IRS First-Time Penalty Abatement: How to Get Penalties Removed Without Reasonable Cause

First-Time Abatement (FTA) requirements:

1. Clean compliance history. No penalties assessed in the 3 tax years before the penalty year. The 3-year lookback examines whether penalties were charged (not whether returns were filed late; the key is whether a penalty was actually assessed and not abated).

2. All required returns filed (or extension filed). The taxpayer must be current on all filing obligations. If any returns are unfiled, the FTA won’t be granted until they are filed.

3. All taxes paid or in an installment agreement. The underlying tax must be paid (or the taxpayer must be in an active installment agreement). FTA removes the penalty; it doesn’t remove the tax.

What penalties FTA covers:

• Failure-to-file penalty (IRC 6651(a)(1)): up to 25% of unpaid tax
• Failure-to-pay penalty (IRC 6651(a)(2)): up to 25% of unpaid tax
• Failure-to-deposit penalty (IRC 6656): employment tax deposit penalties

What FTA does NOT cover:

• Estimated tax penalty (IRC 6654/6655): this is technically “interest” under the code, not a “penalty”
• Accuracy-related penalties (IRC 6662): negligence, substantial understatement
• Fraud penalties (IRC 6663)
• Information return penalties (IRC 6721/6722): late W-2, 1099 filing

How to request FTA:

• By phone: Call the IRS (800-829-1040 for individuals, 800-829-4933 for businesses). The representative can apply FTA on the spot if the criteria are met. Takes 10-30 minutes.
• By letter: Write to the IRS at the address on the penalty notice, requesting FTA, citing the clean 3-year history. Include a copy of the penalty notice.
• By Form 843: Claim for Refund and Request for Abatement. Attach to a letter explaining the FTA request.