An IRS penalty is a method that the government uses to ensure taxpayer compliance. If you have failed to file your return on time or accrued
Individual IRS Penalties
Individual State Penalties
Business IRS Penalties
Business State Penalties
a tax liability, you will be surprised at how quickly the amount due on your return can increase. In some circumstances the IRS might consider a penalty abatement, but only if you have a reason not to comply with your tax obligations.
If you are in a tax debt situation and you have been a compliant taxpayer, this might be a great option for you. Before you decide on this course of action, you should become better informed.
What is an IRS First Time Abatement of Penalties?
IRS penalties are common, but they can make you feel hopeless. The good news is that there is a little-known option where certain penalties can be abated for taxpayers who have a three-year history of compliance with IRS filing and payment requirements. This does not apply to all penalties, but can work for failure-to-file, failure-to-pay, or failure-to-deposit, though only for one tax period. In this situation, the IRS might consider First Time Abatement of Penalties (FTA).
Interestingly, the IRS does not grant FTA based on a "reasonable cause," but exclusively because of your previous compliance. In other words, it does not matter why you fell behind on taxes or why you failed to file your return. As long as you've filed on time and made payments to the IRS in full for the past three years, you should qualify for FTA for one period of the liability.
Do you qualify for FTA?
First of all, you must be current with filing and payment requirements. You also need to have a three-year history of compliance. There can be some leniency here, as the phrasing is that you cannot have any "significant" issues in the previous three years. If in doubt about your record, contact a tax professional.
You also need to be aware that FTA is only available for certain penalties:
For individuals, these include the failure-to-file and failure-to-pay penalties.
For businesses, the failure-to-deposit penalty is available in addition to failure-to-file and failure-to-pay.
How to request FTA
FTA is not automatic - it must be requested. It is estimated that less than 10% of the taxpayers that qualify for FTA actually request it, which is a clear result of the IRS not publicizing the program. Imagine how much difficulty the IRS would have if every eligible taxpayer requested FTA.
You can either call the IRS or send a letter, including full details and supporting documentation for the Penalty Abatement Coordinator. There is also a ceiling on the amount of penalties that the IRS will abate under this policy, though this amount will not be made public.
Furthermore, the FTA program might not be the best solution for you simply because you qualify. For example, if you are able to abate penalties under reasonable cause, you can apply the FTA against a subsequent penalty assuming that the IRS accepts the previous reasonable cause claim. At times, this can be complicated if the IRS internal system appears to be making mistakes, such as applying FTA where reasonable cause has been requested, and vice versa.
If you do choose FTA, you can request it completely on your own. However, it is a good idea to consult a tax professional to determine the best way of achieving a successful penalty abatement.
Are there other options?
If you do not qualify for FTA, there is still hope: You can try to get abatement under alternate IRS qualifications.
The most common alternate qualification is "reasonable cause," which involves you proving that you only failed to comply with IRS regulations due to reasons beyond your control, such as an illness or a natural disaster.
Other options include "statutory exemptions" (e.g. you owe less than $1,000, or you did not owe anything in taxes the previous year), IRS errors (if IRS representatives have made a mistake or provided bad advice) and administrative waivers. Tax specialists, known as Enrolled Agents, can help you figure out if you qualify for exemptions or how you should proceed. To learn more about how an Enrolled Agent can guide you through the resolution process, download our free guide.
Whether you choose to pursue FTA or another tax debt resolution, 20/20 is your free resource for taking care of this issue. Remember, dealing with your tax debt should be your top priority. Now is the time to resolve it and get back to living your life.
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