First-Time Tax Penalties Abatement (FTA)

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Overview of IRS International Tax Audits » First-Time Tax Penalties Abatement (FTA)

First-Time Tax Penalties Abatement (FTA)

Before you pay an IRS penalty, ask yourself these questions:

Could you qualify for penalty relief?
Does the IRS forgive first-time mistakes?

The Internal Revenue Service (IRS) is well aware that tax rules can be very complicated. It is likely to make a mistake and file a faulty tax return, resulting in additional taxes due and severe penalties. Thus, a rule is in place to relieve these penalties, called the First-Time Tax Penalties Abatement (FTA).

FTA relief may be applied, at the IRS’s discretion, to failure-to-file (FTF) and failure-to-pay (FTP) penalties. Businesses may also qualify for relief from failure-to-deposit (FTD) penalties.

Generally, the taxpayer should have a clean record for the three prior tax years to receive the FTA. Any penalty in the three prior years may hinder eligibility to apply for the abatement, except for the estimated tax penalty.

First-Time Penalty Abatement (FTA) and International Reporting Obligations

Many U.S. taxpayers with foreign bank accounts, investments, businesses, trusts, or gifts may have international reporting obligations. Many of these taxpayers wonder whether they can use First-Time Penalty Abatement (FTA) to avoid IRS penalties.

In many cases, the answer is no. FTA generally does not apply to penalties related to international information reporting requirements. This is particularly important for penalties associated with the following:

Foreign Bank Account Reports (FBARs)
International information returns, such as Form 3520 (foreign trusts and certain foreign gifts), Form 5471 (foreign corporations), Form 8865 (foreign partnerships), and Form 8938 (specified foreign financial assets)

FTA generally does not apply to international reporting penalties.

Instead, you may want to consider other IRS compliance options that can help you comply and reduce or avoid those specific international penalties. The following are some of the options:

For non-willful mistakes involving failure to report foreign accounts or income, the Streamlined Filing Compliance Procedures are often a good choice. They offer a clear process with reduced or no penalties.
If the issue involves possible willful violations of non-reporting of foreign accounts or income, the Voluntary Disclosure Practice might be better. But it usually comes with higher penalties.
For FBAR-only problems related to non-reporting of foreign bank account reports, the Delinquent FBAR Submission Procedures can be a simpler, lower-risk option.

Please note that tax treaties primarily affect the taxation of income, residency, and withholding, but do not provide relief from FTA penalties.

Before paying an IRS penalty, ask yourself the following questions:

Do you qualify for First-Time Penalty Abatement?
If First-Time Penalty Abatement doesn’t apply, are there other IRS relief options available?
Does your case involve foreign accounts or international reporting forms that require a different approach?

If you owe any kind of federal tax penalty, please reach out to our office to find out if you may be eligible for First-Time Tax Penalties Abatement (FTA). You can reach our office at (551) 800-0007 or click here to schedule a case evaluation today!