IRS Penalty Relief Attorney in New Jersey & New York
IRS penalties can quickly transform a manageable tax balance into a crushing financial burden. Failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, payroll tax deposit penalties, and compounding interest can add thousands of dollars to what you owe.
Todd S. Unger, Esq. helps individuals and business owners evaluate whether IRS penalties can be removed, reduced, abated, or challenged as part of a comprehensive 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 just the original tax principal, but the compounding penalties and interest that accumulate month after month. Over time, these additions can exceed the underlying liability itself.
IRS penalty relief is not granted automatically in every case. The IRS requires a valid legal, administrative, or factual basis to remove, reduce, or adjust an assessed penalty. Relief may be available through administrative clean-history waivers, reasonable cause, statutory exceptions, IRS administrative errors, formal appeals, or refund claim procedures.
The key to successful abatement lies in identifying the specific penalty code, the reason for assessment, the tax period involved, the governing relief standards, and assembling the documentation needed to substantiate your claim.
IRS Penalties That May Need Legal Review
IRS penalties affect individuals, operating businesses, payroll accounts, partnerships, S-corporations, and employers. Because each penalty code operates under distinct statutory rules, identifying the correct relief path is essential:
Individual Penalties
Failure to File
Assessed at 5% per month (up to 25%) when a required tax return is submitted after the due date without an extension.
Failure to Pay
Assessed at 0.5% per month (up to 25%) when assessed taxes are not paid by statutory deadlines.
Estimated-Tax Penalty
Applies when quarterly estimated tax payments were late, insufficient, or missed entirely during the tax year.
Accuracy-Related Penalty
Assessed at 20% of the underpayment for negligence, substantial understatements of income, or disputed deductions.
Information-Return Penalty
Applies to late, incorrect, or missing information returns, foreign asset disclosures, or 1099 reporting.
Dishonored Payment Penalty
Assessed when a check, electronic transfer, or draft payment to the IRS is returned or dishonored by a bank.
Business & Corporate Penalties
Business penalty cases frequently intersect with employment tax liabilities, payroll deposit rules, and broader corporate compliance obligations.
Reasonable Cause, Administrative Relief, and the AEP Rules
IRS penalty abatement is not a one-size-fits-all process. Some taxpayers qualify based on factual reasonable cause, while others qualify under clean-history administrative waivers, IRS errors, statutory exceptions, administrative appeals, or post-payment refund procedures.
Historically, the IRS’s primary clean-compliance administrative waiver was First-Time Abate (FTA). Eligibility required a clean three-year prior filing history, current filing compliance, and full payment or an active installment agreement.
The IRS began transitioning to a new administrative framework: Automatic Exemption from Penalty (AEP). Under AEP, qualifying penalties are systematically prevented or abated for eligible taxpayers possessing a clean compliance record. Because this transition is being phased in, applicable relief depends on the return type, tax period, original due date, and IRS system implementation status.
Administrative Relief Update: AEP rollout began in summer 2026, with FTA being phased out. AEP is designed to replace FTA for eligible returns with original due dates on or after January 1, 2027. Early attorney review is essential to ensure administrative waivers are applied correctly.
IRS Penalty Relief Options Compared
The IRS recognizes administrative relief, reasonable cause, and statutory exceptions as primary penalty-abatement categories:
| Relief Category | General Purpose | Key Evaluation Factors |
|---|---|---|
| Automatic Exemption (AEP) | Automated clean-history administrative waiver | Return type, tax period, prior 3-year compliance history |
| First-Time Abate (FTA) | Administrative relief during AEP phase-in | Clean 3-year prior history & current filing/payment compliance |
| Reasonable Cause | Factual events prevented compliance despite good faith | Timeline, ordinary business care, third-party substantiation |
| Statutory Exception | Specific Tax Code provisions prohibit the penalty | Direct alignment with statutory exception criteria |
| IRS Error / Written Advice | Penalty caused by erroneous IRS guidance or misapplication | Written IRS communications, proof of timely filing/deposit |
| Administrative Appeal | Challenges a formally denied penalty abatement request | Timely protest filing, legal argument, supporting evidence |
| Refund Claim (Form 843) | Seeks refund after an eligible penalty was already paid | Payment dates, statutory refund limitations periods |
What to Review Before Requesting Penalty Relief
A successful penalty abatement petition begins with transcript analysis and document verification. Execute this 12-point review:
Establishing Reasonable-Cause Penalty Relief
Claiming Reasonable Cause requires establishing that you exercised ordinary business care and prudence, but were nevertheless prevented from complying due to circumstances beyond your control. Simply stating that you forgot, lacked funds, or relied on a bookkeeper is legally insufficient.
Valid reasonable cause documentation includes medical records, hospital discharge summaries, death certificates, natural disaster claims, insurance reports, written advice from qualified tax advisors, bank disruption records, or proof of stolen accounting files.
The IRS evaluates reasonable cause based on your complete factual narrative, good-faith efforts, and how quickly you moved to correct the non-compliance once the hardship ceased.
Accuracy-Related Penalties & Audit Adjustments
Accuracy-related penalties under IRC § 6662 are assessed when the IRS claims a tax underpayment was caused by negligence, disregard of rules, or a substantial understatement of income.
These 20% penalties frequently arise following IRS audits, CP2000 underreported income notices, crypto asset reporting mismatches, or 1099 disputes.
Under Treasury Regulation § 1.6664-4, accuracy penalties can be completely defeated by establishing that you acted with reasonable cause and good faith—such as relying on a qualified CPA or tax attorney after disclosing all relevant financial facts.
Relief Based on IRS Error or Erroneous Written Advice
Penalties must be abated when assessed due to IRS administrative errors, misapplied payment credits, lost mailings, or reliance on erroneous written guidance provided directly by the IRS under IRC § 6404(f).
Proving IRS error requires clear documentation, including certified mail receipts, bank transcripts, electronic filing confirmation codes, and official agency correspondence.
What About Compounding IRS Interest?
Under federal law, statutory interest accrues automatically on all unpaid tax balances and penalties until paid in full. Interest cannot be abated purely on financial hardship grounds.
However, whenever an underlying tax or penalty is successfully abated, all compound interest associated with that abated portion is automatically removed. Formal interest abatement under IRC § 6404(e) is also available when interest accrues due to unreasonable IRS delays or administrative errors.
Penalty Appeals and Refund Claims
Penalty Appeals
If an initial penalty abatement request is denied, you have statutory appeal rights. Filing a formal protest with the IRS Office of Appeals allows an independent review officer to evaluate your case.
Refund Claims (Form 843)
If you have already paid an erroneous or eligible penalty, you can file a formal refund claim using Form 843 within statutory refund limitation periods (generally 2 years from payment date).
Frequently Asked Questions
Answers to common questions regarding IRS penalty abatement, AEP, and reasonable cause.
Penalty issues often overlap with broader tax balances. If your underlying principal balance needs resolution, review our guides for IRS installment agreements or an IRS Offer in Compromise.
Ask About IRS Penalty Relief Today
If IRS penalties have inflated your tax debt, work directly with tax attorney Todd S. Unger to evaluate AEP waivers, First-Time Abate, Reasonable Cause, or refund options.