Three Tax Penalties May Be Automatically Waived Next Year

Pop quiz: What is a first-time abatement (FTA)?

It’s a little-known administrative waiver that the Internal Revenue Service (IRS) has been providing since 2001. It’s sort of a get-out-of-jail free card. If certain requirements are met, individuals and businesses can avoid penalties for failing to file a return, failing to pay the tax due or failing to deposit payroll taxes (on forms 940, 941, 944 and 945).

To qualify for the abatement, the taxpayer must have a compliance history with no penalties in the preceding three years. The taxpayer must also have filed tax returns, if required, the past three years prior to the penalty year.

Most taxpayers and some tax professionals are unaware of the FTA. Some taxpayers have even paid penalties that qualify for abatement. For years, taxpayers or tax professionals could only obtain the FTA by requesting it via phone or in writing.

According to the National Taxpayer Advocate, a branch of the IRS, the waiver will become automatic starting in the upcoming tax season. If you qualify, penalties will be waived with no back-and-forth correspondence between the taxpayer and the IRS. The move is expected to save taxpayers and tax professionals a significant amount in penalties and time.