First-Time Penalty Abatement Rules

Posting by Joseph Zimmerl

The First-Time Penalty Abatement Waiver or FTA Waiver is an Administrative Waiver, which provides taxpayers relief from certain assessed penalties. The purpose of the FTA Waiver is to allow taxpayers, who normally comply with tax requirements, receive a single tax period penalty abatement for failure to file, pay or deposit their taxes.   

Unfortunately, the FTA Waiver is an underutilized way to reduce penalties because many taxpayers are unaware that it exists. According to a 2012 report from the Treasury Inspector General for Tax Administration (TIGTA), an estimated 1.65 million taxpayers in 2010 qualified but did not request or receive an FTA waiver.  TIGTA estimated that over $181 million worth of penalties went unabated despite the taxpayer being qualified for penalty abatement.

Eligible Penalties

            The FTA waiver can be used by certain individuals and businesses to abate the following penalties:

a) Failure to File Penalties under Internal Revenue Code Sections 6651(a)(1), 6698(a)(1) and 6699(a)1);

b) Failure to Pay Penalties under Internal Revenue Code Sections 6651(a)(2) and 6651(a)(3); and

c) Failure to Deposit Penalties under Internal Revenue Code Section 6656.

However, the FTA waiver cannot waive estate and gift tax penalties, or estimated tax and accuracy related penalties. 

Eligible Taxpayers   

A taxpayer will qualify for an FTA waiver if they have demonstrated filing and payment compliance and have a three-year clean penalty history:

a)     

Filing Compliance: The taxpayer must have filed or filed a valid extension for, all currently required returns.

b)      Payment Compliance: The taxpayer must also have paid, or arranged to pay, any tax due.  A taxpayer meets the payment compliance requirement if the taxpayer has an open installment plan with the IRS and is current with their installment payments. If the taxpayer has not met this requirement when the FTA waiver is filed, the IRS will allow the taxpayer time to comply before it denies the FTA waiver.

 

 Three-Year Clean Penalty History: A taxpayer has met this requirement if the taxpayer has had no “significant” penalties assessed against it for three years prior to filing the tax return for which abatement is requested. The term “significant” is undefined by the IRS but this could mean a taxpayer who was assessed a small tax penalty within the last three years, may still be eligible for an FTA waiver.