What Is Abatement? Taxes From A to Z®
For tax purposes, abatement is the reduction or removal of an amount assessed by the IRS. You’ll most often hear the term in connection with penalties—if the IRS assesses a penalty for filing or paying late, for example, you may be able to get that penalty abated.
(Interest is different. Because interest is generally required by law, the IRS can abate it only in limited circumstances, such as when an unreasonable IRS error or delay caused the interest to accrue.)
There are several ways to qualify for penalty relief. One is reasonable cause—generally, showing that you exercised ordinary business care and prudence but circumstances kept you from meeting your tax obligations. Historically, taxpayers with a good compliance history could also qualify for First-Time Abatement (FTA), which provided relief from certain penalties without requiring them to establish reasonable cause.
That is changing. The IRS is replacing FTA with a new Automatic Exemption from Penalty (AEP). Under AEP, eligible taxpayers with three prior years of timely compliance (or 12 consecutive quarters for quarterly filers) can automatically receive relief from certain failure-to-file and failure-to-pay penalties. Business taxpayers may also receive relief from certain failure-to-deposit penalties.
Not all returns or penalties qualify for AEP. For example, returns filed for specific transactions or infrequent events, such as estate and gift tax returns, are not generally eligible.
And AEP only provides relief from eligible penalties. It does not eliminate your obligation to pay the underlying tax, or the interest or penalties not eligible for AEP.
The best part? Unlike with an FTA, you generally don’t have to request relief. If you qualify, the IRS won’t assess the penalty when processing the original return and will send a notice explaining what happened. If you don’t qualify for AEP, you may still be eligible for penalty relief based on reasonable cause.
