Penalty Abatement

First-Time Penalty Abatement (FTA)

First-Time Penalty Abatement is an administrative waiver the IRS grants to taxpayers with a clean compliance history. To qualify, you must have filed all currently required returns, had no penalties for the prior three tax years, and paid or arranged to pay any tax due. FTA can eliminate failure-to-file, failure-to-pay, and failure-to-deposit penalties for a single tax period. This is often the easiest form of penalty relief to obtain and can be requested by phone, in writing, or through your tax professional.

Reasonable Cause Relief

If you do not qualify for FTA, you may still obtain penalty abatement by demonstrating reasonable cause. The IRS considers factors such as death or serious illness, natural disasters, inability to obtain records, fire or casualty, reliance on erroneous advice from the IRS, and other circumstances beyond your control. You must show that you exercised ordinary business care and prudence but were still unable to comply. Reasonable cause requests require a written explanation and supporting documentation, such as medical records, insurance claims, or correspondence from the IRS.

Types of Penalties That Can Be Abated

The most commonly abated penalties include the failure-to-file penalty (up to 25% of unpaid tax), the failure-to-pay penalty (up to 25% of unpaid tax), and the estimated tax penalty. Accuracy-related penalties (20% of the underpayment) can also be abated in certain circumstances. When penalties are removed, the associated interest that accrued on those penalties is also reduced, providing additional savings.

Who Qualifies?

• For FTA: No penalties assessed in the prior three tax years for the same penalty type
• For FTA: All currently required tax returns must be filed
• For FTA: Any tax due must be paid or you must have a valid payment arrangement
• For reasonable cause: You must provide evidence of circumstances that prevented compliance