What Is the First–Time Penalty Abatement Policy?
Depending on your circumstances, you could be eligible for administrative relief from tax penalties under the IRS’ first-time penalty abatement (FTA) policy.
This policy allows taxpayers to request abatement (removal) of tax-related penalties, including the failure-to-file, failure-to-pay, and failure-to-deposit penalties as well as some audit-related penalties. In a nutshell, it’s a program where the IRS may forgive certain penalties from previous tax years, including interest.
Although the IRS has not published this information officially, there is a monetary limit to the amount that can be removed via FTA. Most tax experts believe this amount is around $10,000.
The IRS originally introduced the FTA policy in 2001, but many taxpayers remain unfamiliar with it and fail to take advantage. If you haven’t filed your tax returns, paid them on time, and/or deposited your taxes, first-time penalty abatement might be helpful for you.
You might qualify for an FTA if all the following are true:
- You were not required to file a tax return.
- You have no penalties of a significant amount (more than $100) three years prior to the year you incurred a penalty. If your request is denied due to a minor penalty, the professionals at S.H. Block Tax Services can contact the IRS directly on your behalf.
- You are current with your tax returns, or you filed an extension on time. If you are not current, you will not be approved, so make sure to file all returns and extensions before applying for the FTA.
- You have already paid your due taxes or arranged to pay them (for example, through an open installment agreement). Arrangements must be current; if not, make sure your affairs are in order before applying.
In addition, you could be eligible for an FTA if you received inaccurate advice from the IRS over the phone or in person. However, please be aware that even if you do qualify for an FTA, the failure-to-pay penalty will continue to accrue on any outstanding tax liabilities, so you may want to address those liabilities before applying.
Applying and Qualifying for FTA
IRS representatives are authorized to grant FTAs, so you can call (866) 860-4259 or apply online to request an FTA. If you would prefer to request an FTA in writing, be sure to state your case clearly, and include reasonable grounds as to why your request should be granted.
If you do not qualify due to past penalties but are otherwise compliant, be upfront about your history and present the elements of your case in a clear and concise manner. If you have penalties over multiple years, you can simply request an FTA for the first year as long as the previous three years have no compliance issues. It’s possible you will have to wait until the following tax year to use an FTA waiver, but don’t let that deter you from applying.
One thing to consider when applying for an FTA is that the IRS uses proprietary software to determine your eligibility. In some past cases, this software (known as the Reasonable Cause Assistant, or RCA) has made errors and wrongfully denied people’s applications. Luckily, IRS representatives can override the RCA if they find it isn’t working properly or isn’t considering the human element of your tax status.
Examples of reasonable grounds for an FTA include:
- Records being destroyed by a natural disaster such as a flood or fire
- The death of a close family member
- Inaccurate calculations due to a lack of records
- Bad or inaccurate information from an IRS representative
If you feel you should have qualified for the program based on the information above but your application was denied by the Reasonable Cause Assistant, simply ask your representative to override the RCA’s finding and review your qualifications personally. In most cases, they will oblige, but if not, take your case up the ladder to a manager or someone in a position of authority who will be willing to take a closer look.
Contact S.H. Block Tax Services for Help Applying for an FTA
If you are current with your tax filings and payments but are facing penalties from previous liabilities, please contact S.H. Block Tax Services today by calling (410) 793-1231 or completing this brief form. Our staff has helped hundreds of individuals apply for an FTA successfully, and we would love the chance to do the same for you.
We offer free consultations, and we have a distinguished track record of excellence as well as an A+ rating with the Better Business Bureau. Please reach out today so we can help you resolve your tax issues and avoid further penalties.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.