Taxing Definitions

Definition — First time here?

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There’s a first time for everything…including relief from tax penalties.

The IRS implemented the first time abatement penalty waiver in 2001. Under this policy, taxpayers who are in compliance with tax filings can get failure to file, failure to pay, and failure to deposit penalties removed. “In compliance” generally means the taxpayer has filed (or filed an extension for) required tax returns and has paid (or arranged to pay) any tax due.

Question 1

The “shared responsibility payment,” which is assessed when a taxpayer doesn’t have required health insurance coverage, is reported as a tax on Form 1040.

Do you think nonpayment of required shared responsibility amounts will make a taxpayer ineligible for first time abatement of penalties?



The first time abatement waiver is a one-time free pass. Sort of. IRS policy requires only a three-year compliance history, so some taxpayers may qualify for multiple waivers if the penalty offenses occur after three years of compliance.

However, the first-time abatement only applies to a single tax period, and then only if the “in compliance” criteria have been met. Current IRS policy is to apply first time abatement to the earliest tax period that meets the criteria.

Question 2

A taxpayer was compliant with Form 941 payroll tax returns for calendar years 2013, 2014, and 2015 but made late deposits and was assessed federal tax deposit penalties on all four quarterly payroll tax periods in 2016.

True or False: The taxpayer can apply for first time abatement only for the first quarter tax period of 2016.



Penalty relief under the first time abatement waiver does not apply to

–tax returns with an event-based filing requirement,

–“daily delinquency” penalties (generally assessed against tax-exempt organizations for failure to file a tax return or failure to include complete or correct information on the tax return), and

–information reporting forms that are dependent on another filing (typically forms that have to be attached to the main return).


Question 3



Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.


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Sorry, wrong answer :(
Right answer!


See internal revenue manual section (11-21-2017).

Right answer!


First time abatement criteria can only be met and the waiver applied to the tax period ended March 31, 2016.

However, the taxpayer can request abatement for reasonable cause for the other three quarters of 2016.

See internal revenue manual section (11-21-2017).

Sorry, wrong answer :(

Returns with an “event-based” filing requirement are 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.

Information reporting that is dependent on another filing, such as various forms that are attached, include 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 internal revenue manual section (11-21-2017).