First-Time Penalty Abatement Policy

If all of your tax returns have been filed, and you have either paid or arranged to pay all tax currently due (for example, by setting up an Installment Agreement and staying current with monthly payments), you may qualify for penalty relief under the IRS First-Time Abatement Policy (FTA). The policy was implemented to reward past tax compliance and promote future compliance, thus it is a one-time consideration for a single tax year and granted only for a taxpayer’s first penalty charge. This policy does not require a showing of reasonable cause before relief is granted.

This relief is not available for some penalties, such as those returns with an event-based filing requirement. These include, for example, the Form 706 (U.S. Estate Tax Return), Form 709 (U.S. Gift Transfer Tax Return), Form 1120, or Form 1120S if a return was filed late and a penalty was not assessed within the past three years.

Taxpayers not eligible under the FTA requirements may still qualify for penalty relief if they are able to show reasonable cause for the late filing, late payment or late deposit. A showing of reasonable cause requires an explanation that the taxpayer exercised ordinary business care and prudence in determining his tax obligation, but nevertheless failed to comply with his obligation due to some specific circumstances.

It is important to note that penalty relief is not automatically granted, but rather must be requested by the taxpayer. Given how quickly penalties accumulate, it is important to consult with a tax professional to learn more about your options for penalty relief.