Clearing Tax Penalties with a First-Time IRS Penalty Abatement Waiver

Staff Writer - Angela
October 30, 2018

  • Taxpayers can use the first-time penalty abatement (FTA) waiver to remove IRS penalties for late tax filings.
  • To qualify for this waiver, a taxpayer cannot have an outstanding return for the previous year, and they must have a history of paying their taxes on time.
  • Those who don’t qualify for the waiver may be able to clear their penalties if they can prove a reasonable cause for the late return or payment. 

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 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.

Clearing Tax Penalties with a First-Time IRS Penalty Abatement Waiver

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:

  • Your name.
  • An identification number such as your Social Security number.
  • The tax year.
  • The tax form.
  • The type of penalty and the amount you need to be abated.

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.

How Long Does Penalty Abatement Take?

One of the most common questions that people have about IRS penalty abatement is how long the process takes. The great thing about the first-time penalty abatement program is that you will receive your decision instantly if you request the abatement by phone. You will have to wait a few weeks, however, for your confirmation letter.

If you request first-time penalty abatement by letter, you can expect a longer wait. In general, the IRS will reach a decision about your penalties within two to three months after receiving your letter.

The process can take even longer if your FTA waiver is initially denied. After a penalty abatement denial, the IRS will usually send you an 854C letter. Once your initial request has been denied and you’ve received this letter, you will have 60 days to appeal the decision.

Appeals are much more common for those requesting reasonable cause penalty relief than for first-time penalty abatement. The reason for this is that reasonable cause decisions are largely automated, which leads to frequent rejections.

Other Common Penalties

Removing penalties for failing to file or pay your taxes isn’t that difficult, especially if you apply for the first-time penalty abatement waiver. Unfortunately, these aren’t the only penalties that the IRS applies, and relieving those other penalties can be much harder.

The estimated tax penalty is one type of penalty that can be difficult to abate, although it is possible in certain circumstances. You may be charged an estimated tax penalty if you earn a wage and fail to withhold enough money from your paycheck, or if you underpay your required estimated tax payments.

Abatement for estimated tax penalties is extremely rare. By some estimate, the IRS abates less than 1 percent of these penalties. The easiest way to address your estimated tax penalty is by requesting an exception on Form 2210, Underpayment of Estimated Tax by Individuals. If the IRS accepts your exception, it’s possible that your penalty will be either reduced or removed completely.

Hardship is the most common reason that the IRS abates estimated tax penalties. If you want to apply for abatement due to hardship, you should file Form 843. You can usually expect to receive a decision within two to four months after you file this form. Some forms of hardship that the IRS considers include:

  • Casualties.
  • Disasters.
  • Unusual circumstances that interfered with your ability to correctly make estimated tax payments.

Accuracy penalties are also rarely eligible for abatement. These penalties generally occur during an audit when it is found you have not prepared your return correctly, or if the IRS discovers that you have underreported your income. Usually, accuracy penalties are 20 percent of what you owe to the IRS, sometimes making them very substantial. Dealing with these penalties is difficult, especially if you fail to contest them early. If you are charged this penalty, you should contest it right away, while your audit or underreporting inquiry is still active.

Abatement of an accuracy penalty is possible but takes much longer than seeking relief for other penalties. If you want to request an abatement, the IRS will need to reopen your inquiry or audit in order to take a second look at the facts that resulted in the penalty. This means that you may need to wait years before you receive a decision.

If you contested the penalty during the inquiry or audit and were denied, or if you accepted the penalty, then abatement usually will not be possible. This means that you will need to pay both the penalty and your tax balance, and then request an abatement and a refund at a later date. Because the IRS takes such a long time to consider abatement requests for accuracy penalties, it’s common for these cases to end up in court. If you want to avoid a court case, challenge this penalty as early as possible.

Penalty Relief Options Other Than the FTA Waiver

If you have a clean tax record, then requesting a first-time abatement waiver is your best solution for dealing with your tax penalties. Fortunately, even if you don’t qualify for the FTA waiver, there are several other penalty relief options of which you can take advantage.

For instance, you could apply for reasonable cause penalty relief. When applying for relief based on a reasonable cause, you are basically claiming that you acted in good faith and attempted to file your return or pay your taxes to the best of your abilities, but were still unable to do so. The IRS considers a wide range of reasonable causes for a missed return or tax payment, including:

  • Disturbances such as natural disasters and casualties.
  • Problems acquiring records needed to file your return.
  • A serious illness or death in your immediate family.
  • Any other reason that demonstrates you attempted to meet your tax obligations but were unable to through no fault of your own.

Remember that simply not having the money to pay your taxes is not considered a reasonable cause. That said, the reason that you don’t have the money can be a reasonable cause in certain circumstances. For instance, if a natural disaster prevented you from working, this might be a reasonable cause for a lack of funds resulting in a failure to pay.

There are also some statutory exceptions you may be able to take advantage of to remove your tax penalties. If you’re facing an estimated tax penalty, for instance, there are certain exceptions where the penalty can be waived. If you’re recently retired, for example, or you have become disabled, you may be able to get relief from this penalty.

Finally, the IRS will waive a penalty if the penalty was a result of an IRS error. You could have a failure to file penalty waived, for example, if you missed the deadline because the IRS did not correctly post a filing extension. You could also receive penalty relief if you prepared your tax return based on incorrect information given to you by an IRS agent.

If you’re having trouble getting rid of your tax debt, Solvable can help. We offer reviews of some of the leading debt relief companies in the country, and we can connect you with a company that will make clearing your debt easy.

 

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