What is First Time Penalty Abatement?
Back taxes owed to the IRS can be overwhelming — particularly when additional penalties and accumulating interest factor into the equation. The IRS assessed nearly 40 million penalties totaling a staggering $27 billion against taxpayers in 2012 alone. Thanks to the little known First Time Abate (FTA) policy, however, taxpayers with a history of compliance have hope.
Despite more than 140 tax penalties in the IRS’s arsenal, the vast majority of cases are failure to file, failure to pay and failure to deposit. Implemented over a decade ago, the FTA offers a one-time consideration to first-time taxpayers facing penalty charges. Even if the assessed penalties are valid, they may still be partially or completely “abated,” or removed, if certain qualifications are met.
Do You Qualify for an FTA?
According to the terms of the IRS, candidates for the FTA must meet at least one of three qualifications, including reasonable cause — typically in cases where extenuating circumstances have compromised the taxpayer’s ability to file or pay, such as illness, death in the family, natural disaster, property damage or theft, divorce or other significant life event, and long-term unemployment; administrative waivers; or a mistake on the part of the IRS.
The FTA penalty relief option is only applicable if the taxpayer has filed and paid the requisite returns, or made arrangements through an extension or current installment payment plan to pay the full amount due. No other significant penalties are permitted within the previous three years, although candidates may still qualify if they’ve recently faced estimated tax penalties, received reasonable cause relief or suffered subsequent penalties. Additionally, the FTA claim must be filed within three years of either the filing date or due date of the original return; in the case of a penalty, the claim must be filed within two years of payment. Taxpayers are eligible only within a single tax period; in the cases of of multiple requests, FTA applies solely to the first request.
Determining Eligibility
In order to determine eligibility, the IRS uses the Reasonable Cause Assistant (RCA) software tool. while this method is by no means foolproof, a determination of ineligibility can be reversed by appeal. Keep in mind that the FTA does not apply for a number of different event-based filing requirements, such as corporation income tax returns, estate tax returns, and others.
Little Known Policy, Big Potential Benefits
While this IRS waiver offers a financial lifeline for many taxpayers, the Treasury Inspector General for Tax Administration (TIGTA) reports that it is rarely requested because few people — including both taxpayers and professional tax practitioners — are aware of its existence. The ultimate goal of the FTA is to encourage compliance and lessen the whopping annual tax gap.
Requesting an FTA
Despite the lack of knowledge about the FTA, the policy offers significant financial relief for qualified taxpayers. If you believe you may be eligible for an FTA, a request can be made via phone call, letter or by filing IRS Form 843. An expert tax professional can help determine whether you are eligible in order to most efficiently resolve your tax situation and reduce or even eliminate your back taxes and penalties.
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