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Is it possible to reduce IRS penalties?

The answer could be yes, depending on your circumstances. Failure-to-file, failure-to-pay and failure-to-deposit penalties will increase your tax bill almost immediately.

First-time penalty abatement (FTA) waivers can eliminate these penalties. The IRS allows you relief for one mistake. Both individuals and businesses can request FTA, but is not available for accuracy-related penalties. In the post, we will discuss FTA requirements.


3 criteria

You must be able to answer yes to the first two questions and no to the third question below:

  • Have you filed all your required returns or sought a valid extension?
  • Have you paid your taxes or arranged to pay them through an installment agreement (are you current with any payment plan)?
  • Were you assessed any tax penalties in the preceding three years?

Even if received reasonable cause relief from a tax obligation in the past, you could still be eligible for FTA.

One year and one-time relief

FTA only applies to one tax year. If you need relief for more than one tax year, the FTA would apply to penalties assessed in the earliest year. If you haven't been able to pay your taxes in 2016, 2015 and 2014, the FTA would apply to the penalties assessed in 2014. Other remedies might apply for the other years such as hardship waivers or currently not collectible status.

Prior to seeking FTA relief, it is best to speak with a tax attorney. Each situation is unique and there could be other remedies available to deal with a growing back tax burden.

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