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First-time Tax Penalty: Can a Taxpayer Seek a Penalty Waiver?

The U.S. tax system is based on the premise of voluntary compliance. It is up to each taxpayer to keep track of her or his own tax liability and pay accordingly. Tax penalties are a means used by the IRS toward the end of compliance.

But if you incurred a tax penalty from the IRS, does that mean you are always stuck with paying the full amount? The answer to that is absolutely not! In this post, we will discuss a procedure by which taxpayers who are being penalized for the first time can seek to have the penalty waived.

First, let's be clear about the terminology. The term used by the IRS for eliminating or reducing tax penalties is "abatement."

Getting the IRS to reduce or drop penalties is a surprisingly common practice. For example, an article in Forbes reported last year that in Fiscal Year 2012 the number of penalty abatements topped 5 million.

But penalties rarely go away of their own accord. They are most likely to go away when they are contested. And this is best done with help from an experienced tax attorney.

For taxpayers being hit with a penalty for the first time, there is a particular type of relief called First-Time Abatement (FTA) relief. This relief is potentially available for two of the most common types of tax penalties: failure-to-file and nonpayment.

The premise behind FTA relief is essentially that taxpayers with a history of compliance should get a break. The relief is not automatic; you have to request it. But it may well be worth a try.

Source: Texas Society of Certified Public Accountants, "There's a First Time for Everything: First-Time Penalty Abatement-What They Are and Why You Should Care"

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