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.
Use this letter to compose a written request for penalty abatement based on the FTA criteria.
- Easy format for the IRS to process
- Internal Revenue Manual citations to substantiate penalty relief
- Can help practitioners bill more for their work; often clients find value in a letter or form to illustrate the work that was performed
FTA Waiver QualificationsTo 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 as long as the payments are current).
- Clean penalty history: Has no prior penalties (except an estimated tax penalty) for the preceding three years. Note: If the taxpayer received reasonable cause relief in the past, they are still eligible for FTA.
How to Request Penalty Abatement Using the FTA Waiver
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 agent 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 for his or her CPA (power of attorney representative) to follow up with the IRS.
Tip: 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).
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.
Tip: Writing to the IRS is often the preferred method to request FTA since call-wait times on the PPS line can be substantial and often clients prefer to see a letter/form that demonstrates the work that was performed.
- 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, they may file Form 843, Claim for Refund and Request for Abatement, to request a refund.
- If the IRS doesn't grant FTA, 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 CPA to advocate for them.
- Federal Taxpayer Penalties Quick Reference Chart : Summarizes common penalties that the IRS may assess; helps practitioners explain penalties to their clients and obtain penalty abatement from the IRS.
- Tax Preparer Mistakes: Taxpayer Penalties and the Tax Treatment of Indemnity Payments: Article discussing reasonable cause and the reliance on a tax adviser, The Tax Adviser, July 2017.
- Pesky IRS Penalties: How to Get Them Abated for Clients: Article outlining common penalties and ways to get them abated, The Tax Adviser, Jan. 2017.
- Why the Internal Revenue Manual is Valuable to Your Clients: Article to help practitioners understand how IRS personnel are instructed to perform certain procedures and how knowledge of these procedures can be valuable to clients, The Tax Adviser, April 2015.
- IRM 22.214.171.124.6.1, First Time Abate: This section from the Internal Revenue Manual (IRM) addresses the IRS’s procedures behind the FTA penalty waiver.
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