Almost everyone knows how important it is to file and pay their taxes, but despite this fact, numerous people every year forget to file their annual returns or pay their owed taxes. If you don’t file your return or pay your taxes, you may face a variety of penalties.
Fortunately, the Internal Revenue Service (IRS) offers a first-time penalty abatement program for certain taxpayers. If you qualify, your penalties will be wiped clean, which can be very beneficial regardless of their amount. Learn more about IRS penalty abatement and find out how you can qualify for this useful service.
Why Do Penalties Occur?
Before we discuss the IRS penalty abatement program, it’s a good idea to talk about how penalties occur. One of the most common reasons that the IRS penalizes taxpayers is a failure to file their tax return. Although tax returns are due on April 15 most years, it’s still common for taxpayers to miss this deadline, especially if their return isn’t ready. If you don’t file your return or request an extension, you may be heavily penalized.
Failing to pay your taxes is another reason that you may face an IRS penalty. If you’re already struggling to pay your tax debt, penalties can make the situation even more difficult. Fortunately, it is possible to resolve your tax debt by working with a dependable debt relief company. Finally, businesses that fail to deposit payroll taxes can also incur IRS penalties.
What Is a First-Time Penalty Abatement (FTA) Waiver and How Do You Qualify?
If you’re dealing with IRS tax penalties, you may be able to get relief by filing a first-time penalty abatement (FTA) waiver. The idea behind the FTA waiver is to help taxpayers facing penalties who have consistently complied with IRS rules in the past. There are several qualifications that you must meet before your waiver will be approved.
The first FTA waiver requirement is that prior to the year you were penalized, you have filed your required return or have requested an extension for your return. You are not allowed to have an outstanding return request.
Second, your history must demonstrate that you consistently pay your required taxes. You need to have paid all of your taxes in previous years. It is also acceptable to have arranged an installment plan to pay for your taxes, as long as your payments are up to date.
Lastly, and perhaps most importantly, you cannot have been penalized by the IRS in the three years before filing your FTA waiver. The only exception to this is if you have an estimated tax penalty on your record. Also, if you have received penalty relief for a reasonable cause in the past, it still may be possible to receive an FTA waiver.
Using the FTA Waiver to Remove Penalties
If you’re interested in filing an FTA waiver to remove your tax penalties, there are several options that you can choose. While you can request the waiver yourself, hiring a tax attorney is usually a better idea. A tax professional will have experience dealing with the IRS, and they will likely already know how to request a waiver.
Calling the IRS directly is usually the easiest solution for requesting an FTA waiver. If your tax lawyer is calling on your behalf, they can phone the IRS Practitioner Priority Service at (866) 860-4259. You should only call this number, however, if your case isn’t currently being handled by a compliance unit. If a compliance unit is handling your case, your lawyer should call the unit directly.
You’ll need to give your representative power of attorney before they can request that your penalties be abated. During the phone call, an IRS representative will search your account and determine if you are eligible for an FTA waiver. If you are eligible, they should be able to waive your penalties before the call has ended. You will receive a notice by mail if your FTA waiver has been approved. Typically, you will receive this letter 30 days after the call. You may also want to make a follow-up call to make sure your penalties have been waived.
You or your tax attorney can also send a letter to the IRS to request an abatement. One reason you may want to send a letter instead of calling is if your penalties are too high to be resolved over the phone. If you decide to send an abatement request letter to the IRS, you should be sure to include the required information:
You could also consider including documents that prove you qualify for the FTA waiver. This should speed up the approval process.
Other Factors to Consider
Before you request an FTA waiver, there are several factors that you should consider. First, you can only receive relief from penalties for one tax period or year. If there are two years where you meet the qualifications for abatement, you will receive your waiver for the earlier year, which means penalties for the later year would still apply. You can then apply for relief for these penalties for reasonable cause or some other provision.
Second, if you have already paid your penalties but qualify for abatement, you can request a refund. If you’re interested in requesting a refund, you can file IRS Form 843 (Claim for Refund and Request for Abatement). Third, it is possible to appeal the decision if your FTA waiver is denied. At the end of the appeal process, it is possible your waiver will be approved, and your penalties abated.
While filing an FTA waiver is a good decision if you’re dealing with tax penalties, you should only request abatement after your back taxes have been fully paid. Outstanding tax debt can cause your penalties to accrue, so if you have your penalties waived before your debt is paid, you’ll just end up facing more penalties in the future.