The IRS imposes penalties on various taxpayer deficiencies. Penalties may include failure to file tax returns, failure to pay tax, substantial underreporting of income and many other penalties. Penalties can be abated or waived by the IRS upon a showing of reasonable cause by the taxpayer. However, the IRS also has a First Time Penalty Abatement program (“FTA”) wherein first time offenders can receive penalty abatement for some failure to file, failure to pay or failure to deposit penalties.
To apply for first time abatement, the taxpayer must be prepared to demonstrate the following[1]:
- Penalties for which FTA is available. The IRS may abate failure to file, failure to pay and failure to deposit penalties.[2]
- Requirements for FTA. The taxpayer must show that he or she (1) did not have to file a return or have penalties within the three prior years; (2) all currently required returns are filed or extensions requested; and (3) the taxpayer has paid or arranged to pay any tax due.[3]
- Available every four years. While FTA is titled as “First Time Abatement”, it is available provided that it has not been used in the prior three years.[4]
- Interest on penalty also abated. While interest on the principle tax is not abated under FTA, the interest that accrues on the penalty is abated under FTA.[5]
- FTA only available for one tax period. If the taxpayer has multiple years’ worth of penalties, FTA is available only for a single tax period. If the taxpayer wishes to abate other penalties, the taxpayer will have to show reasonable cause for additional abatement.[6]
- FTA before reasonable cause. If the taxpayer applies for penalty abatement based on reasonable cause, the IRS will first check to see if FTA applies and will use FTA, thus using the taxpayer’s “every three year” FTA opportunity.[7]
- How to contact the IRS to request FTA. A taxpayer may call 1-800-829-1040 or the IRS Penalty Assistance Line at 1-855-223-4017 ext-225. A tax professional may call the Practitioner Priority Line at 1-866-860-4259. The taxpayer may also use Form 843.
If you owe IRS income tax penalties, please contact me to determine if you may qualify for penalty abatement.
Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] I would like to acknowledge the presentation on the subject of FTA’s titled “First Time Abatement (of Penalties) Made Easy”, by Roger Nemeth, given on October 5, 2020.
[2] IRM 20.1.1.3.3.2.1.
[3] https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver (accessed 10/5/2020).
[4] Office of Chief Legal Counsel, Internal Revenue Service, Memorandum dated September 28, 2017.
[5] https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver (accessed 10/5/2020).
[6] IRM 20.1.1.3.3.2.1(9).
[7] IRM 20.1.1.3.3.2.1(11).