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What IRS returns qualify for First-time Penalty Abatement Relief?
For certain failure to file and failure to pay penalties and the failure to deposit penalty (employment tax), the IRS accepts a “First-time Penalty Abatement” defense (see the Internal Revenue Manual Section 184.108.40.206.3.2.1.) First-time penalty abatement (FTA) allows the IRS to remove certain penalties from your account based solely on your clean compliance history.
This type of penalty abatement is not based on cause and is intended to help taxpayers who have an isolated compliance issue. To qualify, you must have had no penalties added to or removed from your account for the previous three years (except for the estimated tax penalty), must have filed, or filed a valid extension, for all required returns, and must be current with all required tax payments.
Forms that qualify for FTA
Not all taxpayers and tax returns qualify for FTA. FTA applies to these forms and only for the failure to file, failure to pay, and failure to deposit (employment tax returns) penalties :
- Income tax returns
- Form 1040 series, U.S. Individual Income Tax Return
- Form 1041, U.S. Income Tax Return for Estates and Trusts
- Form 1065, U.S. Return of Partnership Income1
- Form 1120, U.S. Corporation Income Tax Return2
- Form 1120S, U.S. Income Tax Return for an S Corporation
- Employment tax returns3
- Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form 941, Employer’s Quarterly Federal Tax Return
- Form 943, Employer’s Annual Tax Return for Agricultural Employees
- Form 944, Employer’s Annual Federal Tax Return
- Form 945, Annual Return of Withheld Federal Income Tax
- Excise tax returns
- Form 720, Quarterly Federal Excise Tax Return
- Form 2290, Heavy Highway Vehicle Use Tax Return
FTA does not apply to these returns:
- Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return
- Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return
- Form 990 Series, Return of Organization Exempt from Income Tax
- Form 1096/1099, Annual Summary and Transmittal of U.S. Information Returns (regarding failure to file information statements, such as Forms 1099, W-2G and 1098)
- Form W-3/W-2, Transmittal of Wage and Tax Statements (regarding failure to file Forms W-2)
- Form 5500 Series, Annual Return/Report of Employee Benefit Plan, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, and Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (and other international information returns)
- This list is not inclusive.
If first time abatement does not apply, most penalties have a reasonable cause exception that you can use for penalty relief.
For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.
1 FTA is not available if the penalty is assessed for an incomplete Form 1120-S or Form 1065.
2 FTA is not available for a Form 1120 or 1120-S penalty if during the last three years the return was filed late, even if no penalty was assessed.
3 FTA is not available for any portion of a failure to deposit penalty relating to a failure to use Electronic Federal Tax Payment System (EFTPS).
About the Author
Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.
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