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First Time Penalty Abatement Waiver Program

Introduction to the First Time Penalty Abatement Waiver Program

Taxpayer penalties cause a lot of discord among my collection clients, who do not feel that it is fair that they pay a significant penalty to the IRS on top of their balance owed. However, penalties serve a significant purpose in encouraging taxpayers to comply with their tax obligations by giving them negative incentives for noncompliance. However, the IRS realizes the efficacy of their penalty assessments and has tried to create a relief program for those taxpayers who normally fulfill their tax obligation. Thus, it created the first time penalty abatement administrative waiver program to give taxpayers a second chance at compliance.

Criteria for Qualifying for the First Time Penalty Abatement Waiver Program

In order to qualify for a first time penalty abatement waiver, a taxpayer must show a record of compliance in three areas. This is known by the IRS as the Clean Compliance Standard.[1] First, the taxpayer must not be delinquent in any past filings. All returns must have been filed or the current year’s return must be on a valid extension in order to meet this section of the criteria. Second, the taxpayer must not have incurred any penalties within a three year time period on the tax form where they are requesting first time penalty abatement. Estimated tax penalties do not apply to this time period. Finally, the taxpayer must be current on all their payment obligations to the IRS. The taxpayer must have paid, or be in the process of paying through an IRS installment agreement, all taxes that are due and payable. It is important to note that this also only covers taxes that have been assessed by the IRS. Estimated taxes are not taken into consideration when determining eligibility for a first time penalty abatement.

How to Request Exemption Through the First Time Penalty Abatement Waiver Program/Conclusion

There are a few ways to request a first time penalty abatement. First, the taxpayer can submit a request to the IRS that they not assess a penalty at the time when they file their paper return. Second, they can always submit a claim for refund after the return is filed and after any penalties have been paid, which will be forwarded to the unit that considers the abatement of IRS penalties.[2] Finally, a taxpayer can submit a penalty abatement letter to the IRS prior to the payment of those penalties in an effort to get them abated. Taxpayers should specify in their penalty abatement request that they are submitting the request under the first time penalty abatement waiver program. This will send a signal to the IRS that the taxpayer wishes to be considered under the first time penalty abatement waiver requirements, rather than the normal standards for IRS penalty relief.[3]

However, it should be noted that penalty abatements, whether through the first time abatement waiver program or otherwise, are notoriously difficult to be accepted by the IRS. While I would certainly encourage taxpayers to attempt to get penalties waived on their own, a consultation with a tax professional might prove helpful in helping to frame your penalty abatement request. This is especially true if the penalties in question are significant. If you have any questions regarding the content of this article, or if I may assist you further, please do not hesitate to get in touch with me utilizing the contact information contained on this website.

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[2] IRS Form 843 is available here: http://www.irs.gov/pub/irs-pdf/f843.pdf

[3] The normal standards for IRS penalty abatement are detailed in my article here: Tax Penalty Abatements: Reasonable Cause Factors.

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