What is First-Time IRS Tax Penalty Abatement?

When you’re in debt to the Internal Revenue Service (IRS), penalties and the interest on those penalties can make a bad situation much worse. What may have begun as a simple mistake or short-term cash flow problem can easily spiral into insurmountable debt, and will continue to grow until you have reached a resolution.

For some taxpayers facing this difficult situation, help is available. Under certain circumstances, qualified taxpayers may be eligible for a one-time penalty abatement.

What is a First-Time Penalty Abatement (FTA) Waiver?

The first-time penalty abatement (FTA) waiver is an administrative waiver that a taxpayer meeting certain criteria may request from the IRS. If the waiver is granted, the taxpayer is relieved of the obligation to pay accrued penalties associated with failure to timely file, failure to timely pay, or failure to deposit taxes when due. Any interest accrued on penalties will also be eliminated, although interest on the unpaid tax will not be abated and will continue to accrue. However, it is important to note that the waiver applies only to a single tax period, and cannot be used to avoid penalties in consecutive tax years.

The FTA waiver is significantly underutilized: Most taxpayers who might quality never make a request.

Qualifying for the FTA Waiver

The FTA waiver is intended for taxpayers who have previously been compliant. Taxpayers requesting the first-time penalty abatement will be approved only if they:

  • Have no penalties for the three tax years prior to the year in which the penalty was incurred, or was not previously required to file a tax return
  • Have filed all required tax returns, or have requested an extension of time to file
  • Have paid, or have made payment arrangements regarding, any unpaid tax

Pursuing an FTA Waiver from the IRS

Working with the IRS can be daunting when you are facing past-due tax obligations, penalties, and interest. Although the FTA waiver program was created to assist qualifying taxpayers, it is the taxpayer’s responsibility to establish eligibility for the waiver. The request may be submitted by telephone or letter.

Often, the most efficient and effective way to pursue a waiver is to work with an experienced tax professional to assemble the request and supporting documentation. Working with a seasoned tax practitioner will also help ensure that you take the most beneficial approach to requesting abatement. For example, penalties and interest on penalties will continue to accrue until the tax debt is resolved, so requesting abatement too early may mean the taxpayer doesn’t get the full benefit of the waiver.

The IRS Sometimes Makes Mistakes

The IRS uses software to make an initial determination of eligibility for the FTA waiver. Unfortunately, the computer-generated conclusion isn’t always correct. A determination of ineligibility for a first-time penalty abatement is appealable, and an experienced tax professional may be able to persuade the IRS to reverse the denial.

If You’ve Been Assessed Tax Penalties, Get Help Today

If you’ve been assessed tax penalties, don’t assume the worst. Contact the experienced professionals at Key Tax Group today to learn more about the first-time penalty abatement, and any other relief you may be entitled to.