First-time penalty abatement is an administrative policy of the IRS to provide relief from penalties to taxpayers for failure to file taxes or pay tax in time or failure to deposit tax in time. The penalty relief under the FTA waiver only applies to a single tax period and is not applicable based solely on a taxpayer’s first request for penalty relief.
In other words, if you are liable for the first time, any of the following penalties, you may apply for the first time penalty abatement from IRS.
What forms or return qualify for first-time penalty abatement?
If there is a failure to file, failure to pay penalties, and failure to deposit (employment tax returns) pertaining to any of the following tax returns/ forms, FTA shall apply
- Income tax returns
- Form 1040 series, U.S. Individual Income Tax Return
- Form 1041, U.S. Income Tax Return for Estates and Trusts
- Form 1065, U.S. Return of Partnership Income
- Form 1120, U.S. Corporation Income Tax Return
- Form 1120S, S. Income Tax Return for an S Corporation
- Employment tax returns
- Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form 941, Employer’s Quarterly Federal Tax Return
- Form 943, Employer’s Annual Tax Return for Agricultural Employees
- Form 944, Employer’s Annual Federal Tax Return
- Form 945, Annual Return of Withheld Federal Income Tax
- Excise tax returns
- Form 720, Quarterly Federal Excise Tax Return
- Form 2290, Heavy Highway Vehicle Use Tax Return
Type of Returns Not Eligible for First Time Abatement Does
The penalty relief under the FTA waiver does not apply to the following:
- Returns with an event-based filing requirement generally return filed once or infrequently such as Form 706, U.S. Estate Tax Return, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
- The daily delinquency penalty (DDP), see e.g., IRC 6652(c)(2)(A) and IRM 20.1.8, Employee Plans and Exempt Organization Penalties.
- Information reporting is dependent on another filing, such as various forms that are attached.
Two Most Important Criteria for Penalty Abatement
You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty and want to get administrative relief under FTA, then you can get the first time penalty abatement if IRS satisfies itself that following two conditions are met:
- You have filed or filed a valid extension for, all required returns which are currently due
- The taxpayer has paid or arranged to pay, any tax currently due.
In this regard, you should note that ground for penalty relief for having a reasonable cause is not required for the FTA waiver. If there is reasonable cause for failure to file or pay tax or deposit tax, you should request for the waiver on the ground of reasonable cause and not FTA which can use at a different time.
How to Request for First Time Penalty Abatement?
There are several ways that a taxpayer can apply or request for FTA. The first one is to ask your tax attorney or representative to use the IRS Practitioner Priority Service (PPS) or use the IRS e-services Electronic Account Resolution function. Further, you can also use the IRS penalty abatement form 843 to request in writing for waiver of penalty under the First Time Penalty Abatement policy. You can get the instruction for filing Form 843 here.
What happens when the IRS is convinced of your FTA request?
If IRS is convinced and found you fit for first-time penalty abatement, you may receive a written letter from them like below :
We approved your request to remove the penalties. However, we only granted penalty relief because you have a good history of filing and paying on time. This type of penalty removal is only available one time. We will base our decisions to remove any future penalties on reasonable cause criteria.[source IRMPart 20 ]
Read also how to deal with final notice of intent.