Recently the Internal Revenue Service (IRS) has introduced a new first time abatement (FTA) policy of penalty removal that is available for first-time penalty charges and is based on your compliance history. However FTA relief only applies to a single tax period. For example, if a request for penalty relief is being considered for two or more periods of a taxpayer, and the earliest period meets the FTA criteria, FTA would apply only to the earliest period, and not for all periods. In addition to qualify for the FTA policy, you must have filed all required tax returns and paid, or arranged to pay, all tax currently due.

Keep in mind even if you get the IRS penalty abated and have a valid installment agreement, if you owe more than $10,000 in taxes the IRS may file a Notice of Federal Tax Lien which may harm your credit score. However after you pay the tax in full, you can request to have the Federal Tax Lien released.

Penalty relief under the first time abatement provision does not apply to returns with an event-based filing requirement, such as Form 706, U.S. Estate Tax Return; Form 709, U.S. Gift and Generation-Skipping Transfer Tax Return; Form 1120, U.S. Corporation Income Tax Return; and Form 1120S, U.S. Income Tax Return for an S Corporation if, in the prior three years, at least one Form 1120S was filed late but not penalized. In those cases you can contact the taxpayer advocate, write a letter demonstrating reasonable cause or file a claim for refund using form 843.

If you have many questions or what help in dealing with the IRS please contact Gregory J. Spadea of Spadea & Associates, LLC located in Ridley Park, Pennsylvania at 610-521-0604.