First-time penalty abatement sample letter | Karbon Magazine
First-time penalty abatement sample letter
When clients are overwhelmed, it may mean missing their tax filing deadlines. Your firm can facilitate a reprieve with this first-time abatement sample letter.
In an ideal world, tax time is smooth, steady, and surprise-free. Clients provide their information well before the deadline, and everything is filed on time, every time.
But in the real world, does that happen every year and with every client? Of course not.
There are many reasons for a late or incorrect tax filing. Some are due to the client—a failure to provide the necessary information on time (or at all), for example. Other times, it’s because your firm is over-run during the busiest time of year, and as a result, mistakes are made.
Fortunately, the Internal Revenue Service (IRS) has implemented an abatement system for first-time taxpayer slip-ups. There are specific criteria that have to be met in order to be eligible, but it’s an important weapon in every accountant’s arsenal, and one that can reverse the ill-effects of a missed deadline.
A first-time abatement letter is a letter sent to the IRS requesting a reduction or dismissal of penalties incurred by an infringement of tax obligations.
The three most common mistakes for which the request is granted, according to the IRS, are:
1. Failure to file penalty: Applicable if the tax return isn’t filed by the due date. The penalty to pay is a percentage of the taxes in the late filing.
2. Failure to pay penalty: When a client—or you on their behalf—doesn’t pay their tax debt by the deadline.
3. Failure to deposit penalty: This penalty comes into effect when employers don’t make employment tax deposits correctly. These include federal income tax, Social Security and Medicare taxes, and Federal Unemployment Tax.
After any of these offenses, and only once the original infringement has been corrected, sending an FTA letter is your best method for getting an abatement of penalties.
A first-time penalty abatement letter typically contains:
Taxpayer name and identification number
Relevant tax form and tax period
Notice number and date (if applicable)
Type of penalty and amount
Acknowledgment that the taxpayer fulfills the first-time penalty abatement criteria
Optional: Explanation of the taxpayer’s situation, circumstances and reasonable cause (review: IRM 20.1.1.3.2)
Sample IRS first-time abatement (FTA) letter
There’s no need to create FTA letters from scratch every time, because the required details are standard across the board.
👇 Download the First-Time Abatement Letter template from the Karbon Template Library.
It can be downloaded as a Microsoft Word document or edited directly as a Google Doc.
First-time abatement letter template sample
Criteria for first-time penalty abatement
According to the IRS’s Reasonable Cause Assistant, the criteria that must be met for an IRS first-time penalty abatement are highly specific:
1. Filing compliance
The client has already filed all outstanding tax obligations. This is also fine if you or the client have negotiated a valid extension.
2. Payment compliance
The client must be up-to-date or have arranged a plan for tax payment obligations, including a valid payment installment agreement.
3. Clean penalty history
The IRS looks at the previous three years of the client’s tax compliance history, and there can be no other offenses, excluding an estimated tax penalty.
Proactivity beats reactivity
Because the FTA criteria is so specific, avoiding an infringement altogether should take priority.
While your clients may be forgetful, your firm can’t afford to be. It’s crucial that your processes and systems are robust to ensure your clients avoid penalties.
After receiving notice of the infringement from the IRS, assess your client’s eligibility for a first-time penalty abatement in accordance with the relevant criteria. Then customize and send the FTA letter.
You can use the template provided, or build your own.
In addition to requesting the abatement via letter, you can call the IRS directly, or submit Form 843.
Avoid the need to apply for penalty relief
What’s better than the IRS approving a client’s FTA request? Not having to apply for one at all.
This is where your accounting software can help. A practice management tool like Karbon leverages the following features and functionality to help streamline your processes and keep work on track:
Automatic client reminders
Karbon allows you to automate the client chase. You can request information from your clients and Karbon will send automatic email reminders until the request has been completed.
Client portal
Karbon’s client portal enables you to securely request and receive client information and documentation. You can also collaborate with clients in the portal via comments. See how much time and money Karbon’s client portal can save your firm with this time savings calculator.
Email integration and client communication records
Karbon’s email integration and notifications hub, known as Triage, ensures all your internal and client communication is embedded into your workflow. You’ll have visibility over client communication, helping you see all conversations related to penalties.
Karbon’s workflow statuses and Kanban board dashboards will help you see exactly which clients are at risk of receiving penalties, helping you to take action before it’s too late.
To learn more about how these and other Karbon features can help save you time and avoid missed deadlines at your firm, book a demo or start a free trial.
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A first-time abatement letter is a letter sent to the IRS requesting a reduction or dismissal of penalties incurred by an infringement of tax obligations.
You can save time by using a first-time abatement letter template that you can download and customize to suit each of your clients.
A practice management tool can help you avoid the need to apply for penalty relief, with features like automatic client reminder emails.
Accounting practice management software can save your firm thousands of dollars per year per employee. Find the best practice management platform for your company.
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