Understanding IRS’ First-Time Penalty Abatement Policy

Tax Abatement Policy - with Nick Nemeth

Not many people know that if the IRS charges you or your business with additional penalties and interests, you can request the IRS for tax abatement. Individuals and business taxpayers can request an FTA (First-time penalty Abatement) for failure-to-file, failure-to-pay, and/or failure-to-deposit penalties for a single tax period. It is, however, important to prove a reasonable cause for the failure to compliance with the tax law.  An FTA was introduced to help first-time defaulters to have a clean compliance history. Continuing the discussion, the post provides basic knowledge to help you resolve IRS problems and get your tax penalties or interests reduced.

Penalties Covered Under FTA Policy

Individual taxpayers can request an FTA for failure to file or pay penalty. The penalty is usually 5 percent of the balance per month. Business taxpayers, on the other hand, can request an FTA for failure to file and pay as well as failure to deposit regarding payrolls taxes (for example, the deposit wasn’t made on time, deposited an incorrect amount, or not deposited in the correct manner). The penalty for failure to deposit is .5 percent of outstanding tax debt per month. In addition, an FTA also covers penalties related to audits. Accuracy related penalties are, however, not covered under FTA.

Penalty Abatement Qualification Criteria

  1. The taxpayer was not charged with any sort of penalty for the past three tax years. In case a taxpayer has received a penalty of less than $100 in any one of the previous three years, the person can still request for an FTA. It is because IRS considers penalties that are more than $100 as disqualification.
  2. The taxpayer must have filed all required returns or extensions and do not have any outstanding request from the IRS for any unfiled return. It is also required to attach all required tax returns and extensions with the IRS.
  3. The taxpayer must have paid or arranged to pay the outstanding debt. Taxpayers can also take an open installment agreement, provided they are regular with the payments.

How to Request

Taxpayers can request an FTA by telephone, in writing, or through e-services. If you are filing for abatement in writing you must attach a photocopy of the IRS notice showing the penalty and documents (stating reasonable cause) supporting your request. The request should be sent to the IRS service center where you file paper returns.

Wrapping Up

Requesting an FTA can be an overwhelming process, especially if you do not have any prior experience. It is also likely that the IRS may reject your request in the first go, mostly because of the lack of proper documentation. That is when you need guidance of an experienced IRS attorney. Schedule a free consultation with Nick Nemeth personally to learn more about relief from IRS problems and get tax penalties reduced. Simply call (972) 627-4580 or fill out our contact form and we will be happy to schedule you a free no-obligation consultation.