IRS Penalty Relief: First-Time Penalty Abatement and Reasonable Cause 

Dealing with the Internal Revenue Service (IRS) can be straightforward when you file your tax returns on time and pay your taxes in full. However, falling behind on payments or failing to file promptly can lead to penalties and interest that significantly increase your tax burden. Fortunately, the IRS offers relief options like First-Time Penalty Abatement and Reasonable Cause to help taxpayers resolve these issues. This guide explains both programs, their qualifications, and how they can help you manage IRS penalties.  

 

First-Time Penalty Abatement  

 

First-Time Penalty Abatement is an administrative waiver provided by the IRS to relieve specific penalties for eligible taxpayers. It’s designed to help individuals and businesses who face penalties for the first time, offering a chance to stabilize their financial situation without the added burden of penalties.  

 

How It Works  

 

The IRS waives penalties under certain conditions for taxpayers who have a clean compliance history. This relief is available for both individuals and businesses, and multiple penalties within the same tax period can be abated, regardless of the penalty amount.  

 

Qualifications for First-Time Penalty Abatement  

 

To qualify, you must meet the following criteria:  

• Three-Year Compliance History : No penalties for the three years prior to the tax year in question. If a prior penalty was removed, it must have been for a reason other than First-Time Penalty Abatement.  
• Current Compliance : You must have filed all required tax returns, filed a valid extension of time to file, or be on a payment plan for all taxes due in previous years.  

To verify eligibility, contact the IRS Practitioner Priority Service.  

 

Eligible Penalties  

 

The following penalties may be waived under First-Time Penalty Abatement:  

• Failure to file timely personal tax returns, partnership returns, or S-Corp returns  
• Failure to pay when the payment is past due  
• Failure to pay when the tax was not properly listed on your return  
• Failure to deposit the correct amount within the prescribed time period or in the required manner  

What If You Don’t Qualify?  

 

If you don’t meet the criteria for First-Time Penalty Abatement, you can still seek relief through a Reasonable Cause Request , detailed below. If you file for Reasonable Cause but are eligible for First-Time Penalty Abatement, the IRS will apply the latter automatically.  

 

Reasonable Cause for Penalty Abatement  

 

When First-Time Penalty Abatement isn’t an option, demonstrating Reasonable Cause is another way to reduce or eliminate IRS penalties. The IRS defines Reasonable Cause as exercising “ordinary business care and prudence” to meet your federal tax obligations but being unable to do so due to circumstances beyond your control.  

 

How It Works  

 

Penalties for late filing, late payment, or failure to deposit estimated taxes can double your IRS bill in about seven years if unpaid, due to accruing interest and penalties. By proving Reasonable Cause, you can request the IRS to waive these penalties, provided you can substantiate your inability to comply.  

 

Typical Situations for Reasonable Cause  

 

The IRS considers various circumstances as valid reasons for Reasonable Cause, including:  

• Calamities : Fire, casualty, natural disaster, or other disturbances  
• Record Access Issues : Inability to obtain necessary records  
• Health or Family Issues : Death, serious illness, incapacitation, or unavoidable absence of the taxpayer or immediate family  
• Logistical Challenges : Unavoidable postal delays or absence from the United States  
• Economic Hardship : Inability to pay taxes without causing undue financial strain on basic living expenses, provided you explored other funding options and paid when funds became available  
• Other Circumstances : Any situation where you exercised due diligence but were unable to comply due to external factors  

Note: A lack of funds alone is not sufficient for Reasonable Cause unless it creates significant economic hardship.  

 

Filing a Reasonable Cause Request  

 

To request penalty relief for Reasonable Cause, you must provide a detailed explanation and supporting documentation to prove your inability to comply despite reasonable efforts. If approved, the IRS may reduce or eliminate the penalty amount.  

 

Navigating IRS Penalties  

 

Dealing with IRS penalties can feel overwhelming, but options like First-Time Penalty Abatement and Reasonable Cause provide pathways to relief. The team at Robert V. Boeshaar , Attorney at Law, specializes in helping individuals and small businesses navigate these situations. Whether you’re verifying eligibility for First-Time Penalty Abatement or filing a Reasonable Cause Request, professional guidance can make the process smoother.  

For assistance with IRS penalties, contact Robert V. Boeshaar , Attorney at Law, LL.M., PLLC. Visit our website or call to learn how we can help you resolve your tax issues effectively.