Different Types of Penalty Relief

Requesting A First-Time Abatement Penalty Waiver

Although being introduced almost 13 years ago, many taxpayers are unaware that they have the ability to apply for a first-time abatement penalty waiver (FTA). An FTA allows for first-time non-compliant taxpayers to ask for either complete or partial removal of penalties for a single tax period. Individuals may choose to request a first-time abatement penalty waiver for a failure-to-file or failure-to-pay penalty; while business taxpayers have the option to request an FTA for a failure-to-deposit payroll taxes.

In order to qualify for the first-time abatement relief, taxpayers must:

  • Be a first-time noncompliant taxpayer and with a 3 year penalty-clean record for the tax return they are requesting abatement for.
  • Have all current taxes filed and paid for or are on an installment agreement with payments up to date.
  • Have filed for a valid extension if taxes aren’t currently filed.

Reasonable Cause

When the IRS determines that the taxpayer acted in good faith with their tax obligations but nevertheless failed to comply due to circumstances that were out of their hands – for example an illness, natural disaster or destruction of records due to a fire or other casualty.

Statutory Exceptions

These exceptions are authorized by law in which taxpayers maybe had relied on bad written advice by the IRS, they are newly retired or disabled, or were serving in a combat zone (Sec. 7508).

Administrative Waivers

This is when the IRS waives a penalty it would otherwise asses to a taxpayer. The IRS will make mention of such waivers in formal communications such as a news release or policy statement.

Correction of IRS Errors

Exactly as the name states, if the IRS has made an error they will waive the penalty that was due to their mistake. If you do spot a mistake make sure to assess the situation and bring it forth to the IRS.

Contact your local tax attorney to learn more about the different types of tax penalty relief and if your current tax debt situation can be helped by any of the above.