Can I get out of paying penalties to the IRS?

Let’s be honest: Getting a penalty notice from the IRS is never fun. Whether it’s due to a late filing, a missed payment, or a deposit error, IRS penalties can feel overwhelming—especially when you're already trying to get your finances back on track. And if you’re like most people, your first thought is probably, “Do I really have to pay this?” 

The good news? You might not have to pay that penalty. The IRS offers a little-known but powerful option called First Time Abate (FTA), which can waive penalties for taxpayers who meet specific criteria. If you’ve generally stayed on top of your filings and this is your first penalty—whether you’re an individual or small business owner filing Form 1040, 1120S, or 1065—FTA could provide the relief you need. In this article, we’ll break down what FTA is, how to qualify, and how to request it—plus what to do if your request is denied or you don’t meet the criteria. 

What is First Time Abate? 

In simple terms, First Time Abate (FTA) is an IRS policy that waives certain penalties for taxpayers who meet specific criteria. It’s like a “get out of jail free” card for your first tax mistake—as long as you’ve been playing by the rules up until now. 

How is FTA different from other waivers? 

FTA isn’t the only way to get penalty relief, but it’s often the easiest. Here’s how it stacks up against other options: 

Reasonable Cause Relief  

This requires proving that your mistake was due to circumstances beyond your control, like a serious illness, natural disaster, or death in the family. It’s more subjective and often requires documentation. 

Statutory Exceptions

Certain penalties have built-in exceptions. For example, the Failure to File penalty may be waived if you can show your failure was due to a natural disaster or other federally declared disaster. These exceptions are specific to the type of penalty and often require proof. 

Administrative Waivers

The IRS occasionally issues blanket waivers for specific penalties during unusual circumstances, like the COVID-19 pandemic. These waivers are automatic and don’t require individual requests. 

First Time Abate

FTA is automatic if you meet the criteria—no need to prove hardship or provide evidence. It’s a simpler, faster option for taxpayers with a clean compliance history. 

🤔Why did the IRS create FTA? 

The IRS introduced FTA as part of a broader effort to encourage compliance while offering a safety net for honest mistakes. Think of it as a way to reward taxpayers who’ve generally done the right thing but had an off year. 

What criteria do I need to meet to qualify for First Time Abate? 

The IRS has specific rules to determine who gets a pass on penalties. It’s not just about being a first-time offender—it’s about proving you’ve been a responsible taxpayer overall. 

Here’s what you need to qualify: 

• Clean Compliance History: You must have filed all required returns for the past three years. 
  • No penalties in the prior three years (or any penalties were removed for reasons other than FTA). 
• No Recent Deposit Penalties: You can’t have any Failure to Deposit penalties in the past three years. This includes penalties for not making payroll or excise tax deposits on time. 
  • The IRS also looks for specific Failure to Deposit waiver codes in your history. If these codes are present, you may be disqualified. 
• Exclusions: FTA doesn’t apply to event-based filings (like estate tax returns), Daily Delinquency Penalties (DDP), or information returns tied to another filing. 

What if I don’t meet the criteria? 

If you don’t qualify for FTA, don’t panic. There are still options, like Reasonable Cause Relief, which we touched on earlier. But FTA is often the simplest path if you meet the requirements. 

What penalties are eligible for First Time Abate? 

Not all penalties are created equal—some qualify for FTA, while others don’t. Let’s break it down so you know exactly which penalties you can get waived. 

✅Penalties Covered by FTA 

• Failure to File: This penalty kicks in if you file your tax return after the deadline. The penalty is usually 5% of the unpaid taxes for each month (or part of a month) your return is late, up to a maximum of 25%. 
• Failure to Pay: This penalty applies if you don’t pay your tax bill by the due date. The penalty is 0.5% of the unpaid taxes for each month (or part of a month) the payment is late, up to a maximum of 25%. 
• Failure to Deposit: This penalty applies if you don’t make required payroll or excise tax deposits on time. The penalty amount depends on how late the deposit is and how much tax is owed. 

❌Penalties Not Covered by FTA 

• Daily Delinquency Penalties (DDP):  These penalties apply to businesses that fail to file certain information returns (like Form 1099) on time. 
• Event-Based Filings: Penalties for returns tied to specific events, like estate tax returns or certain partnership filings. 
• Information Returns Dependent on Another Filing: If a penalty is tied to another filing (e.g., a missing Form 1099 because the underlying return wasn’t filed), FTA won’t apply. 

How much of my penalty will be waived with First Time Abate? 

If you qualify for FTA, here’s the best part: the IRS may waive 100% of the eligible penalty. That could mean a clean slate without those extra fees adding up. But here’s the important detail—interest tied to the original penalty may still apply, and FTA only applies if you meet specific IRS requirements. These include being current on your tax filings and payments and having a clean compliance history for the past three years. 

Penalty Calculations and Reductions 

Penalty Waiver: If approved, FTA wipes out the entire penalty. For example, if you owe a $500 Failure to File penalty, it’s gone. 

Interest Charges: Interest is charged on both the unpaid tax balance and any penalties. It accrues daily until the balance is paid in full.  However, if the penalty is waived, the interest related to that penalty is automatically reduced or removed. 

What about Failure to Pay penalties? 

Here’s an important note: If you have a Failure to Pay penalty, it will continue to accrue until the tax is paid in full—even if FTA is approved. 

How do I request penalty relief from the IRS? 

Requesting First Time Abate (FTA) is simpler than you might think. Here’s a step-by-step guide to help you navigate the process and get the relief you need. 

Step 1: Follow the Instructions on Your Notice

• If you’ve received a penalty notice from the IRS, the first step is to read it carefully. Many notices include specific instructions on how to request relief, including FTA. 
• Look for a section titled “What to Do If You Disagree” or “How to Request Penalty Relief.” 
• Follow the steps outlined, which may include calling the IRS, submitting a written request, or filling out a form. 

Step 2: Call the IRS

• In some cases, you can request an FTA over the phone. This is often the quickest way to get relief. 
• Call the number listed on your notice. 
• Be prepared to provide your Social Security Number (SSN) or Employer Identification Number (EIN), the tax year in question, and details about the penalty. 
• Explain that you’re requesting First Time Abate and confirm that you meet the eligibility criteria. 

Pro Tip: Have your tax records and notice handy when you call to make the process smoother. 

Step 3: Submit a Written Request or Form 843

If you prefer to make your request in writing, you have two options: 

Written Statement: 

• Write a letter explaining why you qualify for FTA. Include your name, SSN or EIN, the tax year, and the type of penalty. You can find a template for the written statement here.   
• Mail it to the address on your notice. 

Form 843 (Claim for Refund and Request for Abatement):  

• Use this form to formally request penalty relief. 
• Fill out Section 3 (“Claim for Refund or Abatement of IRS Collections”) and include a statement explaining your eligibility for FTA. 
• Mail the form to the address provided in the instructions. 

What should I do if my request for First Time Abate is denied? 

If your First Time Abate (FTA) request is denied, don’t panic. While it’s disappointing, there are still steps you can take to fight the penalty. Here’s what you need to know: 

1. Appeal the Decision 

If you believe the IRS made a mistake or you meet the criteria for FTA, you can file a Penalty Appeal. 

How it works: 

• Submit a written request to the IRS Office of Appeals. Include your notice, a statement explaining why you qualify for FTA, and any supporting documents. 

What to expect: 

• An appeals officer will review your case and make a decision. 
• This process can take several weeks or months, so be patient. 

Penalty Appeal Eligibility: 

• You can appeal most penalties, including Failure to File, Failure to Pay, and Failure to Deposit. 
• The appeals process is designed to be fair and impartial, giving you a chance to present your case without going to court. 

2. Request Reasonable Cause Relief 

If FTA isn’t an option, you might still qualify for Reasonable Cause Relief. 

What qualifies as reasonable cause? 

• Serious illness or hospitalization. 
• Death of a family member. 
• Natural disasters or other emergencies. 

How to request it: 

• Submit a written statement or Form 843 explaining your situation. 
• Include documentation, like medical records or insurance claims, to support your case. 

3. Consult a Tax Professional 

Navigating the appeals process can be overwhelming, especially if you’re dealing with complex penalties or multiple issues. A CPA or tax attorney can help you: 

• Review your case and identify the best path forward. 
• Prepare and submit your appeal or reasonable cause request. 
• Represent you in communications with the IRS. 

Can I get interest removed if my penalty is waived? 

The short answer? Yes. If your penalty is waived, the related interest is automatically removed. However, interest continues to accrue until the penalty is resolved—so it’s important to act quickly to minimize what you owe. 

How Interest Relates to Penalties 

Interest is charged on both the unpaid tax balance and any penalties. It accrues daily until the balance is paid in full. Here’s how it works: 

• Interest on Penalties: If you owe a penalty, interest is charged on that penalty amount until it’s paid or waived.
  • For example, if you have a $500 Failure to File penalty, interest will accrue on that $500 until it’s resolved. 
• Interest on Unpaid Taxes: Even if your penalty is waived, interest on your unpaid tax balance still applies and continues to accrue until the tax is paid in full. 
• Interest Reduction Upon Penalty Abatement: If your penalty is waived through First Time Abate (FTA) or another relief option, the interest related to that penalty is automatically reduced or removed. 

The Process for Interest Relief 

Once your penalty is waived, the IRS will automatically adjust your account to remove or reduce the related interest. Here’s what to expect: 

• After your penalty is waived, you’ll receive a notice from the IRS confirming the adjustment. 
• Check the notice to ensure the interest has been removed or reduced. 

• If the interest isn’t adjusted, contact the IRS to resolve the issue. 
• Have your notice and any supporting documents ready. 

The bottom line

Facing an IRS penalty can be stressful, but First Time Abate (FTA) offers a lifeline for compliant taxpayers who’ve made a one-time mistake. By understanding the criteria and process, you can take control of your tax situation and potentially save hundreds—or even thousands—of dollars. 

If you qualify, don’t hesitate to request relief. And if you’re unsure where to start, DiMercurio Advisors is here to help. Let’s turn that penalty notice into a fresh start.