IRS Notice 746 5- IRS Forms, Instructions, Pubs 2026 – If you’ve received an IRS notice or bill showing penalties and interest, you’ve likely seen a reference to IRS Notice 746 — officially titled Information About Your Notice, Penalty and Interest. This free IRS publication is the agency’s official explainer for why you owe extra amounts and what your options are.
In this comprehensive guide, you’ll learn exactly what Notice 746 covers, the most common penalties, how interest is calculated (including current 2026 rates), how to request penalty relief, and step-by-step actions to take.
What Is IRS Notice 746?
IRS Notice 746 is a multi-page document the IRS includes with (or references in) many balance-due notices. It explains:
- Why penalties and interest were charged
- How each major penalty is calculated
- How daily interest compounds
- Reasonable-cause abatement rules
- Payment and appeal options
The most recent version is Notice 746 (Rev. 12-2024), still the current edition as of February 2026. You can download the official PDF here: https://www.irs.gov/pub/irs-pdf/n746.pdf.
Why Did You Receive Notice 746?
The IRS sends this information whenever it assesses penalties or interest on your account. Common triggers include:
- Late-filed tax returns
- Unpaid tax balances
- Missed estimated tax payments
- Late or insufficient payroll tax deposits
- Dishonored payments or information-reporting errors
The specific notice you received (CP14, CP2000, LT16, etc.) will list the exact penalty code and amount; Notice 746 provides the “why” and “what now.”
Common IRS Penalties Explained (from Notice 746)
Here are the penalties most frequently detailed in Notice 746:
| Penalty Type | IRC Section | Rate / Amount | Maximum | Common Trigger |
|---|---|---|---|---|
| Failure to File | 6651(a)(1) | 5% per month (or part of month) of unpaid tax | 25% | Return filed after due date (or extension) |
| Failure to Pay | 6651(a)(2) | 0.5% per month of unpaid tax (increases to 1% after levy notice) | 25% combined with failure-to-file | Tax not paid by due date |
| Failure to Deposit (employment taxes) | 6656 | 2%–15% depending on days late | Varies | Late or insufficient payroll deposits |
| Underpayment of Estimated Tax | 6654 (individuals) / 6655 (corporations) | Varies by underpayment amount and period | — | Insufficient quarterly estimates or withholding |
| Accuracy-Related | 6662 | 20% (40% for gross valuation) | — | Negligence, substantial understatement, etc. |
| Dishonored Check | 6657 | 2% ($1,250+) or lesser of $25 or amount | — | Bounced payment |
| Information Return | 6721–6723 | $50–$310 per form (inflation-adjusted) | Up to $1.5M+ | Missing or incorrect 1099s, W-2s, etc. |
Important: The failure-to-file and failure-to-pay penalties can combine but are capped at 25% total in most cases. Fraud penalties are much higher (75%).
How IRS Interest Works?
Interest accrues daily on unpaid tax and on most penalties from the original due date until the balance is paid in full. Key facts from Notice 746:
- Compounded daily (except estimated-tax penalties)
- Same rate for most underpayments and overpayments since 1999
- Cannot be abated for reasonable cause — only the underlying penalty can be removed, which stops further interest on that portion
Current IRS Interest Rates (2026)
As of the first quarter of 2026 (January–March):
- Individuals & non-corporate underpayments: 7%
- Corporate underpayments: 7%
- Large corporate underpayments (>$100,000 for C-corps): 9%
- Corporate overpayments (GATT portion >$10,000): 4.5%
Rates are set quarterly and have hovered in the 7% range recently. The full historical table is in Notice 746 and on the IRS quarterly interest rates page.
How to Request Penalty Relief (Abatement)?
The IRS will remove or reduce many penalties if you show reasonable cause — you exercised ordinary business care and prudence but still couldn’t comply.
Common acceptable reasons (per Notice 746 and IRS penalty relief pages):
- First-time penalty abatement (for eligible taxpayers with clean compliance history)
- Death, serious illness, or unavoidable absence of the taxpayer or key employee
- Natural disaster or casualty
- Incorrect IRS advice (written)
- Unable to obtain records despite reasonable efforts
How to request relief😕
- Call the number on your notice, or
- File Form 843, Claim for Refund and Request for Abatement, or
- Send a signed statement explaining your situation with supporting documents
For first-time abatement on many individual and business penalties, you may qualify automatically if you have a clean record for the prior 3 years. See the official penalty relief page for details.
Note: Interest is not removable for reasonable cause — only penalties.
Payment Options and Next Steps
Notice 746 outlines several ways to pay:
- Online — IRS Direct Pay, debit/credit card, or EFTPS (required for many businesses)
- Check or money order — Mail with the notice stub; apply partial payments to tax first, then penalties, then interest
- Installment agreement — Form 9465 or online application
- Offer in Compromise — If you can’t pay in full
Important deadlines:
- Pay within 21 calendar days (if balance <$100,000) or 10 business days (≥$100,000) to avoid additional failure-to-pay penalties and interest.
What Should You Do Right Now?
- Read your specific notice carefully — it tells you the exact amount and due date.
- Download Notice 746 (linked above) and review the section that matches your penalty code.
- Gather documentation if requesting relief.
- Pay what you can immediately to stop interest from growing.
- Contact the IRS using the number on your notice (have your SSN/EIN and notice ready).
- Consider professional help — a tax pro or Enrolled Agent can often negotiate better results, especially for complex cases.
Frequently Asked Questions About IRS Notice 746
- Is Notice 746 a bill?
No — it’s an explanatory insert. Your actual bill is the CP or LT notice that came with it. - Can I fight the interest?
Only if the underlying tax or penalty is reduced or abated. Interest itself is statutory and rarely removable. - How long do I have to respond?
Usually 10–30 days from the notice date to avoid further collection actions. Check your specific notice. - Does penalty relief affect my state taxes?
Often not automatically — you may need to contact your state tax agency separately. - Where can I find the latest version?
Always download directly from IRS.gov: Notice 746 PDF.
This article is for informational purposes only and is not tax or legal advice. Tax laws and IRS procedures can change. For personalized guidance, consult a qualified tax professional, Enrolled Agent, or CPA, or contact the IRS directly using the number on your notice.
Need more help?
- Official IRS Penalties page: irs.gov/payments/penalties
- Penalty Relief: irs.gov/payments/penalty-relief
- Quarterly Interest Rates: irs.gov/payments/quarterly-interest-rates
Stay proactive — the sooner you address a Notice 746 situation, the less it will ultimately cost you. If you have questions about your specific notice, reply with the notice number (CPxx or LTxx) for more targeted guidance. Last updated: February 2025. All information sourced directly from IRS.gov.