IRS Penalty Relief Attorney in New Jersey & New York
IRS penalties can turn a manageable tax balance into a much larger problem. Failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, payroll tax deposit penalties, business filing penalties, and interest can add thousands of dollars to what you owe.
Todd S. Unger helps individuals and businesses evaluate whether penalties may be removed, reduced, challenged, or addressed as part of a broader tax resolution strategy.
Reviewed for 2026 IRS administrative-relief changes: July 30, 2026
Tax Penalties and Interest Can Escalate Quickly
For many taxpayers, the primary concern is not only the original tax owed, but the penalties and interest that continue to build on top of it. Over time, these additional costs can cause a smaller tax issue to become financially overwhelming.
IRS penalty relief is not automatic in every case. The IRS generally needs a valid legal, administrative, or factual reason to remove, reduce, prevent, or adjust a penalty. In some cases, relief may be available because of administrative clean-history relief, reasonable cause, a statutory exception, IRS error, appeal rights, or a refund claim procedure.
The key is identifying the type of penalty, the reason it was assessed, the tax period involved, the available relief standard, and the documentation needed to support your request.
IRS Penalties That May Need Review
IRS penalties can affect individuals, businesses, payroll-tax accounts, partnerships, S corporations, employers, and taxpayers who file or pay late. Not every penalty is eligible for every type of relief, so the first step is identifying the penalty and the correct relief path.
Individual Penalties
Failure to File
Assessed when a required return is filed late or not filed.
Failure to Pay
Assessed when tax is not paid by the required deadline.
Estimated-Tax Penalty
May apply when estimated payments were late, missed, or insufficient.
Accuracy-Related Penalty
Often tied to underreported income, negligence, substantial understatement, or disputed tax positions.
Information-Return Penalty
May involve missing, late, or incorrect information reporting.
Dishonored Payment Penalty
May apply when a payment is returned or not honored, depending on the facts.
Business Penalties
Business penalty cases can overlap with employment tax, payroll deposits, information reporting, tax compliance, and broader business-tax issues.
Reasonable Cause, Administrative Relief, and the New AEP Rules
Penalty relief is not one-size-fits-all. Some taxpayers may qualify based on reasonable cause, while others may qualify because of a clean compliance history, IRS error, statutory exception, appeal rights, or refund procedures.
Historically, the IRS’s primary clean-compliance administrative waiver has been First-Time Abate, commonly called FTA. Eligibility has generally depended on the taxpayer’s prior filing and penalty history, current filing compliance, and payment or payment-arrangement status.
The IRS began transitioning in 2026 to a new Automatic Exemption from Penalty program, known as AEP. Under the new framework, qualifying penalties may be prevented automatically for eligible taxpayers with the required compliance history. The transition is being phased in, so the applicable relief may depend on the return type, tax period, original due date, and IRS implementation status.
Taxpayers who receive a penalty notice should not assume that relief was applied correctly or that they must rely exclusively on either FTA or AEP. The account history, penalty type, and tax period should be reviewed.
2026 Update: The IRS states that AEP is beginning in summer 2026, that FTA is being phased out, and that AEP is expected to replace FTA for eligible returns with original due dates on or after January 1, 2027. Implementation details may continue changing, making early administrative review essential.
IRS Penalty Relief Options Compared
The IRS currently identifies administrative relief, reasonable cause, and statutory exceptions as principal penalty-relief categories. Depending on the facts, other paths may include IRS-error review, administrative appeal, or a refund claim after payment.
What to Review Before Requesting Penalty Relief
A strong penalty-abatement request starts with the notice, the account history, and the specific penalty. Before asking the IRS to remove or reduce a penalty, the taxpayer should know exactly what was assessed and why.
Reasonable-Cause Penalty Relief
Reasonable cause generally requires more than stating that the taxpayer forgot, lacked money, relied on an employee, or was busy. The request should explain what happened, when it happened, how the circumstances prevented compliance, what steps were taken before the failure, when the problem was discovered, and how quickly the taxpayer corrected it.
Relevant evidence may include medical records, death certificates, disaster records, insurance claims, correspondence with tax professionals, engagement letters, proof of missing or destroyed records, banking problems, payroll-provider records, and evidence of corrective procedures.
The IRS evaluates reasonable cause based on the taxpayer’s facts, good faith, and efforts to comply.
Accuracy-Related Penalties and Misreported Tax Liability
Accuracy-related penalties can be especially serious because they often involve the IRS claiming that income was underreported, deductions were improper, credits were overstated, or the return reflected negligence or a substantial understatement of tax.
These penalties may arise after an IRS audit, CP2000 notice, business income dispute, brokerage or cryptocurrency reporting issue, 1099 mismatch, or disputed tax position. In some cases, the penalty may be challenged by showing that the taxpayer acted with reasonable cause and good faith.
A strong response should focus on the facts, documents, advice received, the complexity of the issue, and the taxpayer’s efforts to comply with the law.
Penalty Relief Based on IRS Error or Written Advice
A penalty may need to be challenged when the IRS applied a payment incorrectly, failed to process a timely filed return, assessed a penalty for an incorrect period, or provided written advice that contributed to the taxpayer’s position.
These cases require documentation showing exactly what was filed, paid, received or communicated. Informal telephone advice should not automatically be treated as qualifying written advice.
What About IRS Interest?
Interest is generally more difficult to remove than penalties. In many cases, interest continues to accrue while the tax balance remains unpaid. However, if an underlying penalty is removed or reduced, interest tied to that penalty may also be adjusted.
Interest is generally imposed by law and is not removed merely because the taxpayer experienced hardship. Interest may be adjusted when the underlying tax or penalty is reduced, and limited interest-abatement procedures may apply in particular circumstances.
Penalty relief and interest relief should therefore be analyzed separately.
Penalty Appeals and Refund Claims
Penalty Appeal
If the IRS denies a penalty-abatement request, the denial notice may provide administrative appeal rights. The response should address the specific reason for denial rather than simply resubmitting the same narrative.
Refund Claim
When a penalty has already been paid, the taxpayer may need to evaluate a formal refund or abatement claim and the applicable deadline. Form 843 is used for certain claims involving penalties, interest and other amounts, but it is not the correct form for every dispute.
IRS Penalty Relief FAQs
What is the IRS Automatic Exemption from Penalty?
Automatic Exemption from Penalty, or AEP, is the IRS’s newer administrative clean-history relief framework. It is being phased in beginning in 2026 and may prevent certain penalties from being assessed automatically for eligible taxpayers. Eligibility depends on the return type, tax period, prior compliance history and IRS implementation status.
Is First-Time Abate still available in 2026?
During the transition to AEP, First-Time Abate may still apply to certain returns and periods. Treatment may depend on the tax period, return type, processing date and IRS implementation status. Taxpayers should not assume that FTA or AEP was applied correctly without reviewing the account.
Does reasonable cause require a clean history?
Reasonable cause is fact-based and distinct from clean-history administrative relief. The taxpayer’s history can matter, but the request focuses on what happened, why compliance was prevented, what steps were taken, and how quickly the issue was corrected.
Can a penalty be challenged after it is paid?
Possibly. When a penalty has already been paid, refund procedures and deadlines may apply. The correct form and process depend on the type of penalty, tax period, payment date and disputed issue.
Can the IRS remove interest?
Interest relief is more limited and should be analyzed separately from ordinary penalty abatement. Interest may be adjusted when the underlying tax or penalty is reduced, but hardship alone generally does not remove interest.
Can accuracy-related penalties be challenged?
Yes. Accuracy-related penalties may be challenged when the facts show reasonable cause, good faith, reliance on qualified professional advice, complexity of the tax issue, or another valid basis for relief.
Can businesses request penalty abatement?
Yes. Businesses may be able to request relief for certain filing, payment, deposit, payroll, or information-return penalties depending on the circumstances, the penalty type and the available relief procedure.
Penalty issues often overlap with other tax problems. If the tax balance still needs to be resolved, review options for IRS installment agreements or an IRS Offer in Compromise.
Ask About IRS Penalty Relief
If IRS penalties have increased your tax balance, Todd S. Unger can help evaluate whether AEP, First-Time Abate during the transition, reasonable cause, IRS error, statutory relief, appeal rights, refund procedures, or another tax resolution option may apply.