Late Filing & Late Payment Penalties Relief

Posted by Lee Reams Sr. on

The Internal Revenue Manual (IRM provides a one-time administrative abatement of late filing and late payment penalties, commonly called the “first time abatement” (FTA) penalty relief, where a taxpayer has:

- Not previously been granted relief under this provision, and

- Has been compliant in the three prior years.

The IRS is supposed to automatically apply this relief but frequently does not. If the taxpayer qualifies for the relief, a call to taxpayer services will usually trigger the relief. If the penalty has already been paid, file Form 843. 

Where the taxpayer also qualifies for some other form of penalty relief, the IRM requires the FTA to be applied first.

According to IRS policy, the FTA penalty relief option does not apply if the taxpayer has not filed all returns and paid, or arranged to pay, all tax currently due. For example, the taxpayer is considered current if they have an open installment agreement and are current with their installment payments.

The FTA relief only applies to a single tax period for a taxpayer. For example, if a request for penalty relief is being considered for two or more periods of a taxpayer, and the earliest period meets the FTA criteria, FTA would apply only to the earliest period, and not for all periods.

Penalty relief under the FTA provision does not apply to returns with an event-based filing requirement, such as Form 706, 709, 1120 or 1120S (not an all inclusive list). For the S Corporation if, in the prior three years, at least one Form 1120S was filed late but not penalized, penalty relief under FTA will not apply.

The IRS says it will base decisions on removing any future failure to file, failure to pay or failure to deposit penalties on any information taxpayers provide that meets reasonable cause criteria.

Where taxpayers have been billed for penalty charges and have reasonable cause, an explanation should be included in their response to the service center. Form 843, Claim for Refund and Request for Abatement can also be used to respond.