An IRS penalty is an additional amount that can be assessed on top of your tax liability for various reasons, such as failure to make deposits, failure to file a tax return, failure to pay taxes, etc. There are also Accuracy-Related penalties, penalties for filing a frivolous return, and many more. The reason for penalty assessment is to ensure compliance by taxpayers, which is a very harsh method, considering that the amount of penalty can be anything from 0.5% to 100% of the tax due, or even higher.
The usual way to deal with penalties is to get in compliance with the IRS, which means start filing your returns and paying taxes, and submit a penalty abatement request – assuming you have a reasonable (and acceptable) explanation of why you fell behind. However, the IRS has strict rules when analyzing requests to abate penalties received from the taxpayers, and many of these demands are denied because taxpayers fail to show that they exercised ordinary business care and prudence in determining tax obligations – one of the necessary conditions for the penalty abatement.
Fortunately, there is another option for those who just made a mistake once, and would like to correct it. This waiver is called a First Time Abate (FTA). If you or the business you are operating accrued a Failure-to-File, Failure-to-Pay, or Failure-to-Deposit penalty, you might be qualified for FTA. Just remember that you can only use FTA to waive penalties for one particular period of the liability, and only if you had a compliant history for the prior three years.
Not all penalties are subject for FTA. For instance, estate and gift tax returns are not included in this list. There are also other restrictions, so the best way to approach this problem is to contact your tax resolution representative and discuss the best way to move forward.
If your FTA is approved by the IRS, you will receive a letter informing you that the penalty was waived due to your history of compliance.