First Time Penalty Abatement: How to Get IRS Penalties Removed

First Time Penalty Abatement is an IRS administrative waiver that removes failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean three-year compliance history. Established under Internal Revenue Manual §20.1.1.3.6.1, FTA is available to both individual and business taxpayers and can eliminate thousands of dollars in penalties without requiring proof of reasonable cause or hardship.

What Is First Time Penalty Abatement?

First Time Penalty Abatement is not a law passed by Congress. It is an internal IRS policy documented in IRM 20.1.1.3.6.1 that gives IRS employees the authority to waive certain penalties for taxpayers who have maintained a clean compliance record. The IRS created FTA to acknowledge that otherwise compliant taxpayers occasionally experience a single lapse in filing or payment and should not be permanently penalized for that lapse.

The IRS assessed approximately $44.5 billion in civil penalties during fiscal year 2022, according to IRS Data Book Table 17. A significant portion of those penalties were eligible for removal through FTA, yet many taxpayers never requested relief because they did not know the program existed. Unlike reasonable cause abatement, which requires documentation of specific hardships, FTA is a straightforward administrative check that an IRS representative can process during a single phone call. The penalty abatement process begins with understanding whether FTA or reasonable cause is the stronger path for your specific situation.

FTA was designed as a one-time benefit. Once a taxpayer uses FTA for a particular tax period, the three-year compliance clock resets. The taxpayer must maintain another three consecutive years of clean compliance before becoming eligible again. This reset mechanism ensures the program rewards genuinely compliant taxpayers rather than becoming a recurring escape from penalties.

Who Qualifies for First Time Penalty Abatement?

The IRS evaluates three criteria when determining FTA eligibility, and all three must be satisfied. First, the taxpayer must have a clean penalty history for the three tax years preceding the year in question. "Clean" means no penalties were assessed during that period, or any penalties that were assessed were subsequently removed through reasonable cause or other relief. Minor estimated tax penalties under IRC §6654 do not count against the taxpayer for FTA purposes.

Second, all required tax returns must be currently filed or the taxpayer must have a valid extension in place. If you have unfiled tax returns from prior years, those must be filed before the IRS will consider FTA for any tax period. According to IRS filing statistics, approximately 7.5 million taxpayers fail to file required returns each year, and many of these taxpayers are unaware that filing those delinquent returns is the first step toward unlocking penalty relief.

Third, the taxpayer must have paid all tax due or must be enrolled in an approved IRS payment plan. If you owe a balance but are making payments under an installment agreement, you still qualify for FTA. This third requirement ensures the IRS is not waiving penalties for taxpayers who have made no effort to resolve their outstanding balance. Tax Forgiveness Pro, backed by a licensed law firm, reviews your IRS account transcripts to verify all three criteria are met before submitting your FTA request.

Which Penalties Does FTA Remove?

FTA applies to three specific penalty categories. The failure-to-file penalty under IRC §6651(a)(1) accrues at 5% of the unpaid tax for each month or partial month the return is late, up to a maximum of 25% of the tax due. The failure-to-pay penalty under IRC §6651(a)(2) accrues at 0.5% of the unpaid tax per month, also capping at 25%. The failure-to-deposit penalty under IRC §6656 applies to late employment tax deposits and ranges from 2% to 15% depending on how late the deposit was made.

FTA does not cover every type of IRS penalty. Accuracy-related penalties under IRC §6662, which include penalties for negligence, substantial understatement of income, and substantial valuation misstatements, are not eligible for FTA. Fraud penalties under IRC §6663 are also excluded. The estimated tax penalty under IRC §6654 is technically not covered by FTA either, though as noted above, it does not disqualify a taxpayer from using FTA on other penalties. The IRS collected $2.4 billion in failure-to-file penalties and $2.3 billion in failure-to-pay penalties in fiscal year 2022, making these two categories the most common targets for FTA relief.

For taxpayers with penalties across multiple tax years, FTA can only be applied to one tax period per request. A licensed tax professional will analyze your complete penalty history and apply FTA to the year that produces the largest dollar reduction, then pursue reasonable cause or other abatement strategies for the remaining years. This strategic approach maximizes total penalty savings across your entire account.

How Do You Request First Time Penalty Abatement?

There are three methods for requesting FTA, and the best approach depends on the complexity of your case. The fastest method is a phone call to the IRS. When you call the IRS Practitioner Priority Service line or the general collections line, the representative can check your three-year compliance history in real time and approve FTA during the same call. Phone requests work best for a single tax year with a balance under $25,000 where the compliance history is clearly clean.

The second method is a written request using IRS Form 843, Claim for Refund and Request for Abatement. Form 843 is required when you have already paid the penalties and want a refund. Under IRC §6511, you must file a refund claim within 2 years of the payment date or 3 years of the filing date, whichever is later. The form requires you to specify the penalty type, the tax period, and the specific grounds for abatement. For FTA, the grounds are simply that you meet the three administrative criteria.

The third method is requesting penalty abatement during an audit, examination, or collections proceeding. If you are already working with an IRS Revenue Officer or are under examination, your representative can raise FTA as part of the broader case resolution. Tax Forgiveness Pro handles all three methods and determines which approach gives you the highest probability of approval and the fastest resolution. Our team files the request, manages all IRS correspondence, and escalates denied claims through the IRS Independent Office of Appeals when appropriate.

How Does FTA Compare to Reasonable Cause Relief?

First Time Penalty Abatement and reasonable cause relief are the two primary paths to removing IRS penalties, but they operate on fundamentally different criteria. FTA is an administrative waiver based on compliance history. No documentation of hardship is required. If you meet the three criteria described above, the IRS must grant the waiver regardless of why you filed or paid late. Reasonable cause abatement under IRM 20.1.1.3.2 requires the taxpayer to demonstrate that they exercised ordinary business care and prudence but were nevertheless unable to comply with the tax obligation.

The IRS considers specific circumstances when evaluating reasonable cause, including fire, casualty, or natural disaster that destroyed records; death or serious illness of the taxpayer or an immediate family member during the filing or payment period; inability to obtain necessary records despite diligent effort; and erroneous written advice from the IRS itself. Each of these grounds requires supporting documentation such as medical records, insurance claims, FEMA disaster declarations, or copies of IRS correspondence. According to IRS statistics, the IRS processes over 5 million penalty abatement requests annually, and the approval rate is significantly higher when claims are supported by specific documentation.

A critical strategic point: FTA and reasonable cause can be used together, but not for the same penalty on the same tax year. If FTA is denied or has already been used, reasonable cause remains available as a fallback. Tax Forgiveness Pro, backed by a licensed law firm, evaluates both options for every penalty on your account and applies the strategy that produces the highest total abatement. When FTA handles the largest penalty year, reasonable cause arguments can target the remaining years, maximizing total savings across your entire account.

How Much Can First Time Penalty Abatement Save You?

The savings from FTA depend on the size of your unpaid tax balance, how long the penalties have accrued, and which penalties apply. Consider a taxpayer who owed $50,000 in taxes and filed five months late. The failure-to-file penalty at 5% per month for five months adds $12,500 to the balance (25% of the $50,000 tax due). The failure-to-pay penalty at 0.5% per month for the same period adds $1,250. Under IRC §6651(c)(1), when both penalties run simultaneously, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined penalty for those five months is $12,500 rather than $13,750. FTA applied to this tax year would eliminate the full $12,500 in failure-to-file penalties and the $1,250 in failure-to-pay penalties for a total savings of $13,750 in one request.

The savings extend beyond the penalty amount itself. Penalties accrue interest from the date they are assessed under IRC §6601. At the current IRS interest rate of 8% compounded daily, a $12,500 penalty generates approximately $1,000 in additional interest over 12 months. Removing the penalty also stops future interest from accruing on that amount, so the true value of FTA often exceeds the face value of the penalty by 10% to 20% over the life of the account.

For business taxpayers with failure-to-deposit penalties, the savings can be even larger. Employment tax penalties under IRC §6656 range from 2% for deposits one to five days late up to 15% for deposits more than 10 days late. A business with a $200,000 quarterly payroll tax deposit that is 15 days late faces a $30,000 penalty. FTA can eliminate that entire amount in a single request if the business has a clean three-year compliance history. Tax Forgiveness Pro reviews your complete IRS account transcripts, identifies every penalty eligible for abatement, and pursues the combination of FTA and reasonable cause that produces the maximum total reduction.

If you are facing IRS penalties and believe you may qualify for First Time Penalty Abatement, acting quickly protects your refund rights and stops additional interest from accruing. The penalty abatement service at Tax Forgiveness Pro includes a full transcript review, strategic FTA application, and reasonable cause backup for any penalties FTA does not cover. Our attorney-backed team handles the entire process from initial analysis through IRS appeals if needed.