The first-time penalty abatement (FTA) waiver is an administrative waiver that the IRS may grant to relieve taxpayers from failure-to-file, failure-to-pay and failure-to-deposit penalties if certain criteria are met. The policy behind this procedure is to reward taxpayers for having a clean compliance history; everyone is entitled to one mistake.
Individuals and businesses may request FTA for any failure-to-file, failure-to-pay or failure-to-deposit penalty. FTA does not apply to other types of penalties such as the accuracy-related penalty, returns with an event-based filing requirement like Forms 706 or 709 and information reporting that is dependent upon other various filings.
Refer to IRM 22.214.171.124.6, Reasonable Cause Assistant (RCA), and IRM 126.96.36.199.3.2.1, First Time Abate (FTA).
To qualify for the FTA waiver, a taxpayer must meet the following criteria:
Filing compliance: Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS.
Payment compliance: Must have paid or arranged to pay all tax due (can be in an installment agreement if the payments are current).
Clean penalty history: Has no prior penalties (except a possible estimated tax penalty) for the preceding three years.
Note that per IRM 188.8.131.52, Criteria for relief from penalties, penalty relief under administrative waivers, which includes FTA, is to be considered and applied before reasonable cause.
Request penalty abatement by phone
A tax practitioner may call the IRS Practitioner Priority Service (PPS) line at 866.860.4259 to request FTA if his or her client’s case isn’t being handled by a specific compliance unit (examination, collection, etc.). If the case is being managed by a specific unit, the practitioner should call that unit to request FTA. A tax practitioner will need power of attorney authorization to request penalty abatement for a client over the phone (Form 2848, Power of Attorney and Declaration of Representative). The IRS personnel who takes the call should be able to pull up the client’s account, determine if the FTA criteria are met and apply the waiver during the call. The taxpayer would later receive a letter in the mail indicating that the penalties were removed based on FTA criteria. If the taxpayer doesn't receive the letter within 30 days from the date of the call, it is advisable to follow up with the IRS.
Tip: Calling the IRS is often the preferred approach to request FTA as often penalties can be removed quickly during the phone call. However, at times the penalty amount may be too high for the IRS to abate over the phone. If so, the tax practitioner should write a letter to the IRS to request FTA. Additionally, if the IRS abates penalties over the phone, it is advisable to write a letter to the IRS to confirm the conversation (include the date of the call, the agent's name and the agent's identification number).
Request penalty abatement by mail/letter
Instead of calling the IRS, a tax practitioner may write to the IRS to request FTA on behalf of his or her client. Include all relevant information in the request (taxpayer name, identification number, tax year/period, tax form and penalty type and amount). Clearly state that the client meets the FTA criteria. Consider attaching client transcripts that prove filing/payment compliance and a clean penalty history as well as a valid power of attorney (Form 2848). Be sure to include page numbers and the taxpayer’s name and the last four digits of their identification number on all pages sent to the IRS.
FTA only applies to one tax year/period. If a request for penalty relief is being considered for two or more tax years/periods and the earliest tax year/period meets FTA criteria, penalty relief based on FTA only applies to the earliest tax year/period. Penalty relief for all subsequent tax years/periods will be based on other relief provisions, such as reasonable cause criteria.
If the IRS hasn’t assessed the penalty, for example, a client is filing a return late and failure-to-file and failure-to-pay penalties will apply, the taxpayer may attach a penalty nonassertion request to the late-filed return.
If a client has already paid the penalty, he or she may file Form 843, Claim for Refund and Request for Abatement, to request a refund.
If the IRS doesn't grant penalty relief, consider taking the case to Appeals. Appeals may make a different decision based on other factors, such as hazards of litigation.
Each case is very different, but if the CPA (client advocate) doesn't ask for abatement, he or she can't get relief for the client. Clients can save thousands of dollars on penalties (often with a simple phone call or letter to the IRS) and rely on their tax professional to advocate for them.