First-time abatement

First-time abatement is the closest thing the tax code has to a free pass. If you have not had a penalty in the three prior tax years, the IRS will remove a failure-to-file, failure-to-pay, or failure-to-deposit penalty on request. No hardship story required. Most people who qualify never ask.

The three conditions

1. Clean history. No penalties of the same type for the three tax years before the year in question (or the penalties were removed for a reason other than first-time abatement). A prior estimated tax penalty does not count against you.
2. Filing compliance. All required returns are filed, or a valid extension is in place.
3. Payment compliance. The tax is paid, or an installment agreement is in place and current.

What it covers

Failure to file, failure to pay, and failure to deposit (payroll). Not the accuracy-related penalty, not the estimated tax penalty, not information return penalties. Interest on the abated penalty is removed with it; interest on the tax is not.

How to ask

Three ways, in order of speed:

• Call the number on the notice and ask for first-time abatement. The representative can often grant it during the call.
• Write. Use the first-time abatement letter and mail it to the address on the notice.
• Form 843. For penalties already paid, or when you also want to argue reasonable cause.

Use it wisely

You get it once per three-year window. If the penalty is small and you can see a bigger one coming, it may be worth saving. The IRS will apply it to the earliest eligible year unless you say otherwise.

Sources

1. IRS, Administrative penalty relief
2. IRS, About Form 843