irs penalty abatement letter

IRS Penalty Abatement Letter – How to Qualify

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An IRS penalty abatement letter is put in place to regulate the issue of tax debt relief.

Twelve years back, the IRS created an administrative waiver known as an FTA (first-time penalty abatement administrative waiver), which serves the purpose of mitigating taxpayers’ tax penalties. Primarily, the purpose of the FTA also called the IRS penalty abatement letter, is to permit businesses and individual taxpayers to request abatement of certain penalties (which has been assessed by the IRS against taxpayers for the very first time). In reality, the IRS rewards taxpayers that comply with this policy with thousands of dollars. Although the IRS penalty abatement letter is an administrative waiver, it does not apply to other types of penalties. Although there are numerous advantages of this IRS penalty abatement letter, only a few taxpayers are aware of its benefits, and only these few request FTA according to data collected from the office of the Treasury Inspector General for Tax Administration (TIGTA) in 2012. According to this report, the problem is two-fold: firstly, many taxpayers and tax professionals are unaware of FTA, and secondly, the representative of the IRS frequently falsely disallows the issuance of FTA when using the IRS’s faulty automated decision tool to create penalty determinations. These problems make FTA hidden to most taxpayers and tax professionals that are presumably not aware of how it works or know whether it even exists and how to request it.

The collection letter that leaves the IRS office to business and individual taxpayers varies depending on the tax issue to be addressed. An example of such a letter includes Delinquent Return Refund Hold (CP 88), Reminder Notice – Balance Due (CP 501), Second Request Notice – Balance Due (503), Final Notice & IRS Intends to Levy – Balance Due (CP 504) and so on. Most of these letters contain specific instructions to help in the completion of a tax return. Keep in mind; it is very important that the letter received must be reviewed to compare the information on the letter and that of the taxpayers provided during the questioning period. Another important thing to note is that each time taxpayers are submitting any information to the IRS or any other organization that deals with tax matters; it is advisable to keep copies of each document for record purposes.

 The Penalties that FTA Covers

  1. The first-time penalty abatement administrative waiver (IRS penalty abatement letter) erases taxpayers’ failure to file penalties, which could either be late filing or stiff penalty for failing to file. This penalty is usually 5% deduction of taxpayers’ balance per month.
  2. Another benefit of an IRS penalty abatement letter (FTA) is that it wipes off penalties related to taxpayers’ failure to deposit (941s) as touching payroll taxes. This failure would include a late deposit for the correct amount, or in the format or manner.
  3. Finally, the FTA also wipes out taxpayers’ failure to pay the penalty. This penalty is usually 0.5% of taxpayers’ undischarged tax debt per month.

This administrative relief or waiver granted by the IRS to individual and business taxpayers is only applicable to taxpayers that fail to file a tax return, pay on time, and/or to deposit taxes when due under the IRS first-time penalty abatement administrative waiver (FTA) Policy.

First-Time Penalty Abatement Administrative Waiver (FTA) Eligibility

To qualify for the FTA waiver, individual and business taxpayers must meet the following requirements:

  1. Taxpayers must have a clean tax history except for an estimated tax penalty for the previous three years. A taxpayer may be eligible for FTA if the taxpayer receives a reasonable relief in the past.
  2. A taxpayer must have complied with payment, that is; there won’t be any record of outstanding payment, or arranged to pay all due tax (which can be paid in an installment agreement as far as the payments are current).
  3. Taxpayers must have filed an extension of time file or filed all currently required returns

How Do Taxpayers Apply For First Time Penalty Abatement?

For every taxpayer, applications for first-time penalty abatement may be accessed through either of these means; online, over the phone or in writing. In most cases, the IRS grants eligible applicant tax debt relief on the spot. While in other cases, the IRS agrees to wipe out the penalties, but not until the tax debt is paid in full.

Keep in mind, the IRS may decide not to remove penalties on the spot, it simply means, taxpayers will continue to see the growth of the penalties. The penalties will be removed later as long as the taxpayers’ are qualified for the abatement. The IRS only grants tax debt relief to taxpayers with penalties incurred in a year. The penalties to be removed have a monetary limit; although it is yet to be published, it appears to be up to $10,000. For taxpayers with tax penalties for more than a year, the IRS will only remove penalties if taxpayers proof that they have reasonable cause for not meeting up with payment or filing of taxes.

It is beneficial for taxpayers to seek consultation from a tax attorney and or tax lawyer for the instant qualification of the first-time penalty abatement policy from the IRS. Our tax relief professionals are experienced in getting taxpayers out of their tax penalties. For instant tax relief, call us today.


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