IRS First-Time Penalty Abatement (FTA) and Relief
The IRS might levy a penalty if you fail to file a federal tax return or pay a federal tax by the due date. Fortunately, if that happens to you, there are some ways to have the penalty reduced or eliminated. However, there are different types of IRS tax penalty abatement and relief, and they can apply differently depending on the type of penalty you receive.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- Taxpayers with a good compliance history may qualify for the IRS First-Time Abatement program to have failure-to-file, failure-to-pay, and failure-to-deposit penalties waived. This is a one-time offer that hinges on your prior three-year tax history being free of similar penalties or having previous penalties abated for reasons other than first-time abatement.
- The IRS can waive penalties if you demonstrate that your failure to comply with tax requirements was due to reasonable cause. Acceptable reasons include serious illness, natural disasters, or other events beyond your control that prevented timely tax filing or payment. However, ignorance of the law, relying on an advisor, and lack of funds are generally not treated as reasonable causes.
- The IRS can grant penalty relief to large groups of taxpayers in response to administrative issues, such as delays in IRS-issued guidance. Examples include a waiver given to people who didn’t receive automated collection notices during the pandemic.
- If you’re seeking penalty relief, follow the instructions in the notice received from the IRS or file Form 843 to explain your situation and provide any necessary documentation. If your request is denied, you can appeal the decision to the IRS Independent Office of Appeals and further escalate the case to court if needed.
If you don’t file a federal tax return or pay the tax you owe on time, the IRS can hit you with a tax penalty. These penalties can add up to hundreds or even thousands of dollars, so it’s not something to take lightly.
Fortunately, the IRS has some tax penalty abatement (i.e., waiver) options that might be available to you. If you qualify, all or part of your penalty can be erased.
If you’re faced with an IRS penalty, here are some of the different types of tax penalty relief you’ll want to explore.
What is the IRS First-Time Penalty Abatement (FTA)?
If you have a clean record with the IRS over the past few years, you might be able to reduce or make a tax penalty completely disappear through the IRS’s First-Time Abatement (FTA) program. According to the IRS, First-Time Abatement (FTA) is an administrative waiver that can be applied to failure-to-file, failure-to-pay, or failure-to-deposit penalties.
A first-time abatement waiver is only available for the failure-to-file, failure-to-pay, and failure-to-deposit penalties. So, for example, your penalty might be eliminated if you failed to file your federal personal income tax return by the due date. You can also seek relief if you’re penalized for failing to pay any income tax you owe when it’s due. Employers who don’t make timely or proper employment tax deposits can seek first-time penalty abatement, too.
You can request a waiver even if you haven't paid all the tax you owe yet, but any failure-to-pay penalty will continue to increase until the tax is completely paid.
TurboTax Tip:
“The failure-to-file penalty and failure-to-pay penalty are two of the most common penalties. The good news is a first-time penalty abatement of tax and interest is frequently granted as long as you have no late or missing returns in the last three years and are current with all other taxes due. The three-year lookback means this waiver is not only for first-time offenders.” – Kelly Wallace, CPA, Homedale, Idaho
Eligibility for individuals
The IRS states you may qualify for FTA if all filing and payment requirements are met and you had no prior penalties in the past three years. To qualify for First-Time Abatement (FTA) on personal income tax returns and payments, you must have both:
- filed the same type of return (if required) for the past three tax years before the tax year you received the penalty
- not have had any other IRS penalties during the prior three years, or if you did it was waived under something other than the first time abatement program
Eligibility for employers
Per IRS guidance, employers may be eligible for FTA if they meet compliance requirements and have not had multiple failure-to-deposit penalties waived in recent years. Employers penalized for employment tax deposit infractions can seek FTA if:
- they didn’t have four or more failure-to-deposit penalty waivers in the prior three years
- their failure to deposit penalty wasn’t for Electronic Federal Tax Payment System (EFTPS) avoidance
Reasonable cause penalty relief
The IRS can also waive certain penalties if you acted with reasonable cause and in good faith. Whether you acted with reasonable cause is determined on a case-by-case basis and depends on all the facts and circumstances.
The reasons that qualify for relief also depend on the type of penalty you owe. However, you can’t eliminate all penalties based on the reasonable cause. For example, the reasonable cause provisions don’t apply to estimated tax penalties.
Let’s take a look at how you can seek reasonable cause relief for a few common types of penalties.
TurboTax Tip:
If you request reasonable cause relief but its records show you qualify for first-time penalty abatement, the IRS will waive your penalty under the first-time abatement program. If you don't qualify for FTA, the tax agency will consider reasonable cause penalty relief. In either case, the IRS will notify you of their decision.
Failure-to-file penalties
If you’re hit with an IRS penalty for filing your tax return late, the IRS can waive the penalty if you have a good reason for not fulfilling your filing obligations.
Examples of sufficient reasons for failing to file on time include:
- serious illness impacting your ability to file
- death or serious illness of an immediate family member
- fires, natural disasters, or civil disturbances that prevent you from filing a return (for example, your tax records are destroyed)
- inability to determine the amount of tax due for reasons beyond your control
- unavoidable absences that prevent the timely filing of a return
- system issues that delayed a timely electronic filing
Other reasons may suffice if you can show that you exercised ordinary care and prudence but were still unable to file on time.
Failure-to-pay penalties
If you’re penalized for not paying the tax you owe in a timely fashion, the IRS can also waive the penalty if you have a good reason for not making your payment on time.
Examples of sufficient reasons for failing to pay on time include:
- serious illness impacting your ability to pay
- death or serious illness of an immediate family member
- fires, natural disasters, or civil disturbances that prevent you from making a tax payment
- inability to determine the amount of tax due for reasons beyond your control
- unavoidable absences that prevent the timely payment of tax
- system issues that delayed a timely electronic payment
Other reasons may suffice if you can show that you exercised ordinary care and prudence but were still unable to pay on time.
Reasons that generally don’t qualify
Whether you’re dealing with a failure-to-file or failure-to-pay penalty, these reasons usually don’t satisfy the IRS’s reasonable cause standard on their own:
- reliance on a tax professional
- ignorance of the law
- mistakes and oversights on your tax return
- lack of funds
Accuracy-related penalties
The IRS can impose an accuracy-related penalty if you underpay the amount of tax you legally owe for example if you don’t pay enough tax because you claimed a tax deduction for which you’re not eligible. To determine if you qualify for reasonable cause relief from an accuracy-related penalty, the most important factor is the extent of your efforts to assess your actual tax liability.
According to the IRS, it will consider several factors to determine whether you qualify for reasonable cause penalty relief, including:
- efforts you made to report the correct tax
- the complexity of your tax issues
- your education, experience, or knowledge of tax law
- steps you took to understand your tax obligation or seek help from a tax advisor
If you relied on a tax advisor, the IRS might also consider whether you provided all the information needed to calculate your tax and your advisor’s experience with your tax situation.
Statutory exception penalty relief
In some cases, the U.S. tax code might provide a provision that triggers penalty relief. For example, tax law states that a penalty for the underpayment of estimated taxes is waived for certain newly retired or disabled people.
Statutory penalty relief might also be available if you received a penalty because you sent a written request for information to the IRS, received incorrect written advice from the IRS in response to your request, and reasonably relied on the incorrect advice.
A late-filing penalty can also be waived by statute if you can show that you properly mailed or e-filed your tax return before the filing deadline.
Penalty relief might also be available under tax statutes if you’re impacted by a federal disaster or serving in a combat zone.
Tax administration penalty relief
The IRS can establish widespread penalty relief policies that impact a large number of people under specific conditions. For instance, this type of administrative penalty waiver might be announced if there’s an IRS delay in releasing tax forms or guidance.
An administrative waiver can be revealed in either a policy statement, news release, notice, or other formal communication stating the IRS penalty relief policy.
For a recent example of an administrative waiver, see the IRS news release announcing $1 billion in penalty relief for approximately 4.7 million taxpayers who didn’t receive automated collection reminder notices from the tax agency during the pandemic.
Interest relief
You should also realize that the IRS charges interest on unpaid taxes and on unpaid penalties. And that interest keeps growing until your balance is paid in full.
Interest on unpaid taxes generally can’t be waived, but it can be reduced if it’s applied because of an unreasonable error or delay by an IRS officer or employee.
When it comes to interest on a penalty, the IRS will reduce or completely eliminate the interest if the penalty itself is waived.
How do I request penalty or interest relief?
Responding to an IRS notice
You’ll receive a notice in the mail from the IRS if you’re hit with a federal tax penalty. To request penalty relief based on that notice:
- Review the section of your letter that explains penalties and relief.
- Prepare a short written statement or explanation of why you qualify (such as illness, disaster, or other reasonable cause).
- Send your response to the IRS address shown on the notice, or follow any instructions to submit online if available.
Requesting relief by phone
In some cases, you can ask for penalty relief by calling the IRS. Use the toll-free number shown on your IRS notice. When calling:
- Have your IRS notice and taxpayer information handy.
- Be prepared to explain your reason for requesting relief.
- The IRS representative may be able to approve your request over the phone.
Requesting relief by mail with Form 843
If you cannot resolve your penalty through the notice or by phone, the IRS requires taxpayers requesting First-Time Abatement (FTA) to submit Form 843, Claim for Refund and Request for Abatement, by mail. When completing the form:
- Check the appropriate box in the Penalty section on the first page to indicate the reason for filing Form 843. This is typically the first box in the Penalty section.
- On Line 7, check the appropriate box and provide a clear explanation of why you qualify (for example, illness or natural disaster) on Line 8.
- Attach supporting documentation such as medical records, FEMA declarations, or IRS notices.
- Mail the completed form and attachments to the IRS address listed in the official Form 843 instructions.
What if my penalty relief is denied, can I appeal it?
It’s not necessarily the end of the road if the IRS denies your request for penalty relief.
Appealing to the IRS Independent Office of Appeals
According to the IRS, you can request a review through the Independent Office of Appeals within 30 days of the date on your denial letter. To start an appeal:
- Write a letter stating you are appealing a penalty abatement denial.
- Include a copy of your IRS denial notice.
- Provide any documentation or explanations you want the Independent Office of Appeals to consider.
- Send your appeal request to the address listed on your denial letter before the deadline.
During the appeals process
Appeals will independently review your position and the IRS’s position. You may request a conference by phone or in person. You can also have an attorney, CPA, or enrolled agent represent you. If you cannot afford professional help, you might qualify for free or low-cost assistance.
Escalating your case to court
If you don’t agree with the Appeals decision, you can file a lawsuit with the U.S. Tax Court before paying the tax or penalty. However, if you have already paid the tax that you are disputing, you are limited to filing a lawsuit in the U.S. District Court or the U.S. Court of Federal Claims.
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