The law permits the IRS to remove or reduce the penalties applied to a taxpayer's account if the taxpayer can submit a written explanation with an acceptable reason as to why the IRS should remove or reduce the penalties. Once submitted the IRS will review the documentation and will contact the taxpayer to notify them of their decision. It is important to note that the law does not permit the IRS to remove or reduce penalties. There may be instances where the IRS will require the taxpayer to pay the tax in full before removing or reducing the penalties.
IRS notice 746 contains a wealth of information regarding your notice, penalties and interest. The reduction or removal of penalties can be a difficult task to get the IRS to agree to due to the way the IRS rules are written. First the taxpayer has to submit to an IRS interview called the Penalty Abatement Reasonable Cause interview. The questions are detailed and they are tough, but if enough documentation can be provided to convince the IRS drop the penalties then it is well worth it. A great place to start would be with Notice 746 which gives an excellent explanation of things. This can help a taxpayer decide whether or not they need to involve the services of a tax professional to help with penalties (but not interest).