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IRS Allows First-Time Penalty Abatement for Individuals and Businesses

12.03.15

The Internal Revenue Service (IRS) provides taxpayers who have a history of compliance with a one-time penalty amnesty. Intended to assist individual and business taxpayers who have otherwise been compliant with IRS rules for the last three years, the First-Time Penalty Abatement (FTA) began as a way to aid voluntary compliance and help administer penalty applications.

Penalty relief is available for individuals and businesses that have been delinquent in filing tax returns and/or paying taxes. Businesses can also ask for a FTA for failure to deposit penalties for payroll taxes. S corporation and partnership late filing penalties also qualify. Estate and gift tax returns, as well as estimated tax and accuracy-related penalties, do not qualify.

To determine if an individual or a business qualifies for a FTA, the individual or business must have been penalty free for a three-year period and all tax returns have been filed. Only one FTA can be applied to a single tax period.

To apply for a FTA, have your tax professional call the IRS to request a penalty waiver. While this request can be made by you directly, there are additional provisions that allow a taxpayer to get many penalties removed due to reasonable cause. It can take more effort, but we are often successful in getting penalty assessments abated or reduced due to reasonable cause. Don't lose hope if you don't qualify for the FTA. If the assessment is substantial, ask your tax professional to contact the IRS to see what can be done.