Screw Up Your Taxes? Here’s How To Get Out of Paying Tax Penalties

Bitches Get Riches had been a business for a mere three years before we got a massive tax penalty fine.

Yes, that’s right: even your flawless finance aunties occasionally regularly make money mistakes! Despite appearances, we are but mere mortals, flubbing paperwork and misunderstanding deadlines! Aren’t we relatable??? Don’t you like us even more now?!?

Stars--they're just like us!

And in this particular case, we screwed up our annual tax filing—a mistake that was going to cost us upwards of $4,800. Which, uh… was not ideal.

But while we are more than capable of mistakes, we are also equally capable of researching our way out of most financial problems. Which is exactly why we were able to make that $4,800 tax bill… disappear!

And because we love you, today we’re going to share that trick with you.

The super secret tax penalty get-out-of-jail-free card

For anyone who has ever fucked up their taxes and received a hefty fine, there is a little known and seldom used get-out-of-jail-free card (and by “jail” we mean “penalty fees”).

It’s not complicated, it’s easy to obtain, and anyone who pays taxes can use it. Yet since this lovely loophole was established in 2001, it’s been used relatively infrequently. This is because, according to a report by the Treasury Inspector General for Tax Administration (TIGTA), most tax payers and tax preparation professionals don’t even know it exists (more on this later).

So if this is the first time you’re hearing about a tax penalty get-out-of-jail-free card, trust us: it does exist, we’ve personally used it, and so can you.

It’s called a first-time abatement waiver, and it’s how we got out of paying a $4,800 fine to the IRS.

What is a first-time abatement?

A first-time abatement (FTA) waiver is a tool you can use to say “Oops, I made a mistake on my taxes! Can I get a do-over?” And the IRS has to say “Yeah, we’ll call a mulligan. Do better next time!”

Sounds great, right? But of course, there’s a catch: You can only use it once.

That’s why it’s called a first-time abatement. It’s specifically designed to help taxpayers who are inexperienced or going through a big transition to get used to the system—young adults, recent retirees, and new business owners, for example. The first time they make a big, expensive mistake, they can apply for a first-time abatement waiver and the slate will be wiped clean: no penalty fees, no punishments related to the tax error.

In our case, we were new business owners who had never paid business taxes before. We weren’t clear on the differences between business and personal taxes and how to file both concurrently. And instead of hiring a tax professional to help us, we had the utter hubris to think that because we run a financial literacy media firm (the irony is not wasted on us), we can clearly handle something as simple as taxes. I mean, how hard could it be?

If only...

Spoiler alert: It was very hard and it ended badly. We have since hired help. Brian the Tax Guy is now a crucial member of the BGR team. He’s the one who has to write “Bitches Get Riches” on all the official paperwork and for that we are very grateful. Please don’t ever leave us, Brian.

How to qualify for FTA for your tax mistakes

Sadly, our beloved tax penalty get-out-of-jail-free card doesn’t work for everyone. So before we go any farther, let’s clarify who can use a first-time abatement and under which circumstances.

Which taxpayers qualify for FTA

To be eligible for a first-time abatement, you have to meet a few criteria.

  1. You must be a squeaky clean taxpayer. This means you’ve been paying your taxes without penalties for the three years before the tax year during which you were penalized. So if you regularly screw things up or try to get out of your tax obligations… this fix ain’t for you, sweetie.
  2. You have to be in good standing on filing your tax returns. This means you don’t make a habit of submitting them late without explanation. Though it’s totally fine if you’ve applied for and received a formal tax extension.
  3. You’ve got to be current on your outstanding tax bill. So either you’ve paid last year’s tax bill in full and on time, or you’ve been approved for a payment plan with the IRS.

Which mistakes qualify for FTA

There’s a limit to the types of tax mistakes you can wipe out using a first-time abatement. Don’t worry—these are also the most common mistakes taxpayers make, so chances are you likely fall into one of the following categories:

  1. Failure to file: When you literally just didn’t file your tax return, partnership return, or S Corporation return (those second two are related to business taxes).
  2. Failure to pay: When you didn’t pay the tax balance shown on your tax return by the due date.
  3. Failure to deposit: When the tax you owed was not deposited in the correct amount, in the correct way, or in the correct time period.

All of the above mistakes can result in hefty penalty fees. An FTA waiver makes it so you just don’t have to pay those penalty fees.

In the case of Kitty and I… we failed to file. We thought that we didn’t need to file our business taxes if our business wasn’t making money. During that time period, our business was actually costing us money (thanks to our beloved Patreon donors for changing that reality). So the first time we filed taxes, the IRS was like “Hey Bitches, where have you been for the last two years?” and slapped us with a big ole’ fine.

Now, all of these qualifications are straight from the horse’s mouth (the horse being the Internal Revenue Service of the United States… which I like to imagine as Bad Horse and his Evil League of Evil, which, given that we are in the middle of yet another writers’ strike, feels like an extremely timely callback). But if you’re confused, check with your friendly neighborhood tax preparer or the IRS itself.

How to apply for a first-time abatement

If you’re at all confused about whether or not you qualify for a first-time abatement, give the IRS a call. The phone number will be right there on the letter they send when you fuck up! They’re super friendly, very helpful and informative, and they work with surprising alacrity. Overall we guarantee you a pleasant experience on the phone with the IRS.

First-time abatement, however, is NOT a joke.

HAH! If only.

While calling the IRS to ask about an FTA is certainly an option, in reality it’s likely to be a miserable, frustrating, time-consuming endeavor. IRS agents are trained in the most cutting-edge verbal torture techniques. They can bring veteran call center operatives and phone scammers to their knees in under three minutes. Certainly not for the faint of heart.

So we recommend skipping straight to the part where you submit your FTA request in writing. If your written request is denied, then you can deal with the dreaded phone call to the IRS.

Script for first-time abatement request

For educational purposes, I am going to share the actual letter we, your humble Bitches, sent to the IRS to request our FTA waiver. Feel free to use it as a script for your own first-time abatement request!

First, this is the actual address where you should send the letter. You’ll need a stamp.

First-time abatement waiver request, part 1

Next, you’ll want to give them the information they need to look up your case. All of this should be on the letter you received informing you of your tax penalty fine.

First-time abatement waiver request, part 2

Then you state your case. While you can use this format, keep in mind your reasons might be very different from ours, especially if you’re paying taxes as an individual, rather than a business.

First-time abatement waiver request, part 3

Here’s where you have to start playing 4D chess or whatever. The RCA (Reasonable Cause Assistant) is software the IRS uses to help them decide who gets an FTA waiver and who doesn’t. If the software decides you don’t deserve first-time abatement, you can be rejected. If that happens, you’ll have to appeal.

… Unless you take the time in your original waiver request to ask them to override the RCA determination before they make a final decision.

First-time abatement waiver request, part 4

Last but not least, you’ll want to tell them what you told them and wrap it all up with your contact information so they can get back to you in a reasonable fashion. Your address should already be included in the letter’s header, so just include your email and phone number in the conclusion.

First-time abatement waiver request, part 5

And that’s it! That’s how you request a first-time abatement waiver! Mail it to the IRS, and sit back and wait for amnesty.

A word of warning

Phone-based scams are running rampant. We wrote a whole primer on how to protect yourself! And sadly, the fake-IRS-agent-saying-you-owe-money scam is becoming more and more common.

So remember: the IRS will never call you. If there’s a problem with your taxes, they will send you a formal letter on IRS letterhead through the U.S. Postal Service. If you’ve screwed up your taxes, expect a letter.

Now, if you have an open case with the IRS, they may call you to continue an ongoing discussion. If this ever happens, be sure to begin every conversation by requesting the agent’s name and the case number.

Here are some more tax tips and tricks for the U.S. taxpayer wondering why we don’t just do taxes like the rest of the civilized world:

Why is this even a thing?

According to the gov’mint, their priority is to “encourage compliance” in the matter of taxes. In other words, they want us to file our taxes and to file them correctly so they can close the $600 billion annual tax gap (… caused mostly by large corporations and understaffing, but I digress). They don’t want us to feel beaten down and disincentivized by penalty fees for a first-time mistake. That demoralization is reserved for a second mistake.

So they magnanimously came up with the idea of FTA as a form of tax penalty amnesty for those who meant well, but whether through ignorance or user error, screwed up anyway.

The IRS is merely performance art

Which then begs the question: why not apply the FTA waiver automatically to every eligible taxpayer every year? Why make us apply for it on a case-by-case basis?

We know they can do this because they already did. During the 2019-2020 tax season, the IRS universally and automatically applied FTA to eligible taxpayers to account for the chaos of the COVID-19 pandemic. But life feels pretty permanently chaotic. So why not continue making FTA automatic?

We were informed of our $4,800 tax penalty when the IRS sent us a formal letter outlining our mistake. That letter easily could’ve said “But because you’re a taxpayer in good standing, we’re going to waive the penalty just this once. Don’t fuck it up again.” Considering how few eligible taxpayers actually know about FTA, making it automatic would save people hundreds, if not thousands a year.

This proves that much like the TSA, the IRS is merely government-sponsored performance art.

Have you ever requested a first-time abatement for a tax mistake? Tell us all about it in the comments!

And if you found this article helpful, you have our Patreon donors to thank. Every month they vote on what they want us to write about. And this month, they chose the elusive tax penalty get-out-of-jail-free card! If you’d like to join their ranks so you too can control what we say—like a beautiful, social-justice-minded Rupert Murdoch—click the button below!

2 thoughts to “Screw Up Your Taxes? Here’s How To Get Out of Paying Tax Penalties”

  1. I have not filed for FTA (yet)! However, I have recently received checks from the state DOR & the IRS because evidently we overpaid taxes a few years ago. And then I got a 2nd letter from the IRS saying they’re sending us more overpaid taxes!

    I checked and the first check amount doesn’t match the amount in the latest letter, so I guess I’m getting ever more back. This is also amazing & timely because I’ve made a grand total of $2500 in my business this year. So yeah. I feel that part about biz losses too.

    But it’s all suuuuuuper interesting since we’ve used CPAs for like the last 10 or so years. So even they can fuck it up! (We have been bouncing around because our CPAs aren’t doing a great job.)

  2. Ugh yeah I didn’t properly understand how to do my business taxes here in Australia, and got a ‘please explain’ from the Australian Tax Office. A big part was unfortunately me just not pushing my accountant to get them filed in time, and thankfully with an explanation they reduced my fine to only $500

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