Taxpayers who fall behind on filing or paying taxes may face penalties from the IRS. Fortunately, the IRS offers relief programs known as IRS penalty abatement penalty abatements, which can remove or reduce these penalties under certain conditions. Two of the most commonly used options are Reasonable Cause Penalty Abatement and First-Time Penalty Abatement (FTA). Understanding how these programs work can help you save money and stay compliant with IRS regulations.
What Is Reasonable Cause Penalty Abatement?
Reasonable Cause Penalty Abatement is available to taxpayers who can show that their failure to comply with tax obligations was due to circumstances beyond their control.
Common acceptable reasons include:
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Serious illness or death in the family
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Natural disasters (like hurricanes, floods, or fires)
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Inability to obtain necessary records
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Incorrect advice from a tax professional
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Unavoidable absence, such as incarceration or military service
The IRS evaluates reasonable cause on a case-by-case basis. You must demonstrate that you acted in good faith and took steps to comply once the issue was resolved.
How to Apply:
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File IRS Form 843 ("Claim for Refund and Request for Abatement")
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Include a detailed written explanation of your situation
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Provide supporting documentation (e.g., hospital records, police reports, legal paperwork)
There is no limit to how many times you can request abatement for reasonable cause, as long as each case involves new and valid circumstances.
What Is First-Time Penalty Abatement (FTA)?
First-Time Penalty Abatement is a one-time relief option offered by the IRS for taxpayers who have a clean compliance history. It's a more straightforward and often quicker way to remove penalties—especially for people who simply made a mistake.
FTA applies to the following penalties:
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Failure to file a tax return
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Failure to pay taxes on time
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Failure to deposit payroll taxes (for businesses)
Who Qualifies for FTA?
To qualify for First-Time Penalty Abatement, you must meet the following three conditions:
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Clean Compliance History
You haven’t had any significant penalties (excluding estimated tax penalties) in the past three years. -
Filed All Required Returns
All current and prior tax returns must be filed, even if late. -
Paid or Arranged to Pay Taxes Due
You must have paid the tax owed or be in an approved IRS installment agreement.
How to Request FTA:
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Call the IRS: In many cases, FTA can be requested over the phone.
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Write a letter: You can also submit a written request explaining that you meet the FTA criteria.
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You do not need to submit Form 843 for FTA, but doing so can strengthen your case if you're including written records.
Key Differences Between Reasonable Cause and FTA
| Feature | Reasonable Cause | First-Time Abatement (FTA) |
|---|---|---|
| Based on Circumstances | Yes | No |
| Clean Record Required | No | Yes |
| Documentation Needed | Yes | Not always |
| Can Be Used Multiple Times | Yes | No – only once every 3 years |
| Applicable Penalties | Broader | Only filing, payment, deposit penalties |
Tips for a Successful Penalty Abatement Request
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Act quickly: The sooner you respond to a penalty notice, the better your chances.
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Be honest and thorough: Explain your situation clearly and provide evidence.
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Stay current: Make sure all returns are filed and payment arrangements are in place.
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Get professional help: A tax professional can help ensure your request is correctly filed and supported.
Conclusion
Both Reasonable Cause and First-Time Penalty Abatement provide valuable opportunities to reduce or eliminate IRS penalties. Whether you made an honest mistake or faced an unavoidable hardship, these programs can offer significant financial relief. Understanding the eligibility criteria and submitting a proper request can make all the difference.