First-time abatement (FTA) of penalties is widely available to taxpayers, but many people are unaware it exists or that they qualify. The requirements are fairly straightforward and the relief can be significant if you owe a large amount of penalties in a given tax year.
The following penalties can be eliminated with FTA:
- The failure to file penalty
- The failure to pay penalty
- The failure to deposit penalty
The first two penalties are common among individual taxpayers. The failure to deposit penalty applies to business who are late on their payroll deposits. Other penalties, such as the underpayment penalty, are not eligible for FTA. Interest that accrues on unpaid taxes also cannot be abated.
First-Time Penalty Abatement Criteria
There are three major requirements to qualify for FTA:
- No penalties for the three years prior to the year you’re requesting FTA
- Tax filing compliance
- Tax payment compliance
Interestingly, it doesn’t need to be your first time to use first-time penalty abatement. You just can’t have had any tax penalties in the past three years. You can also qualify if you didn’t need to file during those years.
You must have either filed all required returns or received an extension to file. This gives you yet another reason to file your delinquent tax returns.
Finally, you must either pay or arrange to pay your taxes. The most common way you can arrange to pay is using an IRS installment agreement.
When to Use Penalty Abatement
You can only use FTA for one tax period. If your penalties will stretch over multiple tax years, this means you’ll have to request FTA for the first year.
You can request FTA once you’ve entered into an IRS installment agreement, but the late payment penalty will continue to accrue until your full balance is paid. You may want to wait until your balance is paid to request FTA or until near the end of the tax period.
If you qualify, there’s no good reason not to request FTA. Get your late tax returns filed, work out a payment arrangement, and have your tax attorney request FTA to reduce the total amount you owe to the IRS.
Contact The Gartzman Law Firm to speak with an Atlanta tax attorney about your case. Request your consultation by calling (770) 939-7710.