The IRS first-time penalty abatement (FTA) waiver was introduced 12 years ago. It is still not known to many people.

What is FTA?

IRS FTA allows a non compliant taxpayer to request abatement of certain penalties for a single tax period. The reasons due to which individual tax payer can request FTA are:

  • Failure-to-file
  • Failure-to-pay penalty

The reasons due to which a business tax payer can request FTA is:

  • Penalty for failure to deposit payroll taxes.

How to qualify?

The tax payer who wants to qualify for FTA must demonstrate two things:

  • Filing and payment compliance

There is a proper filing requirement; the tax payer must have filed a valid extension for all the returns. The tax payer should not have outstanding requests from IRS for an unfiled return. Inorder to meet the payment compliance method the client must have paid or atleast arranged to pay any tax due. The client can have an open installment agreement, as long as payments are current.

  • Three-year clean penalty history

Inorder to satisfy the clean penalty history requirement, the client cannot have had penalties of a “significant” amount assessed in the prior three years on the same tax return for which the client is requesting abatement. If the IRS rejects the request because of a small penalty assessment, tax practitioners should remind the IRS of the “significant” qualification in the IRM.

 

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