You just received an IRS penalty notice for $5,000, $50,000, or even more. Before you write that check, there’s something you need to know: you may be able to get those penalties completely eliminated with a simple phone call.
In my years of practice, I’ve discovered that most taxpayers don’t know about one of the IRS’s best-kept secrets—a penalty removal program that the IRS approves nearly 100% of the time for qualifying taxpayers.
What Is First Time Penalty Abatement?
First Time Penalty Abatement (FTA) is an administrative waiver that removes penalties for taxpayers with a clean compliance history. The beauty of this program is its simplicity: you don’t need to prove financial hardship, you don’t need to explain what went wrong, and you don’t need to apologize for filing or paying late.
The IRS doesn’t advertise this program, but it’s sitting right there in their Internal Revenue Manual, ready to wipe out tens of thousands of dollars in penalties.
Three Simple Requirements for First Time Penalty Abatement
To qualify for first time penalty abatement, you must meet three straightforward requirements:
1. Clean Compliance History
You must have a clean compliance history for the three years prior to the tax year with penalties. “Clean” means no penalties for:
- Failing to file on time
- Failing to pay on time
- Failing to deposit payroll taxes
For example, if you’re requesting abatement for 2023 penalties, the IRS will review your 2020, 2021, and 2022 returns to ensure no penalties were assessed during that period.
2. Current on All Filing Requirements
You cannot have any unfiled tax returns. If you’re on an approved extension, that’s acceptable. However, if you’re past the deadline without an extension, you’ll need to file that return before requesting first time penalty abatement.
3. Paid or Arranged to Pay Current Taxes
You must have either paid all current taxes due or established a payment arrangement with the IRS. Owing tax debt doesn’t disqualify you—you just need to be on a payment plan.
Which Penalties Qualify for First Time Abatement?
First time penalty abatement works for three main penalty types:
- Failure to File Penalties – For not filing tax returns on time (up to 25% of tax due)
- Failure to Pay Penalties – For not paying taxes on time (up to 25% of tax due)
- Failure to Deposit Penalties – For businesses not depositing payroll taxes on time
However, FTA does not apply to:
- Accuracy-related penalties
- Fraud penalties
- Trust fund recovery penalties
- Most international information return penalties (Forms 5471, 5472, etc) – exceptions apply
That said, I’ve successfully obtained first time penalty abatement for international penalties in certain situations, which I’ll discuss below.
Common Misconceptions About First Time Penalty Abatement
Many taxpayers incorrectly believe they don’t qualify for FTA. Let’s clear up some common misconceptions:
Misconception #1: “I owe taxes, so I don’t qualify.” FALSE. Owing taxes doesn’t disqualify you. The IRS only looks at whether penalties were assessed during the three-year lookback period.
Misconception #2: “I’m on a payment plan, so I can’t get penalty abatement.” FALSE. Having a payment plan does not disqualify you from first time penalty abatement.
Misconception #3: “I can only use this once in my lifetime.” FALSE. You can use first time abatement multiple times—you just need to maintain another clean three-year compliance period before using it again.
How to Request First Time Penalty Abatement
Method 1: Phone Request (Recommended)
The fastest and easiest way to request first time penalty abatement is by phone. Here’s how:
- Call the number on your penalty notice or the main IRS number: 1-800-829-1040
- When connected to a representative, simply say: “I’m calling to request first time penalty abatement for the penalties on my [tax year] tax return.”
- The IRS representative will verify your compliance history
- If you qualify, they’ll process the abatement during the call
- You’ll receive a confirmation letter within a few weeks
Benefits of the phone method:
- Immediate resolution
- Real-time answers to questions
- Instant feedback if you don’t qualify
Method 2: Written Request
If you prefer documentation, you can request first time penalty abatement in writing:
- Complete Form 843 (Claim for Refund or Request for Abatement)
- In the explanation section, write: “Requesting First Time Penalty Abatement pursuant to IRM 20.1.1.3.3.2.1“
- Sign and date the form
- Send via certified mail with return receipt
- Allow 1-3 months for processing
Important: Keep your request simple. Don’t include lengthy explanations, apologies, or hardship stories. First time penalty abatement is based solely on your compliance history, not your personal circumstances.
Real-World Success: $100,000 in Penalties Eliminated
Let me share a powerful example of how effective this program can be.
A local CPA contacted me on a Friday afternoon with an urgent problem. Her client, a growing biotech company with foreign subsidiaries, faced nearly $100,000 in penalties for filing their first tax return late, along with international reporting forms (Forms 5471 and 5472).
The previous CPA had written to the IRS requesting reasonable cause abatement—denied. The CPA was preparing for a lengthy appeals process that could take months.
After reviewing the client’s tax transcripts, I immediately identified the solution: first time penalty abatement.
Here’s the critical detail most people miss: The IRS won’t abate international penalties if there are unreversed penalties on the income tax return itself. I had to:
- First, request FTA for the smaller penalties on the income tax return
- Then, request FTA for the large international information return penalties
I called the IRS directly and successfully had all penalties waived over the phone—in the correct order. No appeals process. No additional filings. One strategic phone call eliminated nearly $100,000 in penalties within an hour or two.
Both the biotech company and the CPA were amazed that what seemed insurmountable was resolved so quickly.
Three Critical Mistakes That Cause FTA Requests to Fail
Mistake #1: Not Checking Your Transcript First
Before requesting first time penalty abatement, obtain your IRS transcripts and verify your clean compliance history. Many requests fail because taxpayers forgot about a penalty from two years ago. Don’t assume—verify.
Mistake #2: Requesting FTA While Non-Compliant
The IRS will not grant first time penalty abatement if you have unfiled returns or unpaid current taxes, even with a clean three-year history. Get your house in order first:
- File all required returns
- Pay current taxes or establish a payment plan
- Then request abatement
Mistake #3: Making It Too Complicated
This is the biggest mistake I see. Taxpayers write three-page letters explaining their entire life story. Don’t do that.
First time penalty abatement is straightforward: either you qualify or you don’t. The IRS simply checks your filing, payment, and penalty history in their system. Keep your request simple and focused—just state you’re requesting first time penalty abatement.
You’re not requesting reasonable cause abatement, which does require facts and circumstances. FTA is based purely on compliance history.
What Happens After You Request FTA?
If Approved:
- Your tax account will be adjusted
- Penalties will be waived
- If you haven’t paid the penalties yet, you won’t owe them
- If you’ve already paid, you’ll receive a refund
If Denied:
- You’ll receive a denial letter explaining why
- The letter will include appeal rights
- You can (possibly) appeal if you believe the denial was incorrect
Important Limitations and Considerations
Can You Use FTA for Multiple Years?
If you have penalties for multiple consecutive years (say, 2022, 2023, and 2024), you can only use first time penalty abatement for one year—typically the earliest year (2022).
For the other years, you’ll need to request abatement based on reasonable cause, which examines your facts and circumstances and why you couldn’t comply despite reasonable efforts.
What About Interest?
The IRS will abate penalties but rarely abates interest. Interest removal generally occurs only when:
- The IRS made a mistake
- Undue delay by the IRS caused interest to accrue
Even if you get penalties removed through first time penalty abatement, you’ll typically still owe interest.
When Can You Use FTA Again?
First time penalty abatement isn’t “first time ever”—it’s first time within a three-year period. After using FTA, you can use it again once you’ve established another clean three-year compliance period.
For example, if you use FTA for 2023 penalties, you’d need to be penalty-free for 2024, 2025, and 2026, then potentially use it again for 2027 if penalties arise.
Take Action on Your IRS Penalties Today
First time penalty abatement is one of the easiest ways to save thousands—or tens of thousands—of dollars in IRS penalties. If you meet the three requirements (clean three-year compliance history, current on filing, and paid or arranged to pay current taxes), you have essentially a 100% chance of getting your penalties removed.
Remember: You only get one shot at first time penalty abatement for each tax period. Make sure you qualify before you call.
My recommendation: Try calling first. It’s faster and you get an immediate answer. If you can’t get through or prefer written documentation, file Form 843.
If you’re unsure whether you qualify for first time penalty abatement or need help with a more complex penalty situation, reach out to us at Boss Tax Law. We help clients remove penalties regularly and would be happy to schedule a consultation to review your situation and determine how we can help.
Don’t pay IRS penalties unnecessarily. First time penalty abatement could be your ticket to significant tax savings.