First-Time Penalty Abatement in Virginia: IRS FTA for VA Taxpayers

First-time penalty abatement (FTA) is the IRS's administrative waiver for taxpayers who have a clean compliance history. It removes failure to file and failure to pay penalties without requiring proof of hardship or special circumstances. For Virginia taxpayers, FTA is often the fastest way to eliminate IRS penalties, sometimes resolved in a single phone call.

Virginia does not have an equivalent automatic program. State penalty relief requires a separate reasonable cause request to the Department of Taxation. This means Virginia taxpayers should pursue IRS FTA first (quick and straightforward) and then tackle state penalties through the longer reasonable cause process.

FTA Eligibility Requirements

You qualify for IRS first-time penalty abatement if you meet all three conditions:

1. Clean three-year history. No penalties were assessed for the three tax years immediately before the penalty year. The IRS looks at assessed penalties, not proposed penalties. If a penalty was proposed but later removed, it does not disqualify you.

2. All returns filed. Every required federal return has been filed, or you have a valid extension in place. If you have unfiled returns for other years, you must file them before requesting FTA. The IRS will not grant FTA while compliance issues remain outstanding.

3. Tax paid or arranged. The tax for the penalty year is paid in full, or you have an approved installment agreement or other payment arrangement. You do not need to pay the penalty itself before requesting abatement, only the underlying tax.

Which Penalties FTA Covers

FTA applies to:

• Failure to file penalty (5% per month, up to 25%)
• Failure to pay penalty (0.5% per month, up to 25%)
• Failure to deposit penalty (for employment taxes)

FTA does not apply to:

• Accuracy-related penalties (negligence, substantial understatement)
• Estimated tax penalties
• Fraud penalties
• Information return penalties

If you have both failure to file and failure to pay penalties for the same year, FTA can remove both in a single request.

How to Request FTA

By Phone (Fastest Method)

Call the IRS at 800-829-1040. When connected, tell the agent you are requesting first-time penalty abatement for a specific tax year. The agent will:

1. Pull up your account
2. Check your three-year compliance history in the system
3. Verify that all returns are filed
4. Confirm the tax is paid or arranged

If you qualify, the agent can approve the abatement during the call and you will see the adjustment on your account within one to two billing cycles.

Tips for the call:

• Call early morning or late afternoon for shorter wait times
• Have your SSN, tax year, and penalty notice number ready
• Reference the IRS policy by name: "first-time penalty abatement under IRM 20.1.1.3.6.1"
• If the first agent says you do not qualify, ask for a supervisor review
• Note the agent's name, ID number, and the outcome

By Written Letter

If you prefer a paper trail, mail a letter to the IRS service center address on your penalty notice. State that you are requesting first-time penalty abatement, identify the tax year and penalty type, and confirm your compliance with all three eligibility requirements.

Written requests take 30 to 60 days for a response, compared to same-day resolution by phone.

Using Form 843

IRS Form 843 (Claim for Refund and Request for Abatement) also works for FTA requests. Complete the form with your information, the penalty year, and the penalty amount. In the explanation section, state that you are requesting first-time penalty abatement and confirm your three-year clean history.

FTA Strategy: Timing Matters

FTA applies to one tax year at a time. If you have penalties for multiple years, FTA can only be used for one of them. The IRS applies it to the earliest qualifying year by default, but you can request a specific year.

Strategic approach: Apply FTA to the year with the largest penalty. Then request reasonable cause for the other years. This maximizes total penalty savings.

If you have not yet been assessed a penalty but expect one (for example, you are about to file a late return), consider waiting until the penalty is assessed before requesting FTA. The IRS cannot abate a penalty that has not been charged yet.

Virginia Does Not Offer Automatic FTA

This is a critical distinction for Virginia taxpayers. The Virginia Department of Taxation does not have a first-time penalty abatement program. There is no equivalent of the IRS FTA for state penalties.

Virginia penalty relief is available only through:

• Reasonable cause: Submit a written request explaining why you could not file or pay on time, supported by documentation
• Tax Commissioner review: Appeal a denied request to the Tax Commissioner
• Circuit court petition: Seek judicial review of the Tax Commissioner's decision

This means Virginia taxpayers should always pursue IRS FTA first (quick win, potentially large savings) and then build a reasonable cause case for the state penalties separately.

The fact that the IRS granted FTA can support your Virginia reasonable cause argument. While it does not guarantee state relief, it demonstrates that your federal compliance history was clean, which suggests the late filing or payment was an isolated incident.

NoVA Federal Employees and FTA

Northern Virginia has a high concentration of federal employees, government contractors, and military personnel. These taxpayers often have clean compliance histories, making them strong FTA candidates.

Common scenarios where NoVA taxpayers qualify for FTA:

• First-time filing error: A federal employee who has filed on time for years makes a one-time mistake with a DC/VA allocation, triggering a late-filed amended return and penalties
• Deployment or relocation: Military personnel stationed at bases in Northern Virginia miss a deadline during PCS moves
• Clearance-related urgency: Federal employees and contractors with security clearances have added motivation to resolve tax penalties quickly, as unresolved tax debt can trigger clearance reviews

For these taxpayers, FTA provides fast resolution that keeps their compliance record clean and avoids the security clearance complications that come with ongoing IRS penalty balances.

What If You Do Not Qualify for FTA?

If you have penalties in the prior three years, unfiled returns, or unpaid tax without an arrangement, FTA is not available. Your options include:

• Fix the disqualifier first: File missing returns, set up a payment plan, and wait for the three-year window to clear
• Request reasonable cause: Build a documented case showing circumstances that prevented compliance (reasonable cause penalty relief)
• Combine strategies: Use FTA for the year you qualify and reasonable cause for other years

An enrolled agent can evaluate your full compliance history and determine the best approach across multiple years and both agencies.

Professional Help with FTA in Virginia

Bill Fritton, EA, MBA, at Virginia tax penalty abatement expert in Vienna, VA handles first-time penalty abatement requests for Virginia taxpayers. He can check your eligibility, make the IRS call on your behalf, and coordinate state penalty relief through the Virginia Department of Taxation. Contact Back Tax Expert Inc. to discuss your penalty situation.

Frequently Asked Questions

What is first-time penalty abatement?

First-time penalty abatement is an IRS administrative waiver that removes failure to file and failure to pay penalties for taxpayers with a clean three-year compliance history. It can be requested by phone, letter, or Form 843. It often resolves in a single phone call.

Does Virginia offer first-time penalty abatement?

No. Virginia does not have an automatic first-time penalty abatement program. All Virginia state penalty relief requires a written reasonable cause request, reviewed on a case-by-case basis by the Department of Taxation.

How do I qualify for IRS first-time penalty abatement?

Three conditions: no penalties assessed in the prior three tax years, all required returns filed or on extension, and the tax paid in full or a payment arrangement in place. If all three are met, the IRS typically approves FTA on the spot.

Can FTA remove both failure to file and failure to pay penalties?

Yes. If both penalties apply to the same tax year, FTA can remove both in a single request. This can eliminate up to 47.5% in combined penalties on your federal balance.

How many times can I use first-time penalty abatement?

FTA applies once per tax year, and the three-year lookback resets after each use. If you use FTA for 2023, you would need three clean years (2024, 2025, 2026) before qualifying again for 2027. The IRS applies FTA to one year at a time.

Does FTA remove interest too?

No. FTA removes penalties only. However, removing the penalty reduces the total balance, which reduces the interest that accrues going forward. Interest that has already accrued on the penalty amount is generally not reversed.