IRS Penalties – First Time Abate (IRM)

20.1.1.3.3.2.1 (11-21-2017)
First Time Abate (FTA)
  1. IRS provides administrative relief from the following penalties if the qualifying criteria contained in this subsection are met:
    1. Failure to file (FTF) penalty under IRC 6651(a)(1), IRC 6698(a)(1), or IRC 6699(a)(1),
    2. Failure to pay (FTP) penalty under IRC 6651(a)(2) and/or IRC 6651(a)(3), and
    3. Failure to deposit (FTD) penalty under IRC 6656.

  2. This administrative waiver, implemented in 2001, is referred to as First Time Abate (FTA) and is available for penalty relief the first time a taxpayer is subject to one or more of the referenced penalties for a single return. When FTA criteria have otherwise been met, do not provide penalty relief under the FTA waiver unless the following are true:
    1. The taxpayer has filed, or filed a valid extension for, all required returns currently due, AND
    2. The taxpayer has paid, or arranged to pay, any tax currently due.
      Note:

      Although reported as a tax on Form 1040, this does not include an unpaid Shared Responsibility Payment (SRP) applicable under IRC 5000A(b).

    • When determining if the taxpayer has filed, or filed a valid extension for, all returns currently due, consider the taxpayer current with this requirement if the taxpayer states they filed any missing return or extension to file whose due date is 45 days or fewer than the current date. For returns or extensions to file whose due date is more than 45 days from the current date, secure a processable copy of each return and/or extension.
      Example:

      If considering penalty relief on May 25, 2017 and the taxpayer otherwise meets FTA criteria but we have no record their 2016 Form 1040 nor an extension of time to file has been filed, consider the taxpayer current for the 2016 Form 1040.

    • When determining if the taxpayer has paid, or arranged to pay, any tax currently due, consider the taxpayer current with this requirement if he or she has an open installment agreement and is current with his or her installment payments.

  3. The Reasonable Cause Assistant (RCA) is programmed to determine if FTA criteria are met. Refer to IRM 20.1.1.3.6, Reasonable Cause Assistant, for RCA policy and additional FTA guidelines when RCA is used.
    Exception:

    RCA is unable to determine if the taxpayer has filed all returns and paid, or arranged to pay, all tax currently due. The account must be reviewed manually to determine if these criteria have been met prior to removing any penalties under the FTA waiver.

  4. The following FTA waiver eligibility criteria applies to all taxpayers:
    Note:

    When determining if FTA criteria are met, the criteria below applies to the same MFT as the penalized MFT unless the penalized MFT is 01, 14, 30, or 31. If the penalized MFT is 01 or 14, the criteria applies to both MFTs 01 AND 14. If the penalized MFT is 30 or 31, the criteria applies to both MFTs 30 AND 31.

    1. The tax period ending date is later than Dec. 31, 2000, and
    2. The taxpayer has not been required to file the same return, or no tax modules for the same return are in TDI Status 02, 03, or 04 (IMF), for the 3 years preceding the penalized tax period (see Exception), and
    3. If required to file the same return during the preceding 3 years, has no unreversed penalties (except an estimated tax penalty, TC 17X) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ and a notice was issued showing the assessed penalty or penalties (a module balance cleared with a TC 606 indicates a notice showing the assessed penalty or penalties was not issued), and
    4. If required to file the same return during the preceding 3 years, has no penalties manually suppressed or reversed with Penalty Reason Code (PRC) 018 (FTA, RCA not used), 020 (FTA, RCA used), or 021 (Tolerance). See Exhibit 20.1.1-2, Penalty Reason Code Chart (see Exception).
      Exception:

      If subsequent information shows the taxpayer was either not required to file a return or that they did in fact comply and were not subject to any penalty on a module on which a penalty abatement was input with PRC 018, 020, or 021, consider the taxpayer compliant for that module.

  5. When determining if FTA criteria are met for penalties assessed on MFT 30 or 31, the taxpayer(s) must meet FTA criteria on all returns required to be filed as a primary and secondary taxpayer, if applicable.
    Example:

    If the filing status of the return on the penalized period is Married Filing Joint and the required returns in the preceding 3 years were not filed under the same primary SSN and with the same filing status and same primary and secondary SSNs, FTA criteria for both SSNs must be met.

    Example:

    If the filing status on the return on the penalized period is other than Married Filing Joint and the taxpayer filed, or was required to file, as a secondary taxpayer during the preceding 3 years, FTA criteria must be met for all returns on which the taxpayer was reported, or was required to be reported, as the secondary taxpayer on a joint return.

  6. In addition to the criteria in paragraph (4), FTA criteria will not be met on BMF accounts if any of the following is true:
    1. A total of four or more FTD penalty waiver codes are present in the taxpayer’s three-year penalty history. Waiver Code 24 is set when the FTD penalty is waived due to a change in deposit frequency. Waiver Code 25 is set when the FTD penalty is waived per IRM 20.1.4.3, Restrictions on Assessments, criteria. Waiver codes, if posted, are shown in Command Code (CC) BMFOL definer R with the literal FTD PEN WAIVER CD.
    2. The FTD penalty is charged for EFTPS avoidance. However, if the taxpayer made some deposits electronically by EFTPS as required but not all and all other FTA criterion are met, any portion of an FTD penalty not attributable to EFTPS avoidance can be removed or suppressed. If the portion of the penalty attributable to EFTPS avoidance meets IRM 20.1.4.3, Restrictions on Assessments, criteria, remove the penalty in full.
    3. For a Form 1120, U.S. Corporation Income Tax Return, or Form 1120-S penalty, a Form 1120-S, U.S. Income Tax Return for an S Corporation, in the 3-year look-back period was filed late but not penalized.
      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. The penalty is charged for an incomplete Form 1120-S under IRC 6699(a)(2) or Form 1065 under IRC 6698(a)(2). See IRM 20.1.2.5, Failure to File S Corporation Return-IRC 6699, and IRM 20.1.2.3, Failure to File a Partnership Return. An incomplete return penalty is assessed on MFT 02 or 06 with a TC 246 or a TC 240 without a 3-digit penalty reference number (PRN). Taxpayers that file an incomplete Form 1120-S or Form 1065 are provided an opportunity to submit the missing information before the incomplete return penalty is assessed.

  7. In addition to the criteria contained in paragraphs (4)-(6), penalty relief under the FTA waiver does not apply to the following:
    • Returns with an event-based filing requirement, generally returns filed once or infrequently such as Form 706, U.S. Estate Tax Return, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
    • The daily delinquency penalty (DDP), see e.g., IRC 6652(c)(2)(A) and IRM 20.1.8, Employee Plans and Exempt Organization Penalties.
    • Information reporting that is dependent on another filing, such as various forms that are attached.
      Example:

      Penalties assessed against a late-or unfiled Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, or Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. See IRM 20.1.9, International Penalties.

    • This list is not all inclusive.

  8. FTA is an administrative waiver and does not carry any oral statement authority (OSA) threshold. See IRM 20.1.1.3.1, Unsigned or Oral Requests for Penalty Relief, for OSA guidelines.

  9. As stated in paragraph (2), penalty relief under the FTA waiver only applies to a single tax period. Further, penalty relief under the FTA waiver only applies to a tax period for which the qualifying criteria in paragraphs (4)-(6), as applicable, have been met. In addition, the FTA waiver is not applicable based solely on a taxpayer’s first request for penalty relief.
    Example:

    If a Form 941 filer was compliant for calendar years 2013, 2014, and 2015 but made late deposits and was assessed FTD penalties on all 4 2016 tax periods, FTA criteria can only be met and the waiver applied to the tax period ended 201603. Reasonable cause criteria must be met for tax periods 201606, 201609, and 201612.

    Example:

    If the same Form 941 filer was not compliant during calendar year(s) 2013, 2014, and/or 2015 but didn’t request penalty relief for those years and their first request for penalty relief is for the 4 FTD penalties on their 2016 returns, penalty relief under the FTA waiver is not appropriate for any of the 2016 penalties.

  10. An FTA waiver is not penalty-specific. In other words, if the taxpayer has any unreversed penalties (except an ES penalty) on a module in the 3-year look-back period, or any penalties reversed with PRC 018, 020, or 021, the FTA waiver does not apply to any penalty on the module under consideration.
    Example:

    If a taxpayer was assessed an FTD penalty and no other penalties on Form 941 for tax period 201703 and a review of the 3-year look-back period shows an unreversed FTP penalty ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ (and a notice was issued), or the FTP penalty was removed with PRC 018, 020, or 021, the FTA waiver does not apply for 201703 tax module.

  11. Per IRM 20.1.1.3, penalty relief under Administrative Waivers, including FTA, is to be considered and applied before reasonable cause. If FTA criteria are met, the FTA waiver will be applied before reasonable cause and the taxpayer must be notified that we removed their penalty or penalties based on their prior history of compliance and not based on their reasonable cause statement.
    Caution:

    Do not provide relief under the FTA waiver if there is clear and convincing evidence that the taxpayer did in fact comply and is not subject to any penalties or if the penalty or penalties is/are the result of an IRS error. Take appropriate corrective actions that will result in systemic reversal of the penalty or penalties. If the module is restricted from removing the penalty or penalties systemically or the penalty or penalties is/are clearly the result of an IRS error then input the penalty abatement transaction(s) with penalty reason code (PRC) 045.

  12. When penalty relief under the FTA waiver is granted, notify the taxpayer we have removed the penalty or penalties based on their prior history of compliance and not based on a reasonable cause explanation provided, if applicable. Correspondex Letters 168C, 3502C (RCA only), and 3503C (RCA only), as well as ICS (integrated collection system) macro letters 4722, 4723, and 4724, contain appropriate paragraphs to use for this notification requirement. The following is an example of this paragraph:
    Example:

    We approved your request to remove the penalties. However, we only granted penalty relief because you have a good history of filing and paying on time. This type of penalty removal is only available one time. We will base our decisions to remove any future penalties on reasonable cause criteria.

    Note:

    When applicable, include an explanation that educates the taxpayer how to be compliant in the future. Examples of when an explanation may not be applicable include deceased taxpayers and telephone contacts during which an explanation was provided verbally.

  13. If the tax is not paid in full on the module that meets FTA criteria and the taxpayer is current with installment agreement payments (and has filed all returns currently due), allow abatement of the FTP penalty under the FTA waiver determined to the current date and use reason code (RC) 062 with the TC 271. While the FTA waiver is an administrative waiver and not reasonable cause, the RC 062 will not restrict Master File from continuing to compute the FTP penalty on the unpaid tax and is to be used in this instance only.
    Note:

    An open paragraph must be used in Correspondex Letters 168C, 3502C, and 3503C to inform the taxpayer that the FTP penalty will continue to apply to the unpaid tax. After the tax is paid in full, the additional FTP penalty can be removed under the FTA waiver.

    Caution:

    If the tax is paid in full or the taxpayer has agreed to pay the balance owed immediately upon receipt of notice of abatement of the penalty (see IRM 20.1.2.1.4.1(9)), allow abatement or suppression of the assessed amount of FTP penalty (i.e., input TC 270 for $0.00 if the module only reflects accrued FTP). On IMF modules, use RC 065.

  14. Per IRM 20.1.1.5.1, a PRC is required when abating an assessed penalty or suppressing a penalty that is otherwise applicable. The FTA waiver carries its own PRCs as follows:
    • PRC 018 – To be used when an independent determination of the taxpayer’s eligibility for penalty relief under the FTA waiver is made. This includes situations where RCA is used but RCA did not determine FTA criteria have been met.
    • PRC 020 – To be used when RCA is used and RCA displays a message indicating the module under review meets FTA criteria. This includes situations where RCA displays a message indicating one or more modules in the 3-year history have been moved to the retention register and manual review of the module(s) moved to the retention register confirms FTA criteria have been met.

  15. Taxpayers are not required to specifically request penalty relief under the FTA waiver to be eligible for the waiver. If one or more penalties eligible for relief under the FTA waiver remain after all account discrepancies have been corrected, and/or are being proposed in the course of an examination, abatement or suppression of the penalty or penalties should be made if all FTA criteria have been met.

 

20.1.1.3.6.1 (11-21-2017)
RCA and First Time Abate (FTA) Consideration
  1. Refer to IRM 20.1.1.3.3.2.1, First Time Abate (FTA), for all eligibility criteria for penalty relief under the FTA administrative waiver.
  2. RCA has been programmed to determine if FTA criteria are met under most conditions. However, RCA is unable to review any modules in the 3-year look-back period that have been moved to the retention register. If RCA determines FTA criteria may be met based on any modules that have not been moved to the retention register AND one or more modules in the 3-year look-back period has/have been moved to the retention register, RCA will display a warning message.
    1. As stated on the warning message, modules in the 3-year look-back period that have been moved to the retention register must be reviewed manually to determine if FTA criteria are met.
    2. When the Ok button is selected in the warning message, RCA next displays the First Time Abate dialog message. Cancel must be selected if manual review of the module(s) moved to the retention register shows FTA criteria have not been met.
    3. In cases where at least one module in the 3-year look-back period has been moved to the retention register, RCA has not performed a thorough analysis to determine if FTA criteria are met. If manual review verifies FTA criteria have been met, use Penalty Reason Code (PRC) 020 with the adjustment transaction(s).

  3. As stated in IRM 20.1.1.3.6, RCA is currently only programmed to review BMF modules on MFTs 01, 10, 11, 14, and 16 and only if an FTD penalty greater than $0.00 is present:
    1. If an FTD penalty of greater than $0.00 is present AND FTF and/or FTP penalties are also present, the FTA recommendation by RCA applies to all penalties.
      Exception:

      If at least one module in the 3-year look-back period has been moved to the retention register and manual review shows FTA criteria have not been met, no penalties will be removed under the FTA waiver.

    2. If an FTD penalty of greater than $0.00 is NOT present but an FTF and/or FTP penalty is, RCA does not perform the FTA analysis for any user type. However, RCA will allow revenue officer (RO) users to process a penalty abatement transaction, if applicable, through RCA. Although the RCA Adjustment Data screen contains a message indicating RCA does check for FTA criteria under this condition, it does not. The account must be reviewed manually to determine if FTA criteria are met (see IRM 20.1.1.3.3.2.1). If FTA criteria are met, select PRC 018 from the drop-down list. Do not use PRC 020.

  4. If the MFT reviewed is 30 or 31, RCA will perform an analysis to determine if the tax on the module is fully paid:
    • If the tax is fully paid, RCA will use Reason Code (RC) 065 (and PRC 020) with the adjustment and will default either the total amount of the FTP penalty assessed on the module with the TC 271 or it will default TC 270 for $0.00 if the module contains only accrued FTP.
    • If the tax is not fully paid, RCA will use RC 062 (and PRC 020) with the adjustment and will default the total FTP penalty computed to the current date for the TC 271.
    • If the TC 271 amount defaulted by RCA is incorrect, the amount must be edited before transmitting the adjustment.

    Note:

    If RCA does not display the FTA message but it’s subsequently determined FTA criteria have been met, use PRC 018 if the tax on the module is paid in full. Use PRC 020 if the tax is not paid in full. For MFTs 30 & 31, RCA will default RC 062 with PRC 020 if the tax is not fully paid but it is not currently programmed to use RC 062 with PRC 018.

  5. If the MFT reviewed is 01, 10, 11, 14, or 16, RCA currently will NOT perform an analysis to determine if the tax on the module is fully paid, nor is RCA programmed to use RC 062 with PRC 018 or 020. If the tax on the module is NOT paid in full and PRC 018 or 020 will be used:
    1. Users that are NOT profiled as an RO user (CRs, TEs, etc.) – If a TC 271 is added to the RCA Adjustment Data screen, it will be necessary to add 062 to the first RC field on the CC ADJ54 screen in IDRS before transmitting the adjustment.
    2. Users profiled as an RO user – At this time, there are no options to add RC 062 to the adjustment either before selecting Ok on the RCA Adjustment Data screen nor by Centralized Case Processing (CCP) prior to the adjustment being transmitted. This section will be updated if programming changes can be input to allow for use of RC 062 with PRC 018 or 020 on BMF modules.

  6. Per IRM 20.1.1.3.3.2.1, individual taxpayers must be compliant as primary or secondary filers with all required returns in the 3-year look-back period. RCA programming was updated in Jan. 2017 to review the history of 2 or more SSNs under most conditions. However, if RCA displays the First Time Abate message when accessed on a module on MFT 30 or 31, it will be necessary to manually review the 3-year history to verify all FTA criteria have been met (see IRM 20.1.1.3.3.2.1). If not, select Cancel and proceed with RCA for a reasonable cause determination.

  7. Per IRM 20.1.1.3.3.2.1, penalty abatement under the FTA waiver will only be made if the taxpayer has:
    1. Filed, or filed a valid a valid extension for, all required returns currently due, AND
    2. The taxpayer has paid, or arranged to pay, any tax currently due.

      RCA is currently unable to determine if these requirements have been met and the account must be reviewed manually for this determination.

  8. Per IRM 20.1.1.3.3.2.1, penalty relief under the FTA waiver doesn’t apply to any portion of a FTD penalty assessed for EFTPS avoidance. At this time, RCA is unable to determine if only a portion of an FTD penalty was charged for EFTPS avoidance and will not display the First Time Abate message if the Penalty Computation Code (PCC) used with the TC 18X is one that indicates an avoidance credit is posted (see IRM 20.1.4.14.3).
    • In this situation, RCA will display “EFTPS Avoidance” in the Alerts on the Module Home Screen. The account can be reviewed manually to determine if FTA criteria are otherwise met.
      Note:

      The Penalty History section of the RCA Module Home screen can be used as a quick reference to determine if FTA criteria have not been met as this will reflect any unreversed penalties in the 3-year look-back period for modules that have not been moved to the retention register. Even if all modules in the 3-year look-back period are reflected and all reflect ‘No Penalties’, the account must be reviewed manually to determine if all FTA criteria have been met.

  9. RCA will also display a FTA window on a BMF account when the taxpayer has a change in deposit frequency. Employees need to be aware this is different than a FTA for a good compliance history and use the appropriate PRC when removing the penalty for a first-time change in deposit frequency.



OLDER VERSIONS

 

20.1.1.3.6.1 (08-05-2014)

First Time Abate (FTA)

  1. RCA provides an option for penalty relief for the FTF (IRC 6651(a)(1), IRC 6698(a)(1), and IRC 6699(a)(1)); FTP (IRC 6651(a)(2) and IRC 6651(a)(3)); and/or FTD (IRC 6656) penalties if the following are true for the taxpayer:

    1. Has not previously been required to file a return or has no prior penalties (except the estimated tax penalty, TC 17X) for the preceding 3 years on the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (5)(f)), and

    2. Has filed, or filed a valid extension for, all currently required returns and paid, or arranged to pay, any tax due.

      Example:
      Consider the taxpayer current if he or she has an open installment agreement and are current with his or her installment payments.

    Note:
    If the taxpayer is not currently in compliance per (1)(b) but all other FTA criteria are met, provide the taxpayer an opportunity to fully comply before considering reasonable cause.

    First-time abate (FTA) is an administrative waiver and does not carry any oral statement authority (OSA) dollar threshold. See IRM 20.1.1.3.6.3 for additional OSA information. Also, FTA carries its own PRCs, 018 for non-RCA/manual look-back, or 020 for RCA being used to make the determination. See IRM 20.1.1.3.6.2.

  2. A penalty assessed and subsequently reversed in full will generally be considered to show compliance for that tax period unless the exception in (5)(c) applies. RCA considers fully reversed penalties in its FTA analysis.

  3. The FTA administrative waiver can only apply to a single tax period for a given MFT. For example, if a request for penalty relief is being considered for 2 or more tax periods on the same MFT and the earliest tax period meets FTA criteria, penalty relief based on FTA only applies to the earliest tax period, not all tax periods being considered. Penalty relief for all subsequent tax periods will be based on the showing of reasonable cause (and, as applicable, an absence of willful neglect).

  4. The reasonable cause explanation provided by the taxpayer will be considered after RCA performs the FTA analysis. If FTA criteria does not apply based on reasons shown in (5) below, then the taxpayers explanation will be used to determine if reasonable cause penalty relief criteria is met (see Note in paragraph (1)). If the RCA determination is to abate the penalty(ies), penalty relief can be granted as appropriate per the RCA conclusion (i.e., reasonable cause, official disaster relief area, IRS error, Statutory and administrative waivers). Using the FTA analysis up front was based on a request from HQ Customer Accounts Services.

  5. A FTA conclusion WILL NOT apply if any of the following criteria applies:

    1. Any tax period in the prior 3 years, for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (5)(f)), is in TDI Status 02 or 03, or IMF Status 04.

    2. An unreversed penalty for a significant amount (see Caution for an explanation of significant amount) is present (except the ES penalty) on any tax period in the prior 3 years, for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (5)(f)), and a notice was issued showing the assessed penalty(ies).
      Caution:
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Note:
      A module balance cleared with a TC 606 indicates a notice showing the assessed penalty(ies) was not issued.

    3. Any penalty reversal or penalty suppression input with Penalty Reason Code (PRC) 018 (FTA, RCA Not Used), 020 (FTA, RCA Used), or 021 (Tolerance) on any tax period in the prior 3 years for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (5)(f)). See Exhibit 20.1.1-2, Penalty Reason Code Chart.

      Additional criteria specific to BMF accounts is listed in 5(d), 5(e), and 5(f) below.

    4. Any portion of a FTD penalty charged for EFTPS avoidance. Taxpayers required by law to deposit using EFTPS have received multiple notifications from the treasury financial agent (TFA) and the Electronic Tax Administration (ETA) prior to their required EFTPS start date. Use RCA for normal penalty relief consideration.
      Note:
      Beginning Jan. 1, 2011, all required deposits must be made by EFTPS, and the TFA/ETA notifications were discontinued. However, this criterion will continue to apply.

    5. A total of four or more FTD penalty waiver codes are present in the taxpayer’s three-year penalty history for the same MFT (see the exception for MFTs 01 and 14 in paragraph (5)(f)). Waiver Code 24 is set when the FTD penalty is waived due to a change in deposit frequency. Waiver Code 25 is set when the FTD penalty is waived per IRM 20.1.4.3, Restrictions on Assessments, criteria. When a waiver code applies, the applicable waiver code will be shown with the literal “FTD PEN WAIVER CD” on CC BMFOL definer “R.” RCA will check the taxpayer’s three-year history for the presence of four or more waiver codes.

    6. The three-year penalty history for either MFT 01 (Form 941, Employer’s Quarterly Federal Tax Return) or MFT 14 (Form 944, Employer’s Annual Federal Tax Return) must include a review of both MFT 01 AND MFT 14 accounts.
      Example:
      Taxpayer A files Form 944 for tax year 2010 and is assessed a FTD penalty (TC 186) on the MFT 14 account. For all years prior to tax year 2010, the taxpayer filed Form 941. The MFT 01 account for the 2nd quarter of 2009 (200906) has unreversed FTD, FTF, and FTP penalties; therefore, the taxpayer does not qualify for FTA relief on the MFT 14 account for 2010 (201012).

  6. When checking the three-year penalty history, RCA does not recognize any module(s) that has moved to the retention register. This should not be a problem when using RCA on current tax periods; however, when using RCA for an older tax period, the employee must manually review any tax period(s) in the three-year penalty history that has gone to the retention register.

  7. If RCA determines a first-time abate is applicable, correspondex Letter 3502C (for BMF FTD penalty relief) or Letter 3503C (for IMF FTF and/or FTP penalty relief) can be generated through RCA and IDRS. Both letters contain a paragraph automatically selected by RCA informing the taxpayer that the penalty(ies) was removed based on his or her history of compliance. The following is an example of this paragraph:

    We are pleased to inform you that your request to remove the (use applicable penalty, i.e. failure to file, failure to pay, or failure to deposit) penalty(ies) has been granted. However, this action has been taken based solely on your compliance history rather than on the information you provided. This type of penalty removal is a one-time consideration available only for a first-time penalty charge. IRS will base decisions on removing any future (failure to file, failure to pay, failure to deposit) penalties on any information you provide that meets reasonable cause criteria. You should receive a notice of penalty adjustment within the next few weeks.

    Note:
    Include an explanation that educates the taxpayer how to be compliant in the future.

  8. First-time abatement may be considered for FTF (assessed under IRC 6651(a)(1), IRC 6698(a)(1), or IRC 6699(a)(1)) and/or FTP (IRC 6651(a)(2) and IRC 6651(a)(3)) on all returns (except those listed in (9) below). The employee must check the three prior years, and all subsequent periods already due, and document the clean compliance history. If RCA is not used to consider first-time relief and relief is granted, use PRC 018 when making the adjustment. Notify the taxpayer that the penalty removal was based on his or her history of compliance rather than on the information he or she provided (see example paragraph above). Also include an explanation that educates the taxpayer about how to be compliant in the future.
    Note:
    If RCA does not offer FTA relief because the FTD penalty was charged for EFTPS avoidance, FTA relief can still be granted for the FTF and/or FTP penalties, if applicable.

  9. Penalty relief under FTA does not apply to the following:
    • Returns with an event-based filing requirement, generally returns filed once or infrequently such as Form 706, U.S. Estate Tax Return, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
    • The daily delinquency penalty (DDP), see e.g., IRC 6652(c)(2)(A).
    • Form 1120, U.S. Corporation Income Tax Return/Form 1120-S, U.S. Income Tax Return for an S Corporation if, in the prior 3 years, at least 1 Form 1120-S, was filed late but not penalized.
    • Information reporting that is dependent on another filing, such as various forms that are attached.

    Note:
    This list is not all inclusive.

  10. If the tax is not paid in full on the tax period when the request for abatement is received and the taxpayer is current with installment agreement payments, allow first-time abate/clean compliance history on the failure to pay (FTP) penalty amount assessed. Use RC 062 with the TC 271 and PRC 018 or 020. This will allow the FTP penalty to start up when the TC 271 posts to Master File on the remaining tax due. While the first-time abatement is due to an administrative waiver, not reasonable cause, the RC 062 will not restrict the tax period and is to be used in this instance only. The proper use of the PRC will allow for the tracking of first-time/compliance history abatements.
    Note:
    The employee will need to use the open paragraph in Letter 3502C or Letter 3503C to inform the taxpayer that the FTP penalty will start accruing again on the unpaid taxes and will continue until the tax is paid in full. After the tax is paid in full, the taxpayer may request abatement of the additional FTP penalty. Use PRC 018 or 020.

  11. If the tax is fully paid, the FTA adjustment to the FTP (TC 271) may be done using RC 065 (IMF accounts) with PRC 018 or 020 as the restrictive action will not have a negative effect. Adjustment notices will be sent in both abatement instances.

  12. RCA will also display a FTA window on a BMF account when the taxpayer has a change in deposit frequency. Employees need to be aware this is different than a FTA for a good compliance history and use the appropriate PRC when removing the penalty for a first-time change in deposit frequency.



OLDER VERSIONS (showing changes made)

20.1.1.3.6.1 (12-11-2009)
20.1.1.3.6.1 (11-25-2011)
20.1.1.3.6.1 (04-05-2013)
First Time Abate (FTA)

  1. RCA provides an option for penalty relief for the FTF (IRC 6651(a)(1), IRC 6698, & IRC 6669), FTP (IRC 6651(a)(2) & IRC 6651(a)(3)), and/or FTD (IRC 6656) penalties if the taxpayer:
    1. Has not previously been required to file a return or if has no prior penalties (except the Estimated Tax Penalty, TC 17X) have been assessed on the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (3)(f)) in for the prior preceding 3 years on the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (5)(f)), and
    2. Has filed, or filed a valid extension for, all currently required returns and paid, or arranged to pay, any tax due EXAMPLE: Consider the taxpayer current if they have an open installment agreement and are current with their installment paymentsNOTE: If the taxpayer is not currently in compliance per (1)(b) but all other FTA criteria are met, provide the taxpayer an opportunity to fully comply before considering reasonable cause. This First-time Abate (FTA) aspect is an Administrative Waiver and does not carry any Oral Statement Authority (OSA) dollar threshold. See IRM 20.1.1.3.6.3 for additional OSA information. Also, FTA carries its own PRCs – 018 for non-RCA/manual look-back, or 020 for RCA being used to make the determination. See IRM 20.1.1.3.6.2   See IRM 20.1.1.3.6.1
  2. Notwithstanding the exception in paragraph (5)(c) of this section, a penalty assessed and subsequently reversed in full will generally be considered to show compliance for that tax period unless the exception in (5)(c) applies. RCA considers fully reversed penalties in its FTA analysis.

  3. The FTA Administrative Waiver can only apply to a single tax period for a given MFT. For example, if a request for penalty relief is being considered for 2 or more tax periods on the same MFT and the earliest tax period meets FTA criteria, penalty relief based on FTA only applies to the earliest tax period, not all tax periods being considered. Penalty relief for all subsequent tax periods will be based on the showing of reasonable cause (and absence of willful neglect).

  4. The reasonable cause explanation provided by the taxpayer will be considered after RCA performs the First-time Abate/Clean Compliance History analysis. If FTA criteria does not apply based on reasons shown in (3)sic(5) below, then the taxpayer’s explanation will be used to determine if reasonable cause penalty relief criteria is met (see Note in paragraph (1)). If the RCA determination is to abate the penalty(s), penalty relief can be granted as appropriate per the RCA conclusion (i.e., Reasonable Cause, Official Disaster Relief area, IRS Error, Statutory and Administrative Waivers). Using the First-time Abate/Clean Compliance History analysis up front was based on a request from HQ Customer Accounts Services.

  5. A First Time Abate conclusion WILL NOT apply if any of the following criteria applies:

    1. Any tax period in the prior 3 years, for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (3)sic(5)(f)), is in TDI Status 02 or 03, or IMF Status 04.

    2. An unreversed penalty for a significant amount (see Caution for an explanation of significant amount) is present (except the ES penalty) on any tax period in the prior 3 years, for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (3)sic(5)(f)), and a notice was issued showing the assessed penalty(s).
      Caution:
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      Note:
      A module balance cleared with a TC 606 indicates a notice showing the assessed penalty(s) was not issued.

    3. Any penalty reversal or penalty suppression on any tax period in the prior 3 years for the same MFT (except MFT 30/31, and see the exception for MFTs 01 and 14 in paragraph (3)sic(5)(f)) was input with Penalty Reason Code (PRC) 018, 020, or 021. See Exhibit 20.1.1-2, Penalty Reason Code Chart.Additional criteria specific to BMF accounts is as follows:

    4. Any portion of an The FTD penalty is charged for EFTPS Avoidance. Taxpayers required by law to deposit using EFTPS have received multiple notifications from the Treasury Financial Agent (TFA) and the Electronic Tax Administration (ETA) prior to their required EFTPS start date. Use RCA for normal penalty relief consideration.
      Note:
      Beginning Jan. 1, 2011, all required deposits must be made by EFTPS, and the TFA/ETA notifications were discontinued. However, this criterion will continue to apply.

    5. A total of three four or more FTD Penalty Waiver Codes are present in the taxpayer’s three-year penalty history for the same MFT (see the exception for MFTs 01 and 14 in paragraph (3)sic(5)(f)). Waiver Code 24 is set when the FTD penalty is waived due to a change in deposit frequency. Waiver Code 25 is set when the FTD penalty is waived per LEM 20.1.4.1.5 IRM 20.1.4.3, Restrictions on Assessments criteria. When a Waiver Code applies, the applicable Waiver Code will be shown with the literal “FTD PEN WAIVER CD” on CC BMFOL definer “R.” RCA will check the taxpayer’s three-year history for the presence of three four or more Waiver Codes.

    6. The three-year penalty history for either MFT 01 (Form 941, Employer’s Quarterly Federal Tax Return,) or MFT 14 (Form 944, Employer’s Annual Federal Tax Return,) must include a review of both MFT 01 AND MFT 14 accounts.
      Example:
      Taxpayer A files Form 944 for tax year 2008 2010 and is assessed a FTD penalty (TC 186) on the MFT 14 account. For all years prior to tax year 2008 2010, the taxpayer filed Form 941. The MFT 01 account for the 2nd quarter of year 2006 (200606) 2009 (200906) has unreversed FTD, FTF, and FTP penalties; therefore, the taxpayer does not qualify for FTA relief on the MFT 14 account for 2008 (200812) 2010 (201012).

  6. When checking the three-year penalty history, RCA does not recognize any module(s) that has moved to the retention register. This should not be a problem when using RCA on current tax periods; however, when using RCA for an older tax period, the employee must manually review any tax period(s) in the three-year penalty history that has gone to the retention register.

  7. If RCA determines a First-Time Abate is applicable, correspondex letters 3502C for BMF FTD penalty relief, or 3503C for IMF FTF and/or FTP penalty relief can be generated through RCA and IDRS. Both letters contain a paragraph automatically selected by RCA informing the taxpayer that the penalty(s) was removed based on their history of compliance. The following is an example of this paragraph:We are pleased to inform you that your request to remove the (use applicable penalty, i.e. failure to file, failure to fay, or failure to deposit) penalty(s) has been granted. However, this action has been taken based solely on your compliance history rather than on the information you provided. This type of penalty removal is a one-time consideration available only for a first-time penalty charge. IRS will base decisions on removing any future (failure to file, failure to pay, failure to deposit) penalties will only be removed based on your providing information on any information you provide that meets reasonable cause criteria. You should receive a notice of penalty adjustment within the next few weeks.Note:
    Include an explanation that educates the taxpayer how to be compliant in the future.

  8. First-time abatement may be considered for FTF (assessed under IRC 6651(a)(1), IRC 6698, or IRC 6669) and/or FTP (IRC 6651(a)(2) & IRC 6651(a)(3)), on all returns (except those listed in a) below) forms (see Exception , following Note , below). The employee must check the three prior years, and all subsequent periods already due, and document the clean compliance history. If RCA is not used to consider first-time relief and relief is granted, use PRC 018 when making the adjustment. Notify the taxpayer that the penalty removal was based on their history of compliance rather than on the information they provided (see example paragraph above). Also include an explanation that educates the taxpayer about how to be compliant in the future.
    Note:
    If RCA does not offer FTA relief because the FTD penalty was charged for EFTPS Avoidance, FTA relief can still be granted for the FTF and/or FTP penalties, if applicable.

    Exception:
    a. Penalty relief under the FTA provision does not apply to
    ○ returns with an event-based filing requirement, such as Form 706, U.S. Estate Tax Return, and Form 709, United States Gift (and Generation – Skipping Transfer) Tax Return;
    ○ the Daily Delinquency Penalty (DDP);
    ○ Form 1120, U.S. Corporation Income Tax Return/Form 1120S, U.S. Income Tax Return for an S Corporation if, in the prior 3 years, at least 1 Form 1120S was filed late but not penalized.
    ○ Information reporting that is dependent on another filing, such as various forms that are attached
    NOTE: This list is not all-inclusive.

  9. if the tax is not paid in full on the tax period when the request for abatement is received and the taxpayer is current with installment agreement payments, allow first-time abate/clean compliance history on the failure to pay (FTP) penalty amount assessed. Use RC 062 with the TC 271 and PRC 018 or 020. This will allow the FTP penalty to start up when the TC 271 posts to Master File on the remaining tax due. While the first-time abatement is due to an administrative waiver, not reasonable cause, the RC 062 will not restrict the tax period and is to be used in this instance only. The proper use of the PRC will allow for the tracking of first-time/compliance history abatements.
    Note:
    The employee will need to use the open paragraph in the 3502C or 3503C letter to inform the taxpayer that the FTP penalty will start accruing again on the unpaid taxes and will continue until the tax is paid in full. After the tax is paid in full, the taxpayer may request reasonable cause abatement of the additional FTP penalty. Use PRC 018 or 020.

  10. If the tax is fully paid, the First-time Abate/Clean Compliance History adjustment to the FTP (TC 271) may be done using RC 065 (IMF Accounts) with PRC 018 or 020 as the restrictive action will not have a negative effect. Adjustment notices will be sent in both abatement instances.

  11. RCA will also display a First-time Abate window on a BMF account when the taxpayer has a change in deposit frequency. Employees need to be aware this is different than a First-time Abate for a good compliance history and use the appropriate PRC when removing the penalty for a first-time change in deposit frequency.