this waiver automatically if requested, but if not, taxpayers can call the IRS or submit Form 843, “Claim for Refund and Request for Abatement.”

Reasonable Cause

A penalty may be waived if the underpayment resulted from reasonable cause rather than willful neglect. The IRS considers factors such as illness, natural disasters, the death of an immediate family member, or reliance on incorrect tax advice.

For instance, if a taxpayer was hospitalized for months and unable to manage their finances, they may qualify. Similarly, if an accountant provided incorrect guidance that led to an underpayment, the taxpayer could argue they made a reasonable effort to comply. Supporting documentation such as medical records, legal documents, or correspondence with a tax professional is typically required. The IRS reviews each case individually to determine if the taxpayer exercised ordinary business care in attempting to meet their tax obligations.

Disaster Relief

Taxpayers in federally declared disaster areas may qualify for automatic penalty relief. When a disaster is declared, the IRS often extends tax deadlines and waives penalties for affected individuals and businesses. These relief measures are announced on the IRS website and apply to taxpayers in designated areas.

For example, if a hurricane or wildfire disrupts a taxpayer’s ability to file or pay taxes on time, they may be eligible for a waiver. The IRS generally extends deadlines and removes penalties incurred during the disaster period. Affected taxpayers are often identified automatically based on their address, but those not granted relief can contact the IRS or submit a written request.

Steps to Submit a Waiver Request

The process for requesting a penalty waiver depends on the type of penalty and the reason for relief. Some taxpayers can obtain a waiver by calling the IRS, while others must submit a formal written request.

For First-Time Abatement, calling the IRS at the number on the penalty notice is often the quickest option. Representatives can review a taxpayer’s history and apply the waiver if the criteria are met.

For reasonable cause or disaster-related relief, taxpayers usually need to submit Form 843, “Claim for Refund and Request for Abatement.” This form requires details such as the tax year in question, the type of penalty being disputed, and an explanation of why relief should be granted. Providing a clear and well-documented request increases the likelihood of approval.

Once completed, Form 843 must be sent to the appropriate IRS office. The correct mailing address depends on the type of tax and the taxpayer’s location, which can be found in the IRS instructions for the form. In some cases, taxpayers may be able to submit their request electronically if responding to a notice through the IRS’s online system.

Required Supporting Documents

A strong waiver request includes documentation that supports the taxpayer’s claim. The IRS reviews each request individually, so providing clear and relevant evidence improves the chances of approval.

For financial hardship cases, taxpayers may need to submit IRS Form 433-A or Form 433-F, which outline income, expenses, assets, and liabilities. Additional documents such as pay stubs, bank statements, mortgage or rent receipts, and utility bills can help establish an inability to pay. If financial hardship resulted from job loss or medical expenses, proof of these circumstances strengthens the case.

If an underpayment resulted from an error in tax reporting, taxpayers should include relevant tax forms, corrected statements, or correspondence with employers, financial institutions, or tax preparers. For example, if a taxpayer received a miscalculated Form 1099 or W-2, they should provide both the original and corrected versions along with an explanation. If a tax software error contributed to the miscalculation, documentation from the software provider can serve as additional support.

For legal disputes or governmental errors, taxpayers should submit copies of relevant legal documents, court rulings, or correspondence from government agencies. If the IRS misapplied a payment or issued an incorrect notice, proof of payment, IRS transcripts, or prior communications with the agency can clarify the issue. If a penalty resulted from a delay in processing an amended return or refund claim, documentation showing when the original submission was made and received by the IRS can help justify relief.

What Happens After You File

After submitting a waiver request, the IRS reviews the documentation and determines whether the penalty should be reduced or eliminated. Processing times vary based on the complexity of the case and the volume of requests. Taxpayers can generally expect a response within six to twelve weeks, though cases requiring further review may take longer.

If approved, the penalty is removed, and the taxpayer receives a notice confirming the adjustment. If the penalty was already paid, the IRS may issue a refund or apply the amount as a credit toward future tax liabilities. If denied, the IRS provides an explanation. Taxpayers who disagree with the decision can appeal by submitting a written protest or requesting a review through the IRS Office of Appeals.