IRS Law Blog

Nothing feels worse than being unable to pay your taxes or missing a tax filing deadline. You already feel anxious and like the situation is out of your control – and then, on top of this, the IRS adds costly penalties for your mistake?

You find yourself thinking: “If only I could get those pesky penalties taken off.” Then, you may be able to finally pay the IRS back or enter into a sensible payment agreement.

Usually, it is very difficult to convince the IRS to clear you of penalties. It typically involves proving Reasonable Cause, which is challenging and likely to be denied.

Examples of what qualifies for Reasonable Cause are pretty unpleasant: natural disasters, deaths of a family member, extreme illnesses. The IRS wants you to prove events beyond your control which directly impacted your inability to file or pay on time.

However, there is another, simpler option: IRS First-Time Penalty Abatement. IRS First-Time Penalty Abatement is the exact opposite of Reasonable Cause penalty abatement. For First-Time Penalty Abatement, no reason is necessary.

Here’s what you need to know about First-Time Penalty Abatement:

What is Abatement?
Abatement is a fancy word for the removal of your penalty.

What are the most common penalties that qualify for First-Time Penalty Abatement?
There are two penalties that the IRS commonly targets and can be abated: penalties for filing your return late and penalties for not paying.

If you’ve filed your return late, the IRS charges you a penalty of 5% of the unpaid taxes for each month late – the penalty maxes out after five months, which would be 25% of your taxes.

For example, if you owe $100,000 and file after five months, you will have a penalty fee of $25,000 total.

At the same time, the IRS charges you a penalty of 0.5% per month for not paying on time. This penalty also maxes out at 25%, reaching its largest amount at approximately 4 years. This is a slow burn, as opposed to the failure to file, which the IRS hits you with quickly.

If you filed late and also failed to pay, then the combined penalty maxes out at 48.5%. So, from your original $100,000 owed, you will have a penalty of $48,500. As you can see, these penalties really add up.

So, how can I qualify for First-time Penalty Abatement?
Unlike typical penalty abatement, which is tedious and hard to achieve, we do not need a reason to qualify for first-time abatement. “First-time” abatement means that you have 3 consecutive years of no penalties prior to your late filing or missed payment.

IRS First-Time Penalty Abatement is straight-forward, with no questions asked.

To qualify for First-Time Penalty Abatement, we must demonstrate the three following things to the IRS:

• Compliance with your current tax return filing obligations and payment obligations. This means what’s past is past, the IRS simply wants us to demonstrate we are filing and paying now.
• Previous 3 years of clean penalty history. This means you must have no penalties in the three years prior to your penalty year.
• In most cases, an agreement to pay your taxes in full or entering into a payment agreement with the IRS. In other words, if the IRS is going to clear what could be a significant amount of penalties, they want something in return: a commitment to paying the taxes.

Basically, the IRS doesn’t want to give you the benefit of first-time penalty abatement if you’re still on “bad behavior.” However, they can reward good behavior.

Ok, I’m not sure I qualify for a First-Time Penalty Abatement. How do I find out?
The first step is calling the IRS’ Practitioner Priority Line, a private line the IRS offers to attorneys and tax professionals to get background information about their clients without speaking to IRS collection agents.

The nice part is that our calls to the Practitioner Priority Line are made “under the IRS’ radar,” because its staff are not tied into the IRS collection division. They are there simply to answer our questions about your penalty history and provide information about your account. It is low-key, with minimal risk to you.

Life happens – we may get behind on our tax payments or return filings. The IRS’ penalties on these mistakes can really add up and put an extra stressor on our lives. While qualifying for penalty abatement under Reasonable Cause is challenging and likely to be denied, First-Time Penalty Abatement is straight-forward and rewards prior good behavior. Fortunately, there are solutions to clear you of these steep penalties so you can start working towards a more comfortable future.