Can I Get Penalty Abatement If I've Never Been Late Before?

Yes, the IRS offers First-Time Penalty Abatement (FTA) to taxpayers who have a clean compliance history for the three prior tax years, meaning you filed all required returns and had no penalties. This administrative waiver can remove thousands of dollars in failure-to-file and failure-to-pay penalties, and it is one of the most underused forms of tax relief available.

How First-Time Penalty Abatement Works

FTA is not a formal program you apply for. It is an IRS administrative policy (outlined in Internal Revenue Manual 20.1.1.3.6.1) that allows penalty removal for taxpayers who meet three criteria.

First, you must have filed all currently required returns or filed a valid extension. Second, you must not have had any penalties (other than an estimated tax penalty) for the three tax years prior to the year in question. Third, you must have paid, or arranged to pay, any tax due.

The IRS can remove the failure-to-file penalty (up to 25% of unpaid tax), the failure-to-pay penalty (up to 25% of unpaid tax), and the failure-to-deposit penalty for businesses. FTA covers one tax period at a time.

What FTA Can Save You

The savings can be substantial. If you owed $20,000 in taxes and filed six months late, the failure-to-file penalty alone could be $4,500 (22.5% of the balance). Add the failure-to-pay penalty accumulating at 0.5% per month, and penalties can reach thousands of dollars quickly.

FTA removes these penalties entirely for the qualifying tax year. Interest that was charged on the penalties is also recalculated and reduced, though FTA does not remove interest on the underlying tax balance.

How to Request FTA

You have three options for requesting First-Time Penalty Abatement.

By phone. Call the IRS at the number on your notice. The agent can check your compliance history and apply FTA immediately. This is often the fastest method.

By letter. Write to the IRS office that issued the penalty notice. Reference the specific penalty, the tax year, and state that you are requesting First-Time Penalty Abatement under IRM 20.1.1.3.6.1. Include your clean compliance history for the prior three years.

By form. File IRS Form 843 (Claim for Refund and Request for Abatement). This is required if you already paid the penalty and want a refund.

FTA vs. Reasonable Cause Abatement

If you do not qualify for FTA (because you had a penalty in the prior three years), you may still qualify for reasonable cause penalty abatement. Reasonable cause requires you to show circumstances beyond your control prevented timely filing or payment: serious illness, natural disaster, death of a family member, fire, or reliance on incorrect advice from a tax professional.

A strategic consideration: if you qualify for both FTA and reasonable cause, it is sometimes better to use reasonable cause for the current year and save FTA for a future year when reasonable cause may not apply. An experienced tax professional can advise on the best approach.

Does FTA Apply to NY State Penalties?

FTA is a federal IRS policy only. New York State does not have an identical first-time abatement policy. However, NY State does allow penalty abatement for reasonable cause, and the standards are similar to the federal reasonable cause criteria. You would need to request state penalty abatement separately by writing to the NY Department of Taxation and Finance.

Getting Help with Penalty Abatement

Jennifer O'Neill, EA, MBA, of IRS Help Inc. in West Seneca, NY, regularly secures penalty abatement for clients who qualify. With over 40 years of experience and BBB accreditation, her firm handles both IRS and NY State penalty issues. Contact IRS Help Inc. at 1-800-477-4357 to find out if you qualify.

Related Questions

Can I get FTA more than once? FTA applies to one tax period at a time, and the three-year clean history resets after each use. So technically, if you go another three years without penalties after receiving FTA, you could qualify again.

Does FTA remove interest on my tax debt? FTA removes penalties and the interest that accrued specifically on those penalties. It does not remove interest on the underlying tax balance itself. However, the reduction in penalties lowers the total interest calculation going forward.

What if I was late because my accountant made an error? Reliance on a tax professional can qualify as reasonable cause for penalty abatement, but you must show you provided accurate information and the professional made the error. This falls under reasonable cause, not FTA, so the two approaches serve different situations.