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Many people do not know that the IRS has a standing policy to remove certain penalties for taxpayers with a good history. It is called First-Time Abatement, and it can take hundreds or thousands of dollars off a balance.
Which penalties it covers
- Failure to file on time
- Failure to pay on time
- Failure to deposit (for business payroll and similar taxes)
It does not cover the penalty for underpaying estimated taxes, accuracy-related penalties, or fraud penalties.
Who generally qualifies
- A clean history. No significant penalties for the three tax years before the year you want relief for (an estimated tax penalty usually does not count against you).
- Filing is current. All currently required returns are filed or on a valid extension.
- Payment is handled. You have paid, or arranged to pay, the tax owed, for example through a payment plan.
How to ask
- Call the number on your IRS notice and ask for first-time abatement. Many requests are approved on the phone.
- Or send a written request, or file Form 843, explaining that you meet the requirements.
- Keep a record of the date, the name or ID of the person you spoke with, and what they said.
Good to know
- When a penalty is removed, the interest charged on that penalty is removed too. Interest on the tax itself stays.
- First-time abatement generally applies to one tax year. If you have penalties in several years, strategy matters: it is often best used on the earliest year, with reasonable cause arguments for the others.
- If you do not qualify, reasonable cause relief may still apply when circumstances beyond your control, like serious illness or a natural disaster, caused the problem.
- A denial can be appealed. The letter you receive explains how.
This is general information, not legal, tax, or financial advice for your specific situation. Every case is different. Always check the dates and amounts printed on your own documents.