Tax day has come and gone, but for many, the stress and uncertainty still remains. While taxes are stressful for everyone, they can be especially stressful for anyone dealing with penalties resulting from self-reporting errors. If this is your first time facing a penalty from the IRS, you may be eligible for a first time abatement, which could significantly decrease the amount you have to pay in penalties.
What is a First Time Abatement?
A first time abatement, or FTA, is a clause that allows first time offenders to file to have their penalties waived if they are able to prove their claim that extenuating circumstances made it difficult or impossible to pay their full owed amount on time.
You may qualify for an FTA if this is your first time facing a penalty with the IRS for failing to file, failing to pay, or failing to deposit payroll taxes. You may also qualify if you can prove that you were dealing with a death or illness, if you filed incorrectly or the IRS made a mistake, if you made a mistake but can prove a normally strong track record, if you were misled by a tax professional, or if you were unable to get the forms or files you needed in order to file or pay your taxes. Amazingly enough, forgetting to file your taxes is also a valid reason to apply for an FTA. However, you should keep in mind that none of these reasons are enough on their own. You need to actually qualify your claim to the IRS and support your claim with relevant documentation or explanation.
You can make your claim for an FTA with the IRS over the phone, in writing, or electronically at their website. But whichever method you choose, make sure you are prepared with all documentation you have that can support your appeal for an FTA. You can also approach the IRS by using a qualified tax professional. Third party aids can help guide you through this process to make sure you have dotted your I’s and crossed your T’s. Remember, if you do choose to go with a third party, it’s important to do your due diligence prior to signing any contracts or other paperwork.
Supporting documentation might include things like hospital bills or statements from a doctor in the event of an illness. If you were misled by a tax professional, see if you have any emails or other communications that prove that you were given bad information. When it comes to your taxes, you should always save copies of everything, so if you find that you don’t have this supporting documentation, be sure you know what sorts of things to save in the future. In the meantime, see if there is anyone you can contact to get the documentation you don’t have. For example, if you filed your taxes but did so at the wrong IRS office, you might be able to get a confirmation from that office that they did receive your paperwork and it otherwise would have been on time.
Do You Qualify for an FTA?
You may be able to get an FTA if you meet the following requirements:
- This is your first penalty with the IRS for a failure to pay or failure to file your taxes.
- You haven’t had any kind of penalty with the IRS over the previous three years.
- All of your tax returns are up to date and you have not ignored any communications from the IRS.
- You’ve made it clear that you have paid or that you have made arrangements to pay any debts that you owe. You may need tax lawyer help for this as the size of your debt may necessitate legal negotiation. For example, if paying the full amount of your debt right away would present an unreasonable hardship, you can work out an installment plan that allows you to pay off your debt more slowly.
If You Request an FTA…
Make sure that you do not allow yourself to face similar penalties in the coming years. You will only be able to file for an FTA once (there can only be one first!), so you do not want to find yourself facing future penalties with no options for recourse. If you choose to work with a lawyer or financial advisory on getting your FTA, be sure to work with them on managing your long term financial strategy to prevent future IRS problems.