Reasonable Cause Penalty Relief
One of the most commonly used forms of relief is reasonable cause. The IRS may waive penalties if a plan sponsor can demonstrate that the failure to comply was due to circumstances beyond their control and that they acted in good faith.
Examples may include serious illness, natural disasters, death of a key individual, or reliance on incorrect professional advice. Sponsors should also show they took corrective action promptly after discovering the issue. For background and official guidance, see the IRS materials on plan administration and compliance and the IRS overview of penalty relief.
First-Time Abatement (FTA)
Another potential option is First-Time Abatement (FTA). Under this administrative policy, the IRS may remove certain penalties if the plan sponsor has a history of compliance. In general, eligibility depends on having a clean penalty history for the prior years and being current with required filings.
FTA eligibility and how to request it are summarized in the IRS guidance on penalty relief.
EPCRS: Correcting Operational Failures
For operational failures within retirement plans, the IRS provides correction pathways under the Employee Plans Compliance Resolution System (EPCRS). These programs are designed to help sponsors correct mistakes and preserve a plan’s tax-favored status.
The IRS explains EPCRS options—including self-correction in appropriate cases and voluntary submission processes—in its official guide to EPCRS for retirement plans.
Automatic Correction Program
Certain routine errors may qualify for correction without a formal submission. If you’re unsure whether an issue can be fixed through self-correction or requires a formal EPCRS submission, start with the IRS overview of EPCRS correction methods and document each step taken.
Disaster-Related Penalty Relief
When federally declared disasters occur, the IRS often announces temporary relief measures such as filing deadline postponements and penalty relief for impacted taxpayers and plan sponsors. These announcements are time-limited and location-specific, so it’s important to verify eligibility.
For current updates, monitor the IRS page on tax relief in disaster situations.
How to Request Penalty Relief
When requesting penalty relief, plan sponsors should provide a clear written explanation describing the cause of the failure, demonstrate good-faith compliance efforts, and include supporting documentation where available. Requests are typically submitted in response to an IRS notice or as part of the correction process described in the relevant IRS program guidance.
For general rules and request pathways, refer to the IRS overview of penalty relief options and the retirement plan compliance hub at Retirement Plans.
