What Is IRS One-Time Forgiveness?

IRS One Time Forgiveness

Also called first-time abatement, one-time forgiveness is when the IRS waives penalties for taxpayers with a history of compliance. To qualify, you must have filed the same type of return on time and not incurred any penalties for the last three tax years. If you incurred penalties, you can still qualify as long as the penalties weren't removed under the first-time abatement program. 

This term, “one-time forgiveness,” is also used widely by national tax resolution companies as a marketing ploy that sounds great to get people to call them or respond to ads. It is essential to be wary of these companies and avoid rip-off companies that use highly trained sales reps that get a high commission for selling services that could be overpriced when you don’t even know the professional working your case.

Also, watch out for fake IRS letters that are really just aggressive advertisements from these types of companies. For example, these letters may talk about tax forgiveness, and they look like they're from the IRS. But when you call the number, you reach a tax relief firm that is going to sell you over-priced services. 

We will cover what this program is and how you can apply yourself or find a trusted local professional to help with your tax problem.

Which Penalties Qualify?

You can get one-time forgiveness, aka first-time abatement, on the following penalties:

  • Failure-to-file penalties on individual, partnership, or S-corp tax returns. 
  • Failure-to-pay penalties. 
  • Failure-to-deposit penalties. 

Generally, the IRS will only remove penalties from a single tax return from a single filing period. For instance, if you have years of delinquent returns, you will typically not be able to get the penalties waived from all of the returns. However, if you only have penalties on a single return, you should be able to get them removed as long as you meet the requirements. 

In most cases, the IRS will only remove penalties that have accrued over a single year. For instance, if you have 18 months' worth of failure-to-pay penalties, you may only be able to get the first 12 months of penalties removed. 

Qualification Requirements

To qualify for one-time penalty relief, you must have a history of tax compliance. This means that you must have filed that same type of return on time and not incurred any penalties for the last three tax years. 

However, there are a few exceptions. Say that you only had a filing requirement for the last two years. Then, as long as you filed correctly for the last two years, you should be able to get a first-time penalty waiver. 

Additionally, you won't qualify if you had penalties removed under first-time abatement in the last three years, but you can still qualify if you had penalties removed for any other reason. For instance, imagine that during the last three years, a death in the family prevented you from filing on time, and you incurred a penalty. The IRS removed the penalty based on reasonable cause. As long as this was your only penalty in the last three years, you should still qualify for first-time abatement. 

If you're applying for relief on a failure-to-deposit penalty, you can't qualify if you have four or more failure-to-deposit penalty waiver codes in the last three years. You also cannot qualify if the penalty was due to EFTPS avoidance.

What If You Haven't Paid the Tax Yet?

You can apply for one-time penalty relief whether you've paid the tax or not. If you haven't paid the tax and you qualify for relief, the IRS will waive the penalties up to the date of your application. Then, once you pay the tax bill, you can apply for relief again, and at that point, the agency should remove any remaining penalties. 

How to Apply for One-Time Penalty Forgiveness

You can call the IRS to request one-time penalty relief. For the shortest hold time, call the number at the top of your notice. Otherwise, call the IRS's main phone number at (800) 829-1040. Here is a list of requests for different departments. 

Alternatively, send a written request for penalty abatement to the IRS—or file Form 843 (Claim for Refund and Request for Abatement). 

How the IRS Reviews Penalty Abatement Requests

You don't need to provide any documents or excuses when you request first-time abatement. The IRS will simply look at your file. If you have a history of compliance and meet the other eligibility criteria noted above, you will qualify. 

However, if you had a reason for filing or paying late, consider including that reason in your written request. If the IRS cannot approve one-time forgiveness, it will consider offering you reasonable cause if you qualify. 

If the IRS approves your request for a penalty waiver, the agency will remove the penalties from your account. They will also remove any interest that accrued on your penalties. This can substantially reduce your balance owed. 

The IRS will send you a rejection letter if they deny your request for penalty relief. You have the right to appeal the rejection, but you must do so within 30 days of the notice date. The letter should outline your appeal rights. 

How Much Can You Save?

The exact savings vary based on the number of penalties on your account. Generally, the more you owe in tax and the longer you've taken to pay, the more you can save with penalty abatement. 

To illustrate, imagine that your tax liability is $500, and you paid a month late. Then, you would have incurred a failure-to-pay penalty of 0.5%. That's only $2.50. In these types of situations, it may not be worth it to apply for penalty relief, and generally, the IRS only counts penalties over $50 when determining if you have incurred penalties in the last three years. 

In contrast, say that your tax liability was $100,000, and you filed six months late. In this case, you would have incurred the maximum failure-to-file penalty of 25% of the tax liability. Your penalty will be $25,000, and additional penalties will continue to accrue until you pay the balance in full. In this case, it is imperative to apply for penalty abatement and to be on the safe side, you may want to work with a tax pro. 


Other Types of Penalty Forgiveness

First-time forgiveness isn't the only option. The IRS also waives penalties in the following situations: 

Reasonable Cause

This applies when something outside your control prevents you from paying or filing your taxes on time. Generally, this only includes extreme situations such as a death or serious illness of you, a very close family member, or your tax preparer. It also includes things like natural disasters or postal worker strikes. 

If you just forget to file or pay, you typically cannot qualify for penalty relief based on reasonable cause. Luckily, if you forget to file, you may qualify for first-time abatement if you have a history of compliance. 

Statutory Exception Penalty Waivers

The IRS waives penalties due to statutory exceptions in the following circumstances:

  • The taxpayer incurred the penalty due to incorrect written advice from the IRS. 
  • The taxpayer mailed the return on time but received a penalty anyway. 
  • The taxpayer lived in a federally declared disaster zone. 
  • The taxpayer was in combat in a military zone.

Administrative Penalty Waivers

First-time penalty relief falls under this category, but it's not the only type of administrative waiver. The IRS also offers administrative waivers in other situations, and it typically announces the waivers in policy statements, news releases, or notices. For instance, if the IRS issues delayed guidance about a tax issue, it may also offer an administrative waiver of penalties related to that issue. 

One-Time Forgiveness as a Marketing Hook

The phrase "one-time forgiveness" is popular because it's used as a marketing slogan for big tax debt relief companies. The IRS doesn't use the phrase one-time forgiveness. Instead, the agency refers to this program as first-time penalty abatement. Other common marketing phrases include the "Fresh Start Initiative" and "IRS Tax Debt Relief Programs".

Big tax debt relief companies have spent millions of dollars in advertising using phrases like "first-time forgiveness" and "pay off your taxes for penalties on the dollars". When you search for these phrases online, the top results are IRS websites about first-time penalty abatement. Then, under that, you will see a variety of tax debt relief companies that write about this concept. 

Sometimes, these companies target specific years such as "one-time forgiveness 2010" or "one-time forgiveness 2022". This is slightly misleading because the IRS generally applies the same penalties and uses the same abatement processes every year. However, there are very limited exceptions. 

For instance, the IRS waived all late filing penalties on 2019 and 2020 returns as long as taxpayers filed by September 30, 2022. Designed to provide relief during the COVID pandemic, this program created about $1.2 billion in penalty refunds, and the relief was applied automatically. Taxpayers didn't have to apply. 

Why Big Tax Debt Firms Focus on IRS Forgiveness

Big tax debt firms emphasize this phrase because they try to draw in clients by promising to reduce their tax bills. However, this is a bait and switch. While penalty relief is great, not everyone qualifies. These companies are notorious for telling taxpayers that they can save money on their bills without learning about their situation. 

This is a huge red flag. In fact, the Fair Trade Commission advises people with tax debt to avoid these companies. This consumer advocate group says you should not work with companies that promise to reduce your tax debt, and it also says that tax debt relief companies often take big upfront payments and leave people further in debt. Check out our posts on the best and worst tax debt relief firms to get a deeper understanding of this industry.

How to Get Quality Help With Your Tax Issues

What's the alternative to the big nationwide firms? Well, you can attempt to get penalty relief on your own. This post contains detailed instructions about applying for first-time abatement or you can simply file Form 843

If you don't want to take the DIY route, contact a tax professional to help you. Avoid the big-name firms that are infamous for their poor practices. Instead, find a small local tax professional to help you. 

Again, this is what the FTC advises. It says taxpayers would work directly with the IRS or their state tax agencies, or they should find a local tax professional. When you find a local pro, they will talk with you about their situation. Then, they'll tell you if you're likely to be able to get penalty relief or other types of tax forgiveness.

When you work with a local pro, they customize their services based on your unique needs, and they steer you toward the best option for your situation. Often, this involves more than one IRS relief program. For instance, your tax pro may help you apply for penalty abatement and then help you set up a monthly payment plan. Or they may take a completely different route.

Can You Get One-Time Forgiveness More Than Once?

Yes, you can get one-time or first-time penalty forgiveness more than once. To qualify, you must not have used first-time abatement in the last three tax years. Effectively, this means that you can get first-time penalty forgiveness every four years. 

One-Time Forgiveness on Tax Bills

IRS forgiveness doesn't just apply to penalties. In some cases, qualifying taxpayers can get some or all of their tax bills forgiven. Here are the main options with links to more details: 

  • Offer in compromise based on doubt as to collectibility — You prove that you cannot afford to pay the full tax bill, and then, the IRS lets you settle for less than you owe. You can pay the settlement in a lump sum or over 24 months, but if you pick the latter option, your settlement will typically be higher. You save more if you pay in a lump sum. 
  • Offer in compromise based on doubt as to liability — As noted above, the IRS lets you settle the tax bill for less than owed in a lump sum or in payments over a 24-month time frame. However, to get this settlement, you must prove that there is a legitimate doubt you owe the tax liability. 
  • Offer in compromise based on effective tax administration — This option applies to taxpayers who could afford to pay the tax liability, but forcing them to do so would be unfair and it would reflect poorly on the IRS. You must make a financial disclosure and pay the settlement in a lump sum or in payments over two years. 
  • Partial payment installment agreement — You make the highest monthly payments you can afford until the collection statute expiration date. On this date, the tax debt expires, and the IRS waives the remaining balance. 
  • Innocent spouse relief — This program doesn't eliminate the tax bill, but it can absolve you of responsibility. To qualify, you must establish that the tax debt on a jointly filed return was due to actions your spouse took without your knowledge and/or that you were coerced into signing the joint tax return. Then, the IRS will only hold you responsible for your portion of the tax bill, not your spouse's portion. 
  • Hardship — If you establish that paying the tax bill would cause financial hardship, the IRS will mark your bill as currently not collectible. This will not make the tax liability go away, but it will stop collection actions against you. If you are uncollectible until the collection statute expiration date, the tax liability will effectively expire because the IRS will no longer be able to collect it. 

As noted above, several of these programs leverage the collection statute expiration date (CSED) to help you reduce your tax liability. The CSED is typically 10 years after the tax liability was assessed. However, there are several actions that suspend the clock and move the deadline. Unfortunately, the IRS doesn't always track this date correctly, and to ensure the agency is using the right CSED in your situation, you may want to work with a tax pro who has experience with tax debt resolution. 

Get Help With IRS Penalties

To get help with IRS tax penalties, find a local tax professional to help you. Using TaxCure, you can search for local tax attorneys, CPAs, and enrolled agents. You can also narrow down your search based on their experience with tax penalties or other issues as required.

If you're also dealing with state taxes, you should filter your results to find someone who has experience with your state tax agency. State revenue agencies all have different rules about penalties and tax forgiveness. To get the best resolution for your tax problems, you should find someone who has experience in your state. 

The longer you wait, the more penalties will accrue on your account. To get help now, use TaxCure to find a qualified and experienced local tax pro.

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