First Time Penalty Abatement Changes

On the April 5th, 2013, the IRS modified its First Time Abate procedure. This change affected section 20.1.1.3.6.1. of the Internal Revenue Manual. According to the recent update, a taxpayer seeking First Time Penalty Abatement has to be current with all filing and payment requirements, which means that all tax returns have to be filed and all current payments, including federal tax deposits, have to be paid on time and in the full amount.

First Time Abate (FTA) is a policy of the IRS that allows removal of  the Failure-to-File, Failure-to-Pay, or Failure-to-Deposit penalty due to the history of taxpayer’s compliance, and not to any sensible reasons that can be provided by a taxpayer to explain what caused the debt to accrue.

Although it sounds like a great deal, FTA cannot be granted for more than one tax period for a given Master File Tax. If you have multiple periods of the liability, the IRS will grant FTA for the earliest period. You will still have an option to remove all other penalties, but in order to do that you will have to submit a Penalty Abatement request and prove that your failure to comply with your tax obligations was a result of events beyond your control.

Another requirement for FTA to be granted is that the taxpayer cannot have any penalties for 3 consecutive years before the period that is a subject for FTA on the same Master File Tax. In simple words, if you would like to abate a penalty for your 2009 940 – Unemployment Tax return, you cannot have any penalties on your 2006, 2007 and 2008 940 accounts.

However, in some cases the IRS will review other Master File Tax accounts as well  If, for example, your filing requirements were changed.  Let’s say that in 2006, 2007 and 2008 you filed form 944 – Employer’s Annual Federal Tax return (also known as the IRS Master File Tax 14). In 2009 your filing requirements were changed to 941 – Withholding Tax return (which is IRS Master File Tax 01). Looking into the previous 3 years to see whether you had any penalties, the IRS will review your 944 accounts.