Obtaining First-Time Abatement Penalty Waivers from the IRS

Written by Fred Hatton and Jeff Senney

For those individual and business taxpayers who become noncompliant with the Internal Revenue Service for either failure to file or failure to pay, there is a penalty abatement program that is often overlooked which can save the taxpayer money.  The IRS has a first-time abatement penalty waiver program which permits a taxpayer who becomes noncompliant for the first time to request abatement of specific penalties for a single tax period.

IRSA first-time noncompliant individual taxpayer may request abatement of failure to file and failure to pay penalties from the IRS, while a first-time noncompliant business taxpayer may request abatement of failure to file, failure to pay, and failure to deposit payroll tax penalties.  In order to take advantage of the first-time abatement penalty waiver program, the taxpayer must be able to establish the following: (i) filing compliance; (ii) payment compliance; and (iii) three years of clean penalty history.

In order to establish filing compliance, the taxpayer must have filed all currently required returns (or filed a valid extension), and cannot have an outstanding request from the IRS for an unfiled return.  Payment compliance is established by the taxpayer by having paid or arranged to pay any tax due.  An open installment agreement with the IRS will not disqualify the taxpayer from the abatement program if the taxpayer is current on payments under the installment agreement.  In order to satisfy the three years clean penalty history requirement, the taxpayer cannot have had any assessment of penalties by the IRS in a “significant” amount in the previous three years on the same return on which a first-time penalty abatement is being sought.  There is no specific amount established by the IRS as to what would be a “significant” penalty assessment so this requirement is open to some interpretation by the taxpayer and his counsel.

If a taxpayer can establish filing compliance, payment compliance, and three years of clean penalty history, he or she should qualify for the IRS first-time abatement penalty waiver program and may be able to reduce significantly the amount owed to the IRS.  For further information about this program and how it may apply to your specific situation, you can contact Jeff Senney (jsenney@pselaw.com) or Fred Hatton (fhatton@pselaw.com) at Pickrel, Schaeffer & Ebeling via e-mail or by phone at (937) 223-1130.

AUTHOR: David Montgomery

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