First Time Penalty Abatement

woman typing on laptop
By Alex Bos
The IRS’s First Time Abate Program (FTA) is one of the easier ways to escape penalties on assessment notices. This policy gives normally compliant taxpayers who have had a misstep in the areas of either failure to file or failure to pay a chance to avoid any additional penalties. This program is underutilized and is not well known to many taxpayers mainly due to the fact that the IRS does not advertise it in assessment letters or on their website. 
 
In order to qualify for FTA, the taxpayer must do a little bit of work themselves. The IRS does not automatically grant this relief to taxpayers, they must actively seek out relief themselves. There must be three criteria that are met in order to qualify:
 
  1. The taxpayer was not previously required to file a return or had no prior penalties for the past three years.
  2. All currently required returns have been filed or extended.
  3. Any tax due has been paid, or an arrangement for payment has been made. 
 
Overall, the taxpayer must be current with both their tax filing and payment requirements for the last three years prior to application as well as the current year. 
 
There are a few cases in which the taxpayer should be aware of in which this FTA Program cannot be applied or used. If there is an event-based filing requirement that was missed or not paid – such as a gift tax return – the FTA Program cannot be used to escape any pending penalties. Ironically, although it’s called the “First Time Abate”, relief can be granted once every three years. Therefore, if a taxpayer were to use this program due to a chaotic year such as 2020, they will have to wait another three years in order to utilize this program once again.
 
While this program can be useful and help taxpayers obtain relief, it is important to note that the taxpayer must be proactive in using it. The IRS will impose Failure to File and Failure to Pay penalties upon the filing of a return, but will not automatically grant the FTA relief unless the taxpayer seeks it out. 
 
Please contact Alex Bos or any member of the Baker Holtz team at 616-458-1835 if you have any questions regarding the FTA Program.