There are different types of IRS penalties that can be assessed against you. The most common ones include penalties for failing to file a tax return, filing late, or accuracy-related penalties for incorrectly reporting information on your return. But did you know that in some cases, the IRS offers penalty abatements if you believe you’ve been penalized unfairly?
Civil penalties for underpayment, late filing, or inaccuracies may be eligible for abatement, but criminal penalties for tax evasion or willful violations are not. The first-time penalty abatement program (FTA) is another option available in certain situations. Here’s what you need to know to navigate IRS penalties and determine if you’re eligible for an abatement or the FTA waiver program.
❓ What a Penalty Abatement Doesn’t Cover
Whether you’re seeking a standard penalty abatement or relief through the FTA program, it’s important to note that abatement applies only to the penalties themselves. Interest on unpaid taxes, the tax amount itself, or any processing fees (like installment setup charges) are not covered. If your abatement request is successful, only the interest charged on the penalty would be reduced, not the interest on the taxes owed.
💡 Proving Hardship for Penalty Relief
The failure-to-file penalty applies if you file late or not at all. It’s calculated as 5% of your unpaid taxes per month, up to 25% of the total due. To avoid this, request a six-month extension before the tax deadline if you can’t file on time. While the extension doesn’t waive taxes, interest, or failure-to-pay penalties, it will remove the much steeper failure-to-file penalty.
The IRS does consider penalty abatement requests if you have reasonable cause, like hospitalization, natural disasters, or personal crises. However, simply not having the funds to pay doesn’t count as reasonable cause. If chronic illness, disability, or other long-term hardships have affected your ability to pay, you may be eligible for relief from penalties.
💡 First-Time Penalty Administrative Waiver (FTA Program)
The FTA program is available to waive penalties for failure to file, failure to pay, or failure to deposit if you haven’t been penalized in the past three years or had penalties waived for reasonable cause. If you’re self-employed and have been hit with an estimated tax penalty, this is typically the only penalty the FTA can address.
To qualify, you must be current with all your tax filings and have paid (or set up a payment plan for) any taxes owed. For failure-to-pay penalties, it’s often best to settle the entire balance before requesting the waiver. Unlike standard penalty abatement, you don’t need to prove hardship for an FTA waiver, making it quicker and easier to process.
Curious if you qualify for IRS penalty relief?
Don’t navigate this alone—reach out to our team today. We’ll help you explore your options and work to reduce the financial strain of IRS penalties. Let’s make sure you’re in the best possible position for 2024 and beyond.