IRS Penalty Abatement for US Expats: How to Remove Late Filing Penalties

If you have received an IRS notice for late filing penalties, failure-to-pay penalties, or international information return penalties, you are not necessarily stuck with them. The IRS provides several formal mechanisms for reducing or eliminating penalties — collectively known as penalty abatement. For US expats, who often face unfamiliar filing requirements and genuine confusion about their US obligations, penalty abatement can provide substantial financial relief.

This guide explains the main IRS penalty abatement routes, which types of penalties can be removed, the evidence required, and how US expats in the UK typically benefit from these procedures.

The Most Common IRS Penalties for US Expats

US expats typically encounter these penalty types:

• Failure-to-File Penalty (IRC Section 6651(a)(1)): 5% of unpaid tax per month, up to 25%, for filing a tax return late
• Failure-to-Pay Penalty (IRC Section 6651(a)(2)): 0.5% of unpaid tax per month, up to 25%, for failing to pay tax by the due date
• FBAR penalties: Up to $10,000 per year per account for non-wilful violations; up to the greater of $100,000 or 50% of account balance per year for wilful violations
• Form 5471 penalties: $10,000 per form per year for late or non-filed returns, increasing by $10,000 per month (up to $50,000) after IRS notice
• Form 3520 / 3520-A penalties: 35% of the value of the foreign trust transaction or gift for failure to file; 5% per month up to 25% for gifts
• Form 8938 (FATCA) penalties: $10,000 for failure to disclose, up to $50,000 if not filed after IRS notice

Route 1: First-Time Abatement (FTA)

First-Time Abatement (FTA) is the IRS’s administrative waiver for taxpayers who have a clean compliance history. It is one of the most effective and underused penalty relief mechanisms available. FTA can remove:

• Failure-to-file penalties (Form 1040 and business returns)
• Failure-to-pay penalties
• Failure-to-deposit penalties (payroll taxes)

To qualify for FTA, you must:

• Have filed all required returns (or valid extensions) for the past three years
• Have paid (or arranged to pay) any tax owed for the past three years
• Have received no penalties in the past three years (or any penalties were subsequently removed)

FTA can be requested by calling the IRS directly (often resolving in a single phone call) or by written request. It applies to the most recent penalty year, not necessarily all years with penalties. Many US expats who catch up on missed returns and have a historically clean record qualify for FTA on the year they missed.

Route 2: Reasonable Cause

Reasonable cause penalty abatement is available for almost all IRS penalties (though not for the Accuracy-Related Penalty without specific grounds). To succeed, you must demonstrate that despite exercising ordinary business care and prudence, you were unable to comply with the tax obligation.

Common reasonable cause grounds for US expats include:

• Ignorance of the filing requirement: If you were genuinely unaware of a specific obligation (e.g., Form 5471 or Form 3520) and your unawareness was objectively reasonable (for example, you received no advice about it), this can support a reasonable cause claim. The IRS applies a higher standard to tax return penalties (since filing is widely known) than to complex international forms.
• Reliance on professional advice: If you relied on a qualified tax professional who advised you incorrectly, and you provided them with complete and accurate information, reliance on that advice can constitute reasonable cause.
• Serious illness or incapacity: Documented medical conditions preventing timely filing or payment.
• Death in the family: The death of an immediate family member around the filing deadline.
• Natural dISAster or casualty: Fire, flood, or other events preventing timely compliance.
• Financial hardship: Genuinely being unable to pay is not itself reasonable cause for failure to pay, but may support abatement in specific circumstances.

Reasonable cause abatement requests must be made in writing, providing specific facts and supporting documentation. A vague statement of “I didn’t know” is generally insufficient — the IRS wants detailed facts explaining why a person of ordinary prudence would have failed to comply in the specific circumstances.

Route 3: Statutory Exceptions

Certain penalties are automatically waived in specific statutory circumstances:

• Disaster area relief: The IRS automatically extends deadlines and waives penalties for taxpayers in federally declared disaster areas
• Erroneous advice from the IRS: If the IRS itself gave you incorrect written advice and you relied on it, any penalties resulting from that reliance are statutorily abated under IRC Section 6404(f)
• Undue hardship: Certain payment penalties can be reduced or eliminated if paying them would cause undue hardship

International Information Return Penalty Relief

For the specific penalties that US expats face on international information returns (Forms 5471, 3520, 3520-A, 8938, 8621), the IRS has issued additional guidance:

• Delinquent International Information Return Submission Procedures (DIIRSP): Allows taxpayers with no unreported income — only missed informational forms — to file delinquent returns without penalty, subject to the IRS’s review of the reasonable cause statement. The taxpayer must attach a reasonable cause statement to each delinquent return.
• Streamlined Filing Compliance Procedures: Designed for non-wilful failures, the Streamlined procedures cap total penalties at 5% of the highest qualifying account balance (Domestic Offshore) or zero offshore penalty (Foreign Offshore). International information return penalties are generally not separately assessed within the Streamlined programme.
• Voluntary Disclosure Programme (VDP): For potentially wilful violations requiring criminal protection.

How to Submit a Penalty Abatement Request

There are several ways to request IRS penalty abatement:

• Phone: For FTA requests, calling the IRS at 1-800-829-1040 (or the international number for expats: 1-267-941-1000) and requesting FTA often resolves quickly. Have your tax transcripts available.
• Written request (Form 843): Form 843 (Claim for Refund and Request for Abatement) is the formal written mechanism for penalty abatement requests. Attach a written statement of facts supporting reasonable cause.
• Response to a CP notice: When you receive a penalty notice (e.g., CP14, CP503), you can respond in writing requesting abatement and providing your reasonable cause statement. The IRS requires a response within 60 days of most notices.
• Appeals: If the IRS denies your abatement request, you can appeal to the IRS Independent Office of Appeals, and ultimately to Tax Court if necessary.

Frequently Asked Questions

Can FBAR penalties be abated?

FBAR penalties are administered by FinCEN/Treasury, not the IRS, and technically do not follow the same abatement procedures. However, for non-wilful violations, the Supreme Court ruled in Bittner v. United States (2023) that the $10,000 penalty applies per report (per year), not per account — significantly limiting exposure in many cases. The IRS can also exercise discretion in penalty determination. Reasonable cause arguments can be presented to FinCEN in response to proposed FBAR penalties.

How long does the IRS take to process a penalty abatement request?

FTA requests by phone are often resolved within the same call (minutes to an hour). Written abatement requests (Form 843 or letter) typically take 3–6 months to receive a determination. If you have a response deadline on a penalty notice, submit your abatement request within that deadline and keep a copy. Interest on penalties continues to accrue while the request is pending.

Will requesting abatement trigger an audit?

Penalty abatement requests do not in themselves trigger audits. The IRS penalty function is separate from the examination function. However, if your abatement request involves complex facts (e.g., significant unreported foreign income now being disclosed), there may be increased scrutiny of the return as part of the compliance process. This risk should be assessed before deciding on the abatement route.

Can penalties be abated if I owe tax?

Yes — penalty abatement is separate from the underlying tax liability. You can have penalties abated (in whole or in part) while still owing and paying the underlying tax. Paying the tax does not affect penalty abatement eligibility, and vice versa.

Get Help with IRS Penalty Abatement

IRS penalties for US expats — particularly on international information returns — can be disproportionately large relative to any actual tax owed. Many of these penalties can be reduced or eliminated with the right approach and well-documented abatement requests. Our cross-border tax specialists regularly assist US expats in the UK in resolving IRS penalty situations, preparing abatement requests, and negotiating with the IRS through the appropriate channels.

Contact us today if you have received an IRS penalty notice or are worried about potential penalties on unfiled international returns.