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Back Taxes and Tax Debt

How to Use the IRS’ First Time Penalty Abatement Waiver

Jo Willetts, EA

Director, Tax Resources

Published on: March 31, 2020

Like perfect attendance in school, good behavior is often rewarded in many situations including dealings with the IRS. However, instead of additional free time or less homework, the IRS is more likely to waive relevant penalties and fees provided their qualification requirements have been met. A First Time Penalty Abatement Waiver is one such example of the IRS rewarding good taxpayer behavior, and for those who qualify, a substantial portion of their penalty can be waived as a reward for past compliance and an incentive to continue acting honestly in dealings with the IRS.  There’s only one catch: this benefit can usually only be used once.

What is a Penalty Abatement Waiver?

A First Time Penalty Abatement Waiver is a form of relief provided by the IRS which can remove penalties resulting from a failure to file a tax return, failure to pay a tax debt on time, or to deposit taxes when due. It began in 2001 and only applies to taxpayers who have demonstrated a willingness to comply with tax laws by displaying the following behaviors:

  • A taxpayer was not required to file a return for the three years prior to the tax year in which the penalty was assessed, or did not have any tax penalties assessed in that time
  • All required tax returns or tax return extensions are current and have been filed appropriately
  • Any tax balances due have either been paid or an agreement to pay is already in place

If a taxpayer is currently managing an ongoing tax debt, they may still apply for Penalty Abatement consideration provided their payments are in line with settlement requirements. However, all failure-to-pay fees and penalties will continue to accrue while a decision is made on the taxpayer’s abatement request. For this reason, it may ultimately prove more valuable to wait until the debt is paid in full before requesting a penalty abatement. This strategy presents the best possibility of recouping the total amount of expenses paid towards an IRS penalty or fee.

Remember, a First Time Abatement is only available to taxpayers in good standing. Given the uniqueness of each taxpayer’s situation, timing may play a critical role in saving a taxpayer potentially thousands of dollars depending on when the abatement request is submitted. Interest charged on penalties assessed before the submission of a penalty waiver request will be reduced or removed depending on the outcome of the waiver, and filing an extension is not considered disqualifying provided tax returns are filed by the agreed upon date and the taxes are paid or under a current payment plan. Should a taxpayer submit an abatement request after their debt is paid in full, Form 843 (Claim for Refund and Request for Abatement) must be submitted for review.

Form 843: Claim for Refund and Request for Abatement

Requesting penalty relief can occur either before a taxpayer pays their fines and fees or after the payment has been made. IRS Form 843: Claim for Refund and Request for Abatement, refers specifically to taxpayers who have already paid their fines and would like to request a refund because their infractions represented a first offense. To qualify for this option, taxpayers must file Form 843 within two years of the date the taxes were paid or within three years of the date the return was filed, whichever is latest. Any claims filed after these due dates are usually automatically declined.

However, not all taxes paid can be recovered by filing Form 843 even assuming the application is approved. Generally, this form is used to request an abatement of penalty and interest associated with the taxes and not for the taxes themselves. Additional information on precisely which taxes can be regained through this process and a line-by-line breakdown of how to complete Form 843 is available within the IRS Form 843 Instructions Booklet. Form 843 can be submitted to the IRS via telephone, in writing via regular mail, or online through the IRS website. Jackson Hewitt’s Tax Debt Specialists are familiar with the ins and outs of filing tax abatements, and stand ready to assist through every stage of the process to increase chances of a favorable outcome.

How to appeal a First Time Abatement refusal

Requesting a First Time Abatement—particularly if a taxpayer meets all the requirements to do so — can reap huge benefits in terms of saved or recovered assets. However, simply applying for an abatement does not guarantee approval even if a taxpayer meets all requirements. Should the review of an application result in a partial or complete denial, taxpayers have both the right and the ability to appeal this determination.

Taxpayers are typically notified of denials by receiving IRS Form 854C in the mail within a few months of submitting their abatement application. Form 854C will explain why the request for abatement was declined, what documents and evidence may be submitted in an appeal, and the return address to which any appeal should be sent. Once a decline is issued, taxpayers have 60 days to appeal the decision. If this deadline is missed, a taxpayer loses their right to appeal. When an abatement request is rejected and the taxpayer chooses to file an appeal, the appeal process may involve complex procedures and require a variety of tax documents and records be furnished.

In these situations, the services of a tax professional merit serious consideration to avoid a second rejection and the loss of potentially thousands of dollars of retrievable tax payments. Jackson Hewitt’s Tax Debt Specialists can help make the difference in tough circumstances like these.

How Jackson Hewitt can help

Jackson Hewitt’s team has a wide variety of tools to manage tax issues. Whether simple or complex, our team is trained to work directly with the IRS and keep our clients updated throughout the process. Contact us to learn about our resolution process and see how committed Jackson Hewitt is to working hard for the hardest working.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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