Many taxpayers feel uneasy when they open a letter from the IRS and see that they owe penalties. The good news is that the IRS offers opportunities to remove or reduce penalties in certain cases.
If you have received a notice about a penalty, you may find relief through programs that can reduce the amount you owe. Before you try to figure it out on your own, you can speak with our New York tax attorneys at Thorgood Law Firm for guidance on how to request an abatement. If you need legal counsel now, contact us today for a free consultation.
What Is the Purpose of IRS Penalty Abatement?
The IRS imposes penalties to encourage people to follow tax rules. Sometimes, a taxpayer misses a deadline or miscalculates a payment without intending to break the rules. In other cases, a difficult life event causes someone to file taxes late.
The IRS recognizes that good-faith taxpayers should have a path to correct mistakes. As a result, it created certain penalty abatement policies that allow taxpayers to request removal or reduction of penalties. These programs reward voluntary compliance and give a second chance to those who qualify.
One key policy is First-Time Penalty Abatement (FTA), designed to help people who have a clean filing record and suddenly run into trouble for the first time. There are also recurring penalty abatement options for those who have used the FTA in the past or who do not qualify for it. Our New York tax attorneys at Thorgood Law Firm can analyze your situation and advise you on whether these programs can help.
How Do You Request First-Time Penalty Abatement?
Many people learn about FTA after they receive a letter from the IRS. The letter often outlines the type of penalty and the amount owed.
If you think you qualify for FTA, you can request it in several ways. One option is to call the IRS toll-free number listed on your notice. Another is to send a written statement that explains why you qualify or to use Form 843, which is the Claim for Refund and Request for Abatement. Each route can work, so you can choose the one that feels most convenient.
When you request FTA, you must show that you filed the tax return or at least submitted an extension and that you meet the clean history condition. You must also pay (or set up a payment plan for) any outstanding tax. The IRS typically checks their records to confirm you have had no penalties for the previous three years.
Our New York tax attorneys can help you gather the documents needed to make a persuasive FTA request and guide you on how to submit it. Having someone look over your situation before you ask for relief can boost your odds of success.
What Are the Risks for Repeat Offenders?
While FTA and other abatements can help, those who repeatedly violate tax rules may face stricter treatment. If you have already received relief in the past three years, the IRS likely will not grant FTA for a new penalty. You could still pursue a different form of abatement, but the IRS may look more closely at your record. The agency’s goal is to promote compliance. Someone who continues to file late or fail to pay might lose the benefit of abatement and instead face larger penalties or stricter collection actions.
Although the Consumer Financial Protection Bureau (CFPB) focuses on the financial industry, the idea behind its approach to repeat offenders can mirror the IRS’s approach to tax compliance. The CFPB recently formed a repeat offender unit and is imposing heavier penalties on those who do not follow the rules after being warned. This attitude of increased scrutiny for those who keep making the same mistakes can also apply to taxpayers.
How Often Can You Use FTA?
You can only use FTA once every three years, and it typically applies to a single tax period. If you have multiple years with penalties during the same stretch, you may be limited to receiving FTA for one of them. You might qualify for other abatements or show reasonable cause for the remaining years, but the simple administrative waiver of FTA may not be available.
This limitation is why it is wise to approach each tax year carefully. If you are behind on multiple returns, you might want to speak with our New York tax attorneys at Thorgood Law Firm before you choose which year to request FTA for. With careful planning, you can gain the maximum benefit allowed.
Some taxpayers wait too long and end up with penalties for several consecutive years, then discover that they cannot use FTA for all of them. By staying on top of filing and paying, you can reduce the risk of letting these problems accumulate. If you do find yourself in a position where you owe penalties for several years, proper guidance can help you minimize how much you pay.
What Happens to Interest on Penalties?
Another important point to remember is that even if the IRS grants an abatement of the penalty itself, you might still owe interest on the original tax. If the penalty is removed, the portion of interest on the penalty can also be removed, but interest on the unpaid tax generally remains.
Some taxpayers are surprised to learn that the relief does not erase the entire debt. You must be prepared to pay the underlying amount of tax and any interest that applies to it, even if the penalty goes away.
The good news is that removing or reducing penalties can significantly cut the total balance you owe. Some penalties can be quite large, and abatement can bring the debt down to a more manageable level. Our New York tax attorneys can review the numbers with you. We can also help you establish a payment plan if you still owe money after the penalty abatement.
Should You Dispute a Penalty If You Do Not Qualify for FTA?
Disputing a penalty can still make sense if you do not qualify for FTA. You might have evidence that you had reasonable cause. You might show that you never received a key document or that the IRS notice was sent to an old address.
Even if you cannot prove that you deserve a complete abatement, the IRS might reduce the penalty. Taking the time to present your case can be worthwhile, especially if your penalty is large.
Disputing a penalty usually involves a phone call or written communication with the IRS. You will need to explain why you think the penalty was not correct or why you qualify for relief under different guidelines.
Having our New York tax attorneys at Thorgood Law Firm assist you can simplify this process. They can help you prepare a clear statement and any documents that support your position. If the IRS denies your request, you might have options to appeal.
Contact Our New York Tax Attorneys at Thorgood Law Firm
If you have received a penalty notice from the IRS or if you worry that you might soon, there are steps you can take to ease the burden. Our New York tax attorneys at Thorgood Law Firm can guide you through First-Time Penalty Abatement, reasonable cause relief, or other abatement options. Whether you are facing a failure-to-file penalty, a failure-to-pay penalty, or a failure-to-deposit penalty, we can determine which approach applies to your situation.We are located at 100 Park Avenue, 16th Floor, New York, NY 10017, and we represent clients not only in New York but also across the country. Reach out to us at (212) 490-0704. If you have questions, do not let penalties grow any larger. Addressing them sooner can help you find a path to resolution and possibly save money.
Frequently Asked Questions About IRS Penalty Abatement
What is IRS penalty abatement?
IRS penalty abatement is the reduction or removal of certain civil tax penalties. Relief may be available through an administrative waiver, reasonable cause, a statutory exception, correction of an IRS error, or another ground recognized by law.
What is First-Time Penalty Abatement?
First-Time Abatement, commonly called FTA, is an administrative waiver that may remove certain failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a satisfactory compliance history. It does not require the taxpayer to establish reasonable cause.
Is the IRS replacing First-Time Abatement?
Yes. The IRS has announced a transition from First-Time Abatement to an Automatic Exemption from Penalty for eligible returns with original due dates on or after January 1, 2027. During the transition, some taxpayers may still need to request First-Time Abatement for eligible penalties.
What penalties qualify for First-Time Abatement?
First-Time Abatement generally applies to certain failure-to-file, failure-to-pay, and failure-to-deposit penalties. It does not apply to every IRS penalty, including many accuracy-related, information-return, international-information-return, and event-based filing penalties.
How do I qualify for First-Time Abatement?
A taxpayer generally must have filed all required returns or valid extensions, paid or arranged to pay the tax due, and maintained a clean penalty history for the preceding three tax years. The IRS reviews its records to determine whether the compliance-history requirement is satisfied.
Can I receive First-Time Abatement if I still owe the tax?
Possibly. A taxpayer generally must have paid the tax or arranged to pay it, such as through an installment agreement. Penalty relief does not eliminate the underlying tax debt.
How do I request IRS penalty abatement?
You may be able to request relief by calling the telephone number on the IRS notice or by submitting a written request. When the IRS cannot approve relief by telephone, Form 843, Claim for Refund and Request for Abatement, may be used for many penalty-abatement requests.
Do I need to file Form 843 to request First-Time Abatement?
Not always. Many First-Time Abatement requests can be made by calling the IRS number shown on the penalty notice. Form 843 or a written statement may be appropriate when the request cannot be resolved by telephone or when a formal written claim is advisable.
What is reasonable-cause penalty relief?
Reasonable-cause relief may be available when a taxpayer exercised ordinary business care and prudence but was unable to comply because of circumstances beyond the taxpayer’s control. The IRS evaluates the specific facts surrounding the failure.
What circumstances may establish reasonable cause?
Potential grounds may include serious illness, death or incapacity of a taxpayer or close family member, destruction of records, natural disaster, inability to obtain necessary records, or reliance on erroneous written IRS advice. Documentation connecting the circumstances to the failure is generally important.
Is lack of money reasonable cause for failing to pay taxes?
Insufficient funds alone generally do not establish reasonable cause. Relief may be available when the inability to pay resulted from unusual or unforeseen circumstances or when paying the tax would have caused a significant hardship despite the taxpayer’s exercise of ordinary business care and prudence.
Can reliance on an accountant establish reasonable cause?
Reliance on a competent tax professional may support reasonable cause for certain technical or substantive tax positions. However, relying on an accountant to remember or meet a clear filing deadline generally does not excuse a late-filed return.
Can I request reasonable-cause relief if I do not qualify for First-Time Abatement?
Yes. First-Time Abatement and reasonable cause are separate forms of relief. A taxpayer who does not satisfy the clean-history requirements may still request abatement by demonstrating reasonable cause or another recognized basis for relief.
Can the IRS remove an accuracy-related penalty?
Possibly. Accuracy-related penalties are generally not covered by First-Time Abatement, but relief may be available if the taxpayer had reasonable cause and acted in good faith or if another statutory defense applies.
Can the IRS abate a failure-to-deposit penalty?
Yes. Certain failure-to-deposit penalties may qualify for First-Time Abatement, reasonable-cause relief, or another statutory exception. The taxpayer’s deposit history and the reason for the failure will be important.
How often can First-Time Abatement be used?
Eligibility is based on whether the taxpayer has a clean penalty history during the three tax years preceding the year for which relief is requested. It is therefore more accurate to describe FTA as a rolling three-year compliance test than as a benefit that may simply be used once every three years.
Can First-Time Abatement cover several penalties in the same tax year?
Potentially. FTA may apply to eligible failure-to-file and failure-to-pay penalties for the same return or tax period. For employment-tax returns, the analysis may involve quarterly filing periods and the taxpayer’s deposit history.
Does penalty abatement remove interest?
When a penalty is abated, the interest attributable to that penalty is generally adjusted accordingly. Interest on the unpaid underlying tax ordinarily remains and generally cannot be removed merely because the taxpayer had reasonable cause.
Can the IRS separately abate interest?
Interest abatement is much more limited than penalty abatement. It may be available in certain cases involving an unreasonable IRS error or delay, erroneous written advice, or another specific statutory ground.
Can I appeal if the IRS denies penalty abatement?
Yes. An IRS denial notice may provide administrative appeal rights. The taxpayer should review the notice carefully and submit any protest or appeal within the stated deadline.
Is there a deadline for requesting a refund of penalties already paid?
Generally, a refund claim must be filed within three years after the return was filed or two years after the payment was made, whichever period expires later. Special rules may affect the amount recoverable and the applicable deadline.
When should I contact an IRS penalty-abatement attorney?
You should seek legal advice when the penalties are substantial, involve several tax years, include payroll or international-reporting penalties, depend on complicated reasonable-cause facts, or have already been denied by the IRS.