How to Use First-Time Penalty Abatement

Each year, the IRS charges taxpayers millions of penalties. That adds up to tens of billions of dollars. But the IRS will waive or remove (abate) certain penalties if you have a history of following the rules. This penalty relief is called first-time penalty abatement (FTA).

Figure out if you qualify for first-time abatement

The most complicated part of requesting FTA is determining whether you qualify. Here’s what you need to know.

1. FTA applies only to certain penalties and certain returns.

  • For individual taxpayers, FTA is available for two of the most common penalties: failure to file and failure to pay penalties.
  • For business and payroll taxpayers, FTA applies to the failure to file, failure to pay and/or the failure to deposit penalties. S corporation and partnership late-filing penalties also qualify for FTA.
  • Estate and gift tax returns don’t qualify for FTA.

FTA doesn’t apply to the estimated tax and accuracy penalties. Accuracy penalties are based on the specific facts and circumstances for each person or business and each tax year or period. However, similar to the spirit of FTA, accuracy penalty responses often carry more weight with the IRS if you have a proven track record of filing accurate returns on time and you made a good-faith effort to file accurately.

2. To qualify for FTA, you must meet the clean compliance criteria rules.

You must have a clean three-year penalty history. To qualify for FTA, you can’t have any penalties of a “significant” amount in the past three years on the same type of tax return. The IRS doesn’t publicly define significant amount, but, in practice, the IRS has considered penalty amounts of $1 or more as significant. The estimated tax penalty is an exception and wouldn’t disqualify you from receiving FTA. Prior penalties that the IRS abated for cause also don’t disqualify you from FTA.

You must have filed all required returns. And, if you owe, you must be current on your payment arrangement with the IRS.

You may have to troubleshoot your request to the IRS

Keep in mind: The IRS often incorrectly applies its rules in determining whether people qualify for FTA.

Part of the reason is an unreliable internal tool that IRS employees use to make penalty abatement decisions. This inconsistency may mean that you’ll need to send a written request for abatement to the IRS. If the IRS denies your request, you may need to appeal if the IRS determination clearly indicates that the IRS isn’t following its FTA waiver rules.

With sufficient knowledge of the FTA process and a phone call to the IRS, you can remove penalty assessments.

Learn about all the penalty relief options you may have, and how to request relief from the IRS — or get expert help.

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