Understanding the IRS First-Time Penalty Abatement

The IRS First-Time Penalty Abatement (FTA) program offers eligible taxpayers a one-time opportunity to have certain penalties removed if they have a clean compliance history. This relief is designed for those who have an isolated compliance issue and have otherwise consistently met their tax obligations.

What Is First-Time Penalty Abatement?

First-Time Penalty Abatement is an administrative waiver that allows the IRS to remove certain penalties for a single tax period, based solely on your prior compliance record. It is not based on reasonable cause, but rather on your history of timely filing and payment in previous years.

Who Is Eligible?

To qualify for FTA, you must meet all of the following criteria:

  • No significant penalties in the prior three years: You must not have had penalties (other than estimated tax penalties) assessed or removed for the same type of return in the previous three years. If you were not required to file during those years, you are still eligible.

  • All required returns filed: You must have filed all currently required tax returns or valid extensions.

  • All taxes paid or arrangements made: You must have paid, or arranged to pay, any tax due (for example, through an installment agreement that is current).

The FTA can only be used for a single tax period and may only be granted once every three years.

What Penalties Can Be Abated?

The FTA program applies to the following penalties:

  • Failure to File Penalty: For late filing of returns, including individual (Form 1040), S corporation (Form 1120S), and partnership (Form 1065) returns.

  • Failure to Pay Penalty: For late payment of taxes due.

  • Failure to Deposit Penalty: For late or incorrect deposit of payroll or other required taxes.

FTA does not apply to all types of penalties, such as those for providing incomplete information on S corporation or partnership returns[102].

How to Request First-Time Penalty Abatement

By Phone:

  • Call the IRS at the number on your penalty notice or the Practitioner Priority Service line.

  • Be prepared to discuss your compliance history and the reason for the penalty.

  • The IRS may grant abatement during the call if you meet the criteria, but for larger penalties, a written request may be required.

By Written Request:

  • Write a letter to the IRS requesting first-time penalty abatement.

  • Include your name, taxpayer identification number, tax year, type of penalty, and a statement that you meet the FTA criteria.

  • Attach a copy of the penalty notice, if available.

  • You may also use Form 843, Claim for Refund and Request for Abatement, but a letter is generally preferred unless the IRS specifically requests the form.

When Filing a Late Return:

  • You may attach a penalty abatement request to a late-filed individual return, but for business returns, send the request separately.

Documentation and Best Practices

  • Include a copy of the penalty notice (if available).

  • Clearly state in your request that you meet the FTA criteria and reference IRS procedures.

  • Keep copies of all correspondence and documentation sent to the IRS.

  • Review your IRS account transcripts for the current and prior three years to confirm eligibility.

  • If you do not receive a response within 60 days, follow up with the IRS by phone.

  • If your request is denied, you may appeal the decision or file a claim for refund.

Summary:

The IRS First-Time Penalty Abatement program offers a one-time opportunity to remove certain penalties for taxpayers with a clean compliance history. You can request FTA by phone or in writing, providing a clear statement of eligibility and supporting documentation. If denied, you have the right to appeal. This process helps eligible taxpayers resolve isolated penalty issues efficiently.

If you have questions about penalty abatement or need help with your IRS notice, Contact our team, who is here to assist you.