A penalty abatement, or first-time abatement (FTA), is a penalty waiver that some but probably not as many taxpayers have taken advantage of in the past. The waiver was first introduced in 2001, though still remains largely unknown.
The IRS inflicts different penalties for non-compliant taxpayers, and those fees can make it very difficult to get back on good terms with the IRS.
Requirements for Consideration
An FTA can help you get back on track, but there are certain restrictions. In order to quality for a tax abatement:
- The tax year in which you were non compliant needs to be more than three years old. The IRS will work with non compliant taxpayers, but they also must demonstrate filing and payment compliance in the last three years.
- Only a single tax year is considered for an FTA. For example, you cannot request the FTA in 2005 and 2009. The penalty relief is only available for a single filing.
- The taxpayer must have filed, or filed a valid extension on all required returns and not have a request from the IRS for an unfiled return.
- The taxpayer does not need to have debt with the IRS paid in full, but they must be currently working toward paying off the balance. You can establish a payment agreement with the IRS to demonstrate you are working toward the goal.
- Additionally, having penalties of “significant” amount assessed in the prior three years on the same tax return the taxpayer is requesting abatement is factored in.
How to make a request?
The first step is to decide what type of request you are submitting. The list includes:
- Personal failure-to-file. The request is to abate a certain amount of fees and penalties related to a single tax period when the individual failed to file a return.
- Personal failure-to-pay. Instead of a tax year when the individual didn’t file, but rather failed to pay taxes owed, this is the appropriate request for your situation.
- Business failure-to-file. Like the personal request only this is for a business that failed to file in a given year.
- Business failure-to-pay. The as the personal request, only likely at a broader scope since it is dealing with a business. Again, you don’t have to paid the debt in full but you do need to be working toward it with some kind of payment agreement.
Submitting a Request
One criticism with an FTA is not only are many taxpayers unaware of it, but the reported computer software the IRS uses is inconsistent. However, it does not mean that you should avoid trying.
It has been proven through persistence that a taxpayer can get penalty relief. The odds are further enhanced by working with a tax resolution specialist to assist in filing the request.
Tax professionals can advise you on if you qualify, which type of defense is the best, how to file as well as continue pestering the IRS about the matter. The good news with an FTA is the initial determination is reversible, so just because you failed to qualify once doesn’t mean you shouldn’t try again.
- Request relief by reaching out to the IRS before they assess the penalty. You are entitled to file a penalty non-assertion request with a paper return.
- If it’s too late to avoid the penalties getting assessed, you have two other options. One is to request penalty abatement. You typically make this request in writing or by contacting the IRS directly. Tax experts also have access to submitting the proposal through their IRS e-services.
If you already paid the penalties yet did not realize about the FTA and want to see if you still qualify, it is possible to request a refund. The IRS will consider your situation like the other cases. The claim is made through Form 843. However, you only have three years to make the request of the return date or filing date, or two years after the penalty was paid.