Long-time followers of money expert Clark Howard know that one of his key pieces of advice when it comes to income taxes is to always file them on time, even if you can’t afford to pay the total amount due.
We are human, however, and sometimes things get lost in the shuffle or can seem so overwhelming that we just don’t deal with them. So what happens if at some point in the past you failed to file or fully pay your taxes and now the Internal Revenue Service is coming after you for what you owe plus penalties and/or interest?
Luckily, there may be hope for getting the amount the IRS says you owe them reduced by hundreds or even thousands of dollars.
What is First Time Penalty Abatement?
First Time Abatement is an IRS program that “may provide administrative relief from a penalty that would otherwise be applicable,” according to the agency’s web site. To be a little more specific:
“You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service’s First Time Penalty Abatement policy if the following are true:
- You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
- You filed all currently required returns or filed an extension of time to file.
- You have paid, or arranged to pay, any tax due.”
The important thing to know here is that First Time Penalty Abatement will not be applied automatically. It requires you to make a phone call to the number on the notice the IRS has sent you letting you know what you owe them. When you reach an agent, simply ask them if you qualify for the First Time Abatement program. If you do, you will be on your way to saving some serious cash.
A real-world example of First Time Abatement in action
Got a CP14 letter from the IRS saying I owed >$1,200 for failure to file (which is true). I called them and a 25 minute call reduced it to $56, just the interest, due to their “First Time Abatement”. It never hurts to call!
I was just dumb this year and just didn’t file on time for the first time ever. I owed substantially more than normal this year, which I anticipated, but didn’t have the funds in the right account to file and pay before the deadline. I called them and in 25 minutes my penalties were abated and the balance owed went from over $1200 down to just $56 for the interest owed, which they can’t forgive apparently. No problem, I’m thrilled to save nearly $1,200! I figured others might value knowing that the IRS has this policy I didn’t know about (and vicariously celebrate a little with me).
By far the biggest penalty was Failure to File, which you can do even if you don’t pay. If you don’t have the $$, at least file to avoid that penalty.
The IRS has a first time abatement if you are “in good standing” and have a reason for why it happened, even if [it] was dumb and your fault.
The IRS was super easy to work with and very polite. My previous interaction with them was nearly a decade ago and was awful, so I was mentally prepared to just pay so I didn’t have to deal with them. I’m glad I called anyway!
Take special note of point number 3. This person had a positive experience with the IRS, something that would have seemed unlikely in the past, but Team Clark is hearing more and more examples of.
Again, the bottom line is that you won’t know if you’re eligible for this program if you don’t call, so don’t let intimidation be your excuse for not doing it.
As the old saying goes: It never hurts to ask — the worst they can do it say “no.”
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