People ask me which they should request: first-time abatement or reasonable cause. It is a fair question with an answer most people do not expect. You do not get to choose the order. The IRS does.

Understanding that order, and why it exists, tells you how to write your request, what to expect back, and when it makes sense to push past a quick yes.

Two different questions

First-time abatement asks about your history. Did you file the same type of return on time for the prior three years, with no penalties other than the estimated tax penalty? If so, the IRS removes the failure-to-file, failure-to-pay or failure-to-deposit penalty without asking why you were late. The rules are in IRM 20.1.1.3.3.2.1, and I break them down in first-time abatement explained.

Reasonable cause asks about your conduct. Under IRM 20.1.1.3.2, relief is generally granted when you exercised ordinary business care and prudence in determining your tax obligations but were nevertheless unable to comply. That means facts. What happened, when, how it prevented compliance, how you handled the rest of your affairs, and how quickly you fixed things once you could. The standard is covered in ordinary business care and prudence.

One is a records check. The other is an argument. They are not the same kind of request.

The order the IRS uses

IRM 20.1.1.3 lists four categories of penalty relief and says that, unless another part of the manual says otherwise, relief is considered and applied in this order:

  • Correction of IRS error.
  • Statutory and regulatory exceptions.
  • Administrative waivers, which include first-time abatement.
  • Reasonable cause.

The FTA section repeats the point. Administrative waivers, including FTA, are considered and applied before reasonable cause. If you meet the FTA criteria, the waiver is applied first, and the IRS must tell you the penalty came off because of your compliance history and not because of your reasonable cause statement.

The manual even gives the paragraph the IRS uses in its letters. It tells the taxpayer the penalty was removed because of a good history of filing and paying on time, that this type of removal is available only one time, and that future decisions will be based on reasonable cause criteria.

Why the order matters to you

Here is the consequence. A penalty removed under FTA counts against you in the next three-year look-back. A penalty removed for reasonable cause does not. The IRS page on the waiver says a penalty that was assessed and later abated for reasonable cause or IRS error does not break your compliance history.

So if you have a genuinely strong reasonable cause case, such as a documented hospitalization that overlapped the due date, getting relief on that basis preserves your clean history for later. Getting it under FTA spends that history.

The catch is the procedure. The manual directs employees to check FTA first, and it says taxpayers do not have to specifically request FTA to receive it. If you call and explain your hospitalization, the employee is supposed to check your history first and apply FTA if you qualify. Do not count on steering the request away from FTA. The written procedure points the other way.

When FTA comes first anyway

For most people with a clean history, the quick FTA yes is the right result. It is fast, it needs no documents, and it carries no oral statement dollar threshold, so it can be granted on the phone. Arguing reasonable cause takes longer, requires evidence, and can be denied.

Reasonable cause becomes the better framing in a few situations:

  • You do not meet the FTA criteria at all, because of a prior penalty, an unfiled prior year, or a prior FTA in the look-back period.
  • Multiple periods are penalized. The manual's example is a Form 941 filer with deposit penalties in all four quarters of a year. FTA can apply only to the first quarter. The other three need reasonable cause.
  • The penalty is outside FTA's reach: the accuracy-related penalty, information return penalties, the estimated tax penalty, or penalties on returns like Forms 706, 709 or 3520.
  • The IRS caused the problem. Then you want correction of IRS error, which comes before FTA in the order and spends nothing.

How to frame the request

If you qualify for FTA and have no strong reasonable cause facts, keep it short. Ask for removal of the specific penalties on the specific tax period. You do not need to name the waiver or attach documents.

If you have strong reasonable cause facts, present them fully, with dates and documents, as described in writing a penalty abatement letter. Address each penalty, because the manual says each penalty is for a different type of failure and your explanation must address the penalty imposed. If the IRS applies FTA anyway, you have lost nothing on this year and you have a record of your facts.

If the penalty resulted from an IRS mistake, lead with that. A payment posted to the wrong year, an extension that was filed but never recorded, a math error in the penalty computation: these are corrections, not waivers. Under IRM 20.1.1.3, the account is supposed to be fixed before any relief is considered at all, and a corrected account often makes the penalty reverse on its own.

A hypothetical that shows the trade-off

Take a hypothetical self-employed taxpayer who filed and paid on time for three years. In the fourth year, she was hospitalized for six weeks that covered the April due date. She filed and paid within two weeks of discharge. She has a clean history and a strong reasonable cause case.

If she calls, the employee should check her history first. She qualifies for FTA, so the penalty comes off under FTA and the letter says so. Her history is now spent for the look-back period.

Suppose instead she had a prior-year penalty still on the books. FTA is unavailable. Now the hospitalization is everything, and the serious illness guide describes what the IRS looks at: dates, duration, severity, and how promptly she complied afterward. With records showing the admission and discharge dates, that is the kind of case reasonable cause was built for.

Same event, different procedural outcome, depending entirely on what the account showed for the prior three years.

Reading the IRS response

The letter you receive tells you which basis the IRS used. The manual lists Letters 168C, 3502C and 3503C as letters containing the paragraph that explains FTA relief, and Letter 854C as the standard letter for a disallowed request with appeal procedures explained.

If the letter says the penalty was removed because of your history, it was FTA. If it says your explanation established reasonable cause, it was reasonable cause. If it says the request was denied, it must also explain the basis and your appeal rights. Keep every one of these letters. They are your record for the next request.

If both are denied

A denial is not the end. The IRS must give you written notice of the denial and your appeal rights, usually in Letter 854C. Appeals can consider all four relief categories plus hazards of litigation. The steps are in appealing a penalty abatement denial.

The bottom line is this. FTA is a reward for your record. Reasonable cause is a defense of your conduct. The IRS checks the reward first. Know which one you are really relying on before you pick up the phone, and you will not be surprised by the answer.