Small Business Tips

Can the First-Time Penalty Abatement Waiver Help You?

Manasa Reddigari

Tax deadlines can strike fear in the hearts of delinquent and diligent business taxpayers alike due to the penalties imposed for failing to file, pay or deposit taxes on time. But if you have been regularly compliant in the past, you may be able to avoid these penalties and save a pretty penny through the IRS’ first-time penalty abatement waiver, also known as the FTA waiver.

Read on to learn about how to qualify for and request tax penalty relief through the FTA program.

What is the first-time penalty abatement waiver?

Tax penalties exist in order to discourage non-compliance in taxpayers. However, even the IRS recognizes that everyone—even ordinarily on-time taxpayers—can make a mistake once. Hence, the FTA waiver was established over a decade ago to grant qualifying businesses a one-time abatement, or removal, of tax penalties that would otherwise be imposed for not filing a tax return, or not paying or depositing taxes on time per designated deadlines.

Estimated tax or accuracy-related penalties are not eligible to be waived under the FTA program. In addition, the first-time penalty abatement is only available for penalties imposed in one tax period. For business income taxes, this would equate to a single tax year.

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Who is eligible for the first-time penalty abatement waiver?

The IRS uses a decision-making tool to assess whether a taxpayer qualifies for the FTA waiver. Qualifying taxpayers are generally considered those who have an otherwise unblemished compliance history. This means:

  • You have paid or made arrangements to pay all taxes due, even if in installments.
  • You either did not previously have to file a return or you have no penalties (excluding estimated tax payment penalties) for the three preceding tax years. If you have received penalty relief due to reasonable cause, this in itself does not disqualify you for the FTA waiver.
  • You have filed all currently required returns or filed for a valid extension of time to file.

How do you request the first-time penalty abatement waiver?

Requests for tax penalty relief under the FTA program can be made in writing and sent by mail to the IRS. Along with a statement of the affected tax payer’s eligibility for the waiver, you want to include details identifying the taxpayer, such as the full name, taxpayer ID, the penalty amount and type. Any supporting documentation attached to prove prior compliance history can only bolster your claim.

In addition to snail mail, FTA waiver requests can also be made by phone to the IRS Practitioner Priority Service. This method often allows for the tax payer’s eligibility to be assessed—and his or her waiver applied—over the phone.

Even if you are not initially deemed to be eligible for the waiver, you may be able to have the IRS re-assess the validity of your claim, particularly if a professional tax practitioner who understands the subtleties of the FTA waiver program is working on your behalf.

To find out more about the first-time penalty abatement waiver, see the IRS’ FTA policy.

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