The IRS’s Best Kept Secret: First Time Penalty Abatement (FTA)

First Time For Everything

By: Business Advisor Peter Harriman

taxes generic image - The IRS's Best Kept Secret: First Time Penalty Abatement (FTA) - Maine SBDC

You started a business and are pretty excited. Excited that is until you get a letter from the IRS that the business failed to file their taxes, pay on time, and/or deposit taxes when due! Ooops! While understandable, the penalty letter and associated fee has just ruined your day… and perhaps your budget as well.

Before you start looking into calling it quits or taking out a small loan, there might be some help! In 2001 the IRS established something called the First Time Penalty Abatement (FTA). If you fall under certain specific circumstances, using the FTA is similar to getting a warning for speeding rather than a ticket… you don’t have to pay the penalty, but you also have no excuses if you do it again.

In general, you may qualify for this relief 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

As a first time business owner, there are many, many things to worry about. Making a mistake on your first business taxes should not be one of them. On that line of thought, I always advocate seeking the help of a tax professional to avoid the situation in the first place!

For more information on the First Time Penalty Abatement relief, click here