The IRS does not routinely grant requests for penalty abatement, but if you have been tax compliant for more than than three years you can get relief via the FTA program, or better still, you may be able to prove reasonable cause to if a situation beyond your control led to non-compliance (i.e. loss of a job, illness, loss of home, spouse left thus a reduction in income)
When a taxpayer disputes interest and penalties that have been assessed by the IRS, the IRS may remove the penalties and interest under the IRS Penalty Abatement program. Some or all of the penalties may be removed if the individual filing for penalty abatement can prove one of the following reasons: 1)reasonable cause; 2) mistake by the IRS; or 3) administrative waiver (FTA) first time abate.
If taxpayers meet the criteria for penalty abatement, they will have to complete and submit several documents to the IRS to prove that they meet requirements. The taxpayer has three ways to plead their case with the IRS: verbal, written, or via IRS form 843. Regardless of which method is used, taxpayers will have to provide good detail and background on why the taxes weren't paid.
To provide penalty relief to taxpayers who have otherwise been compliant for more than three years, the IRS created the First Time Abate (FTA) program. While this program has been in place since 2001, taxpayers aren't always aware of, or informed of, this relief provision. For example, the Treasury Inspector General for Tax Administration reports that the IRS failed to inform 1.45 million taxpayers that they were eligible for this relief. This oversight resulted in the IRS collecting $181 million in penalties that might have been waived.
