A penalty waiver is relief from a tax penalty that would otherwise apply because a taxpayer filed late, paid late, underpaid estimated tax, or failed to satisfy another filing or payment requirement. Under federal law, waiver generally depends on a showing of reasonable cause and the absence of willful neglect.
For example, section 6651(a)(1) imposes a late-filing addition to tax of 5 percent per month, up to 25 percent, unless the failure is due to reasonable cause and not willful neglect; section 6651(a)(2) imposes a late-payment addition of 0.5 percent per month, also up to 25 percent, subject to the same reasonable-cause standard.
If a chapter 1 return is filed more than 60 days late, the minimum late-filing penalty for returns required to be filed in 2026 is the lesser of 100 percent of the tax required to be shown or the inflation-adjusted minimum derived from the statutory $435 amount.
The most common penalties that may be waived are the late-filing and late-payment additions under section 6651. The late-filing rate is 5 percent per month or fraction of a month, capped at 25 percent, while the late-payment rate is 0.5 percent per month or fraction of a month, also capped at 25 percent. If both apply in the same month, the filing penalty is reduced by the payment penalty for that month. After the IRS issues a final notice of intent to levy, the late-payment penalty rate can increase from 0.5% to 1% per month if the tax remains unpaid for 10 days. For individuals who filed their returns on time and entered into an approved installment agreement, the failure-to-pay penalty rate may be reduced to 0.25% per month while the agreement remains in effect.
Estimated tax penalties may also be waived in limited circumstances. Notice 2015-30 provided relief for 2014 under section 6654 where taxpayers received delayed or incorrect Forms 1095-A, and it also provided relief from sections 6651(a)(2), 6651(a)(3), and 6662 in that narrow setting. That is an example of targeted administrative tax penalty relief rather than a general rule.
State procedures vary, but the Utah guidance illustrates the typical framework. A taxpayer generally must submit a written or online request, include supporting documentation, and usually pay the underlying tax first before the state will consider waiver of penalties or interest. Utah states that waiver review is available when the liability is based on a filed return rather than an estimate, the tax has been paid, and the taxpayer has not already received waiver review for the same period.
The strongest requests usually document facts such as timely mailing, serious illness, disaster, reliance on erroneous agency advice, unobtainable records, bank error, or reliance on a competent advisor. For state indirect tax matters, including sales tax and Use Tax, the same practical principle applies: the taxpayer should connect the late filing or payment to a specific, documented cause and show prompt correction once the issue was discovered.
In practice, taxpayers often use waiver and penalty abatement interchangeably, but the terms can reflect different procedural postures. A waiver often refers to relief requested before or at the time a penalty is asserted, while an abatement often refers to removing an already assessed penalty. The Form 843 instructions expressly state that Form 843 may be used to request an abatement or refund of certain penalties or additions to tax due to reasonable cause or another reason allowed by law. The same instructions also note that a separate Form 843 is generally required for each tax period or type of tax.
For federal penalties, a taxpayer seeking an IRS penalty waiver after assessment commonly uses Form 843, identifies the applicable Code section, and explains the basis for relief in detail. That process is especially relevant in Tax Controversies where the taxpayer is responding to an IRS notice rather than addressing the issue on an original return.
A tax penalty waiver is generally available when the taxpayer can show reasonable cause and no willful neglect. Federal examples include late filing or payment under section 6651 and certain estimated tax situations where the IRS has granted special relief. State guidance similarly recognizes illness, disaster, agency error, and documented mailing problems as potential grounds.
It is generally not available where the taxpayer cannot document the cause, where the liability is based on an estimate rather than a filed return under certain state procedures, or where the conduct reflects intentional disregard, evasion, or fraud. Also, interest is often harder to remove than penalties. For example, Notice 2015-30 expressly preserved interest even while granting penalty relief. A late-filed return may also trigger the federal Failure-to-File Penalty minimum if filed more than 60 days late.
Is the underlying tax still owed after a penalty waiver is granted?
Yes. A waiver generally removes only the penalty. The underlying tax remains due, and interest may continue to apply unless a separate legal basis exists for interest relief. Notice 2015-30 specifically preserved interest even where certain penalties were waived.
How does a Voluntary Disclosure Agreement relate to receiving a penalty waiver?
A Voluntary Disclosure Agreement can sometimes include negotiated penalty treatment under state administrative practice. Penalty outcomes depend on the jurisdiction, the disclosure terms, and whether the taxpayer satisfies the applicable waiver standards.
Can interest charges be waived along with penalties?
Sometimes, but less often. State guidance indicates interest is harder to waive than penalties and usually requires proof that the taxing authority gave incorrect information or caused the delay. Federal guidance likewise may waive penalties while still requiring payment of statutory interest.
What documentation supports a successful penalty waiver request?
Strong documentation includes proof of timely mailing, medical records, disaster records, bank letters, written agency advice, advisor correspondence, and a detailed chronology. Form 843 instructions also require a detailed explanation and supporting evidence when requesting federal relief from assessed penalties.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact DiAndria Green, Partner in Bennett Thrasher’s State and Local Tax (SALT) practice, or call us at 770.396.2200.
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