IRS Penalty ResolutionStep-by-Step Workflows

First Time Abatement (FTA) is an IRS administrative waiver under IRM 20.1.1.3.6.1 that allows one-time removal of failure-to-file or failure-to-pay penalties. To qualify: (1) No penalties in the prior 3 tax years, (2) All required returns filed, (3) Current on payments or in a payment arrangement. FTA can often be approved instantly over the phone by calling 1-800-829-1040. No Form 843 is required for phone requests.

Collection Due Process (CDP) is a formal hearing right under IRC § 6320 and § 6330 that allows you to challenge IRS collection actions. You must request a CDP hearing within 30 days of receiving a final notice (LT11, CP90, or Letter 1058). Filing Form 12153 stops all collection action while your case is pending. You can propose alternatives like installment agreements, offers in compromise, or currently not collectible status.

Streamlined Installment Agreements (SIA) require no financial disclosure for balances ≤$50,000 (individuals) or ≤$25,000 (businesses). Regular agreements require Form 433-F for larger balances. Key thresholds: ≤$10,000 = Guaranteed IA (automatic approval), ≤$25,000 = Streamlined, $25,001-$50,000 = Streamlined with Direct Debit required, >$50,000 = Full financial disclosure needed.

Processing times vary: FTA by phone is often instant. Written FTA (Form 843) takes 30-60 days typically, up to 6 months. CDP hearings take 2-6 months for initial conference, up to 12+ months total. Installment agreements are instant online, 30-45 days by mail. Offer in Compromise takes 6-24 months. Always use certified mail and note the date you sent your request.

Reasonable cause means you exercised ordinary business care and prudence but still failed to comply. Common reasons: serious illness or incapacity, death of immediate family member, natural disaster, fire or casualty, reliance on erroneous IRS advice, reliance on tax professional advice (with documentation). You must provide a written explanation and supporting documentation. FTA is easier if you qualify.

If you miss the 30-day CDP deadline, you lose the right to a full CDP hearing. However, you can request an "equivalent hearing" within 1 year of the notice date. Key differences: equivalent hearings do NOT stop collection action, you cannot petition Tax Court if you disagree, but you still get independent Appeals review. File Form 12153 and check the "equivalent hearing" box.

No. The IRS requires all tax returns to be filed before approving an installment agreement. This includes returns for the last 6 years at minimum. If you have unfiled returns, file them first even if you cannot pay. You can then apply for a payment plan. Having unfiled returns also disqualifies you from Offer in Compromise and currently not collectible status.

For streamlined agreements (≤$50K): Just Form 9465 or online application, no financial documents needed. For non-streamlined (>$50K): Form 433-F (Collection Information Statement), pay stubs for 3 months, bank statements for 3 months, vehicle/asset documentation, monthly expense verification, possibly Form 433-A (detailed version). Direct debit setup requires voided check or bank letter.