“What IRS tax 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 20.1.1.3.3.2.1, First-time abate (FTA)).  First-time penalty abatement 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 his or her account for the previous three years (except for the estimated tax penalty), must have filed 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 for the failure to file,  failure to pay penalties, and failure to deposit (employment tax returns):

  • 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 Income
    • Form 1120, U.S. Corporation Income Tax Return
    • Form 1120S, S. Income Tax Return for an S Corporation
  • Employment tax returns
    • 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
  • Form 5471, 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)

An important note – tax-exempt membership associations who have to file Form 990 are often given first time abatement.  They do not get the first-time penalty abatement waiver but are given a more lenient standard for penalty relief.

If first time abatement does not apply, most penalties have a reasonable cause exception that you can use for penalty relief.

Keep researching, or ask us for help…

Need more information about IRS tax issues? We have you covered. Choose the option below that’s best for you.