IRS Penalties: First Time Abatement
Episode 11: In this episode, Timalyn begins a 2-part series on IRS penalty forgiveness. This episode focuses on first-time penalty abatement. Episode 12 will be about how to remove IRS penalties with a reasonable cause. Be sure to follow the podcast so in 2 weeks you don’t miss that episode. Today, Timalyn will discuss what first-time penalty abatement is, how you qualify for it and how you can get your penalties removed (if you qualify), today.
What Is First Time Penalty Abatement?
This can be confusing. Timalyn explains that penalty abatement is IRS forgiveness. If you negotiated to pay back a reduced level of tax debt, that’s not abatement. For taxpayers who haven’t had previous problems, they may qualify for first-time penalty abatement at no cost to them. Actually, it also makes it easier for the IRS.
Note: The abbreviation FTA stands for “first-time abatement.”
What Penalties are Eligible for First Time Penalty Abatement?
There are 3 eligible types of penalties that could be abated.
- The Failure to File Penalty – This penalty was imposed because you didn’t file your return on time. This penalty was explained in Episode 2. For most taxpayers, if you don’t file on time, penalties can be up to 25% of the total tax debt for individuals. S-Corps and Partnerships are subject to up $210/shareholder or partner, per month.
- The Failure to Pay Penalty – When your taxes were due, you didn’t make the payment. You are subject to a penalty and interest if you don’t pay.
- The Failure to Deposit Penalty – This applies if you are a business owner who didn’t pay the required tax withholdings on a scheduled basis.
Timalyn comments that if you file as an S-Corp or a Partnership, and you filed an extension, your deadline for that extension is September 15, 2022. If you go beyond that date, the Failure to File Penalty will begin accruing.
Individuals filing a 1040 have an extension deadline of October 15th.
IRS Compliance
Before being considered for a penalty abatement, the IRS will look at the previous 3 years to verify if you have been compliant. This also applies to your current tax compliance status. Did you file timely? Did you have previous tax penalties? Did you pay on time? If you’re an employer, did you deposit on time?
If you can answer “yes” to all of the above, the IRS will now verify whether you’ve previously had penalties abated for reasonable cause. If they’ve been removed during the past 3 years, the current year in question may not be eligible.
Can I also get the Interest Removed?
If you’ve had a penalty abated, the IRS will retroactively remove the interest accrued on that penalty.
IRS Compliance in the Current Year
It’s important that you are making your estimated quarterly tax payments if you are a business owner. The IRS will check on this status. If you already have unpaid taxes, you must be on a valid payment plan. Timalyn explained how to set up an installment agreement in Episode 10.
There’s a Long Way and an Easy Way to Request Abatement
The simplest way to request first-time abatement is to call and request it. Really, it’s this easy. You’ll ask if any of the penalties are eligible for first-time penalty abatement, and the IRS will review your file. . No documentation is required. The requirement is that you have been and are compliant.
Words of Caution
Timalyn explains that you don’t want to request the first-time penalty abatement prematurely.
You do not want to request forgiveness of a penalty if it is still accruing. For example, if you request abatement of the failure to pay penalty but have not paid the balance the penalty will continue to accrue. It will just start at $0 again.
This process may sound confusing. Some of you listening will be able to handle this on your own. However, Timalyn is available to handle this on your behalf. She’ll make sure it gets done correctly.
Remember to come back for Episode 12 for the discussion of IRS Penalties: How to Remove Them.
As we conclude Episode 11, we encourage you to connect with Timalyn on social media. You’ll be able to follow this podcast on Google Podcasts, Spotify, and many other podcast platforms.
Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today’s episode.
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Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.