Did you know that if you file a tax return late, pay taxes late, or make mistakes in making tax deposits, the IRS imposes a penalty? For your sake, we hope you don’t know that from experience. The good news is that there are ways to negotiate with the IRS that allow you to reduce or eliminate some penalties. The IRS First-Time Abatement program is one way taxpayers can negotiate penalties, and recent changes in the policy have made it easier than ever to benefit from it.
In 2001, the IRS created an administrative waiver for certain penalties that allowed eligible taxpayers to have the penalties forgiven or abated. Called the First-Time Abatement (FTA) program, this waiver allows IRS to administratively waive penalties for:
- Failure to file a tax return on time.
- Failure to pay tax on time.
- Failure by a business to deposit taxes when due.
Taxpayers who qualify for FTA include individuals, corporations (including S corporations), and partnerships. Filers of estate and gift tax returns do not qualify, nor do not-for-profit organizations.
To be eligible for FTA, the taxpayer must be up to date on filing all required tax returns and have paid or arranged to pay any tax due. In addition, a taxpayer must have a “clean” filing history for the three years prior to the tax year in which the taxpayer received the penalty. A clean history means that you filed all tax returns correctly and on time, made any required tax payments on time, and did not have other penalties assessed.
The problem with FTA was that many taxpayers did not know about it and the penalty relief had to be specifically requested by the taxpayer. Because of this knowledge gap, it is estimated that one million taxpayers per year were paying penalties that could have been abated. The National Taxpayer Advocate recently announced a policy change related to FTA that will correct this problem. Starting with 2025 tax returns filed in 2026, the IRS will begin applying FTA automatically. If you file your 2025 tax return late, you will get a happy letter from the IRS instead of a scary one.
At R&A, our tax professionals frequently negotiate with the IRS to reduce or eliminate tax penalties for our clients, using FTA and other tools. Even though FTA is now automatic, there are still many situations where FTA doesn’t apply but where we can assist with penalty abatement. Give us a call if you have questions or if we can help with other IRS issues.
About this Author
Amy leads R&A's tax department. Her focus is individual and business tax compliance and consulting with an emphasis on working with clients through all stages of their business and life. Amy's clients span a variety of fields including manufacturing, medical practices, and hospitality. She also is accredited in business valuations and assists clients in valuations for business transition planning and estate and gift planning.
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