Complete Guide to First Time 1099 Penalty Abatement: Getting IRS Relief for Late Filings

Introduction: Understanding Your Options for Penalty Relief

If you have received an IRS penalty notice for filing 1099 forms late, you may be wondering: "Can I get penalty relief if this is my first time filing 1099s late?" The answer is often yes. The IRS offers a program called First Time Abatement (FTA) that allows taxpayers with a clean compliance history to have certain penalties waived, including penalties for late information returns like 1099s.

The first time 1099 penalty abatement program is one of the most valuable but underutilized relief options available to businesses. Many taxpayers pay penalties they do not have to pay simply because they do not know this option exists or do not understand how to request it properly. This comprehensive guide will explain everything you need to know about obtaining penalty relief for late 1099 filings.

1099 late filing penalties can be substantial. For tax year 2025, penalties range from $60 per form for filings made within 30 days of the deadline to $310 per form for filings made after August 1 or not at all. For a business that paid 100 contractors and filed all their 1099s three months late, the penalty could be $13,000 or more. First Time Abatement could eliminate that entire penalty.

In this guide, you will learn:

  • What First Time Abatement is and how it applies to 1099 penalties
  • Eligibility requirements you must meet to qualify
  • How to request penalty relief step by step
  • What happens if you are denied and alternative relief options
  • How to prevent future penalties so you do not need to use FTA again
  • Common mistakes to avoid when requesting abatement
  • Real-world examples of successful penalty abatement requests

What Is First Time Abatement (FTA)?

The IRS Administrative Relief Program

First Time Abatement is an administrative penalty relief program established by the IRS in 2001 under Internal Revenue Manual (IRM) Section 20.1.1.3.6.1. It allows the IRS to abate (remove or reduce) certain penalties for taxpayers who have a history of compliance but have made a one-time mistake. The policy recognizes that even normally compliant taxpayers can occasionally fail to meet their obligations due to oversight, circumstances, or simple human error.

The key principle behind FTA is that the IRS wants to encourage compliance, not punish taxpayers who are generally doing the right thing. If you have been filing your returns and paying your taxes on time for years, one late filing should not result in devastating penalties that could harm your business.

Which Penalties Can Be Abated Under FTA?

First Time Abatement applies to several types of penalties, including:

  • Failure to file penalties (IRC Section 6651(a)(1)) - This includes late filing of 1099s
  • Failure to pay penalties (IRC Section 6651(a)(2) and (a)(3))
  • Failure to deposit penalties (IRC Section 6656)
  • Information return penalties (IRC Section 6721 and 6722) - These are the specific penalties for 1099 late filing and failure to furnish

This means that both the penalty for filing 1099s late with the IRS (Section 6721) and the penalty for furnishing copies late to recipients (Section 6722) can potentially be abated under FTA if you meet the eligibility requirements.

Important Limitations

There are some important limitations to understand:

  • FTA is not automatic. You must request it; the IRS will not apply it on their own
  • FTA can only be used once. Once you receive FTA for a particular penalty type, you cannot use it again for that penalty type until three more years of compliance pass
  • FTA does not remove interest. Even if penalties are abated, any interest that has accrued on the original penalty remains due (though the interest may be reduced once the underlying penalty is removed)
  • Some penalties are excluded. Penalties for fraud, intentional disregard, and certain other serious violations cannot be abated under FTA

Eligibility Requirements for First Time 1099 Penalty Abatement

The Three-Year Compliance Test

To qualify for first time 1099 penalty abatement, you must meet all three of the following criteria:

1. Clean Penalty History for the Past Three Years

You must not have been required to file a return or have had no penalties assessed for the same type of return during the three tax years prior to the year of the penalty. This means:

  • If you are requesting abatement for a 2024 tax year 1099 penalty, the IRS will review your history for tax years 2021, 2022, and 2023
  • You must have been penalty-free for information return penalties during those three years
  • Minor penalties that were previously abated do not disqualify you, but penalties you paid do

2. All Required Returns Currently Filed or Valid Extensions in Place

At the time you request FTA, you must be current on all your filing requirements. This means:

  • All required tax returns (income tax, employment tax, etc.) must be filed
  • All required information returns (1099s, W-2s, etc.) must be filed
  • If you have not yet filed, you should file before requesting FTA, even if late

3. All Taxes Must Be Paid or You Must Have an Arrangement to Pay

You must have paid all taxes due or have an approved installment agreement or other payment arrangement in place. For 1099 penalties specifically, this usually is not an issue since the 1099 is an information return, not a tax payment. However, if you have other outstanding tax liabilities, they could affect your FTA eligibility.

How the IRS Verifies Eligibility

When you request FTA, the IRS will check their records to verify your compliance history. They specifically look at:

  • Prior penalties assessed: Any penalties for late filing, late payment, or late deposit in the past three years
  • Filing history: Whether all required returns have been timely filed
  • Payment history: Whether taxes have been paid or acceptable payment arrangements exist

If the IRS finds that you qualify, they will typically grant FTA without requiring extensive documentation. The process is designed to be straightforward for qualifying taxpayers.

Special Considerations for Business Entities

If your business is a partnership, S corporation, or other pass-through entity, the compliance history of the entity is what matters for 1099 penalties, not the compliance history of the individual owners. This can be beneficial if you are a new business that has not yet accumulated three years of history (see below for how new businesses are treated).

For sole proprietors, your personal tax compliance history is considered alongside your business information return history.

How to Request First Time 1099 Penalty Abatement

Method 1: Request by Phone

The quickest way to request FTA is often by calling the IRS directly. Here is how to do it:

  1. Gather your information: Have your penalty notice, business tax ID (EIN), and any relevant details ready
  2. Call the IRS: The number will be on your penalty notice. For business-related inquiries, you can also call 1-800-829-4933
  3. Request First Time Abatement: When you reach a representative, clearly state that you are requesting First Time Abatement for the penalty shown on your notice
  4. Provide any requested information: The representative may ask questions to verify your identity and eligibility
  5. Get confirmation: If approved, ask for a confirmation number and the representatives ID number

Pros of phone requests: Immediate response, no paperwork required if approved on the spot.

Cons: Long wait times during peak periods, may need to call during business hours, no written record unless you request a letter.

Method 2: Written Request

You can submit a written request for FTA by mail. This is often the better choice if you want a documented record or if the phone approach did not work. Here is what to include:

Your Letter Should Include:

  • Your name and business name (if applicable)
  • Your taxpayer identification number (EIN or SSN)
  • The tax year and form type the penalty relates to
  • The specific penalty amount you are requesting to be abated
  • A clear statement requesting First Time Abatement
  • A statement that you meet the eligibility requirements (clean three-year history, current on filings, taxes paid)
  • Your signature and date

Sample Language:

"I am writing to request First Time Abatement of the penalty assessed on [Notice Number] dated [Date] for late filing of 1099 forms for tax year [Year]. I believe I qualify for administrative relief under IRM 20.1.1.3.6.1 because: (1) I have not been assessed any similar penalties in the prior three tax years, (2) all my required returns are currently filed, and (3) all my taxes are paid in full. I request that the penalty of $[Amount] be abated in full."

Where to Send: Mail your letter to the address shown on your penalty notice, or to the IRS Service Center that handles your area for information returns.

Method 3: IRS Online Account (Limited)

For certain individual penalties, you may be able to request penalty relief through your IRS Online Account at IRS.gov. However, this option is more limited for business penalties and information return penalties. Check your IRS.gov account to see if this option is available for your specific situation.

Method 4: Use Form 843, Claim for Refund

If you have already paid the penalty and want to request a refund, you should file Form 843, Claim for Refund and Request for Abatement. This form provides a structured way to request penalty abatement and can be used for FTA requests. In the explanation section, clearly state you are requesting First Time Abatement.

What to Do If Your FTA Request Is Denied

Understanding Why Requests Are Denied

If your request for first time 1099 penalty abatement is denied, the most common reasons include:

  • Prior penalties in the look-back period: You had a similar penalty assessed in the three years before the year at issue
  • Missing returns: You have unfiled returns that must be addressed first
  • Outstanding tax balances: You have unpaid taxes without an approved payment arrangement
  • Penalty type not covered: Some penalties (like fraud-related penalties) are not eligible for FTA
  • Already used FTA: You previously received FTA and have not yet accumulated another three clean years

Alternative Relief: Reasonable Cause

If you do not qualify for FTA, you may still be able to get penalty relief by demonstrating reasonable cause. Reasonable cause means you had a valid reason for the late filing that was beyond your control and you exercised ordinary business care and prudence.

Examples of circumstances that may support reasonable cause include:

  • Death or serious illness of the taxpayer or an immediate family member
  • Natural disasters such as fires, floods, or hurricanes that destroyed records or prevented filing
  • Unavoidable absence (e.g., imprisonment, being in a combat zone)
  • Reliance on erroneous advice from a tax professional or the IRS itself
  • Destruction of records beyond your control
  • First-time business owner who made good-faith efforts to comply

To request reasonable cause relief, you must provide a written explanation and supporting documentation. Unlike FTA, reasonable cause requires you to prove your case.

Appealing a Denied Request

If both FTA and reasonable cause are denied, you have the right to appeal. The appeals process includes:

  1. Request a supervisor review: If you spoke to an IRS representative on the phone, ask to speak with their supervisor
  2. Submit to IRS Appeals: You can request consideration by the IRS Office of Appeals by filing a written protest
  3. Taxpayer Advocate Service: If you are experiencing financial hardship, the Taxpayer Advocate may be able to help
  4. Pay and sue for refund: As a last resort, you can pay the penalty and sue for a refund in federal court

Current Penalty Amounts for Late 1099 Filings (Tax Year 2025)

Understanding What You Might Save with FTA

To understand the value of first time 1099 penalty abatement, it helps to know the current penalty amounts:

How Late Was the Filing? Penalty Per Form Small Business Cap Large Business Cap
Within 30 days of deadline $60 $232,500 $664,500
31 days to August 1 $130 $664,500 $1,993,500
After August 1 or not filed $310 $1,329,000 $3,987,000
Intentional disregard $630 or 10% of reportable amount No cap No cap

Small businesses are defined as those with average annual gross receipts of $5 million or less for the three most recent tax years. The lower caps apply to small businesses.

Example Penalty Calculations

Example 1: Small Business with 25 Contractors

A small consulting firm paid 25 independent contractors more than $600 each during the year. They missed the 1099-NEC deadline of January 31 but filed all forms on March 15, which is 43 days late.

  • Penalty tier: 31 days to August 1 = $130 per form
  • Total penalty: 25 forms x $130 = $3,250
  • With successful FTA: $0

Example 2: Medium Business with 200 Contractors

A staffing agency paid 200 contractors and forgot to file 1099-NEC forms entirely. They discovered the oversight in September and filed immediately.

  • Penalty tier: After August 1 = $310 per form
  • Total penalty: 200 forms x $310 = $62,000
  • With successful FTA: $0

Example 3: Large Business with 1,000+ Contractors

A large company with over 1,000 contractor relationships filed their 1099s two weeks late.

  • Penalty tier: Within 30 days = $60 per form
  • Total penalty: 1,000 forms x $60 = $60,000
  • With successful FTA: $0

As these examples show, FTA can save businesses from thousands to tens of thousands of dollars in penalties.

Special Situations and Common Questions

New Businesses and First-Year Filers

If your business is brand new and this is your first year filing 1099s, you face a unique situation. Technically, you may not have three years of history to evaluate. In these cases:

  • The IRS typically views new businesses favorably if they have been compliant since inception
  • FTA may still be available since you cannot have prior penalties if you have not been in business
  • Be sure to explain in your request that this is your first year of operation
  • Reasonable cause arguments may be particularly strong for new businesses learning the compliance requirements

Multiple Penalty Types in the Same Year

If you have penalties for both late IRS filing (Section 6721) and late recipient furnishing (Section 6722) in the same year, you can request FTA for both. These are technically separate penalties, but they relate to the same underlying failure, so the IRS will typically consider them together.

FTA for Different Form Types

FTA applies to penalties by type, not by form. This means if you receive penalties for both late 1099-MISC and late W-2 filings, using FTA for one does not necessarily preclude using it for the other, though the IRS may view them collectively as information return penalties. Discuss your specific situation with the IRS or a tax professional.

What If I Already Paid the Penalty?

If you already paid the penalty before learning about FTA, you can still request abatement and a refund. Use Form 843, Claim for Refund and Request for Abatement, and clearly indicate you are requesting First Time Abatement. The general rule is you must request a refund within three years of the date the penalty was paid or two years from the date of assessment, whichever is later.

Does FTA Apply to State Penalties?

First Time Abatement is a federal IRS program. It does not apply to state tax penalties. If you have state-level penalties for information returns, you will need to check with your state tax agency about any relief programs they offer. Some states have similar first-time penalty waiver programs, but the rules vary.

Preventing Future 1099 Penalties

Why Prevention Is Critical

Once you use First Time Abatement, you cannot use it again until you have another three clean years. This means any future late filings will result in penalties you must pay. The best strategy is to avoid 1099 penalties entirely going forward.

Best Practices for Timely Filing

1. Implement Year-Round Compliance Systems

  • Collect W-9 forms from all contractors before making any payment
  • Track payments to contractors in your accounting system throughout the year
  • Verify TINs when you receive W-9s, not at year-end
  • Create calendar reminders for key deadlines

2. Start Early

  • Begin preparing 1099s in early January, not the last week of the month
  • Set an internal deadline of January 15 to have all forms ready for review
  • Allow buffer time for unexpected issues

3. Use Professional Filing Software

  • Professional 1099 filing software automates validation and error checking
  • E-filing provides immediate confirmation and faster processing
  • Software can help with recipient delivery through print/mail services or electronic delivery

4. Know Your Deadlines

  • 1099-NEC: January 31 for both IRS filing and recipient copies (no automatic extension available)
  • 1099-MISC, 1099-INT, 1099-DIV: January 31 for recipient copies, March 31 for electronic IRS filing (automatic 30-day extension available with Form 8809)

5. Have a Backup Plan

  • Know who else in your organization can handle 1099 filing if the primary person is unavailable
  • Keep records accessible and well-organized
  • Consider using an external service if internal resources are limited

Real-World Examples of Successful Penalty Abatement

Example 1: The Overwhelmed Small Business Owner

Situation: Maria runs a small marketing agency with 15 contractors. In her sixth year of business, she got so busy with a major client project that she completely forgot to file 1099s until she received an IRS notice in April. Her total penalty was $1,950 (15 forms x $130 for the 31-day-to-August tier).

Resolution: Maria called the IRS and requested First Time Abatement. She had never received any penalties in her previous five years of business. The IRS representative verified her clean history and approved the FTA request on the spot. Maria received a letter confirming the penalty was abated to $0.

Key Takeaway: Phone requests can be quick and effective if you clearly qualify.

Example 2: The Payroll Service Provider

Situation: ABC Payroll Services processes 1099s for 50 client companies. Due to a software migration issue, they filed all forms three weeks late. The total penalty across all clients was over $45,000.

Resolution: ABC Payroll had used FTA two years prior for a different issue, so they did not qualify for FTA again. However, they submitted a detailed reasonable cause letter explaining the software migration, including documentation from the software vendor about the unexpected delays. They also showed evidence of their extensive efforts to file as quickly as possible once the issue was identified. The IRS granted partial reasonable cause relief, reducing the penalty by about 60%.

Key Takeaway: When FTA is not available, documented reasonable cause can still provide significant relief.

Example 3: The First-Year Corporation

Situation: XYZ Corp was a new S corporation in its first year of operation. The owners, transitioning from being sole proprietors, did not realize the corporation had separate 1099 filing obligations. They filed 30 late 1099-NEC forms in March after a CPA pointed out the requirement.

Resolution: XYZ Corp requested FTA, explaining this was their first year in business and they had made immediate efforts to comply once they understood the requirement. The IRS granted full abatement, noting the companys lack of prior history and prompt corrective action.

Key Takeaway: New businesses without prior history are often good candidates for FTA.

Frequently Asked Questions About First Time 1099 Penalty Abatement

Can I get penalty relief if this is my first time filing 1099s late?

Yes, you may qualify for First Time Abatement (FTA) if you have a clean compliance history for the three tax years prior to the penalty year. You must also be current on all filing requirements and have all taxes paid or be in an approved payment arrangement. FTA can eliminate your entire penalty for late 1099 filing.

How do I know if I qualify for First Time Abatement?

Review your tax history for the three years before the penalty year. If you did not receive any penalties for late filing, late payment, or late deposits during those years, and you are currently caught up on all filings and tax payments, you likely qualify. You can call the IRS or submit a written request to find out for certain.

What if I had a small penalty two years ago?

Unfortunately, if you were assessed a penalty in any of the three years preceding the penalty year, you typically will not qualify for FTA. However, if that prior penalty was itself abated (removed), it may not count against you. You should still request FTA and explain the situation, as the IRS will review your specific circumstances.

Can I use First Time Abatement more than once?

You can use FTA again after you accumulate another three years of clean compliance following the year for which you received FTA. For example, if you received FTA for a 2024 penalty, you would need to have a clean record for 2025, 2026, and 2027 before being eligible for FTA again starting with 2028 penalties.

Does First Time Abatement apply to intentional disregard penalties?

No. The intentional disregard penalty (which is higher at $630 per form with no cap) is not eligible for FTA. This penalty applies when the IRS determines you knowingly and willfully failed to file or filed incorrect information. Regular late filing due to oversight or mistakes is eligible for FTA; intentional non-compliance is not.

How long does it take to get a response to an FTA request?

If you call the IRS and the representative can verify your eligibility immediately, you may get approval on the same call. For written requests, response times vary but typically range from 30 to 60 days. During peak periods or if your case requires additional review, it may take longer.

What documentation do I need to request FTA?

For FTA requests, you generally do not need extensive documentation. You need to identify the penalty (include the notice number and amount) and state that you are requesting First Time Abatement. The IRS will verify your eligibility in their records. However, having your penalty notice and basic business information ready will help the process go smoothly.

What if my FTA request is denied?

If FTA is denied, you can request penalty relief based on reasonable cause by explaining and documenting the circumstances that led to the late filing. You can also request a supervisor review, appeal to the IRS Office of Appeals, or contact the Taxpayer Advocate Service if you are experiencing hardship.

Can I request FTA if I have not yet filed the late 1099s?

You should file the late 1099s before or at the same time as requesting FTA. One of the eligibility requirements is that all required returns are filed. Filing the late returns shows good faith and strengthens your request.

Does FTA eliminate both the filing penalty and the furnishing penalty?

FTA can be applied to both the Section 6721 penalty (failure to file correctly with the IRS) and the Section 6722 penalty (failure to furnish correct statements to recipients). When requesting FTA, be sure to reference both penalties if you received both.

Is there a deadline to request First Time Abatement?

For penalties you have not yet paid, there is no strict deadline to request FTA, but you should request it before the assessment becomes final or before collection action begins. For penalties you have already paid and want refunded, you must request abatement within three years of the date you paid the penalty or two years from the date of assessment, whichever is later. Do not delay requesting FTA once you receive a penalty notice.

How BoomTax Helps You Avoid 1099 Penalties in the First Place

Prevention Is Better Than Abatement

While first time 1099 penalty abatement is a valuable safety net, the best strategy is to never need it. BoomTax is designed from the ground up to help businesses file their 1099 forms correctly and on time, so penalties never occur in the first place.

Automated Validation and Error Prevention

BoomTax provides comprehensive features that eliminate the common causes of 1099 penalties:

  • 500+ IRS rule validation: Every form is checked against IRS requirements before submission, catching errors that would otherwise trigger penalties
  • Real-time error alerts: Issues are flagged immediately so you can fix them before filing, not after receiving an IRS notice
  • TIN verification integration: Verify that contractor names and TINs match IRS records before you file, preventing name/TIN mismatch penalties
  • Format validation: Automatic checking of TIN formats, addresses, and payment amounts to ensure compliance
  • Missing data detection: Required fields are verified for completeness before any filing is submitted

Timely Filing Made Easy

BoomTax eliminates the manual processes that cause missed deadlines:

  • Bulk data import: Upload hundreds or thousands of 1099s from Excel, CSV, or accounting software in minutes rather than hours
  • One-click e-filing: Submit directly to the IRS through BoomTax without navigating complex government systems
  • Real-time status tracking: Know immediately when your filings are accepted by the IRS
  • Multi-company support: File for multiple businesses from one account if you manage 1099s for multiple entities

Recipient Delivery Solutions

Remember that penalties apply both for late filing with the IRS and for late furnishing of copies to recipients. BoomTax handles both:

  • Print and mail service: BoomTax prints, stuffs, and mails recipient copies with tracking so you can prove timely delivery
  • Electronic delivery: Instant delivery through a secure online portal with IRS-compliant consent management
  • PDF downloads: Generate official recipient copies for self-distribution if you prefer to handle delivery yourself

Free Unlimited Corrections

If you do need to correct a 1099 after filing, BoomTax includes unlimited free corrections. This encourages prompt correction of any discovered errors, which can help minimize penalties if issues are caught early. There is no per-form charge that might discourage you from making necessary corrections.

Preserve Your FTA Eligibility

By using BoomTax to file accurately and on time every year, you maintain your clean compliance history. This means if you ever do face an unexpected situation that results in a penalty, your First Time Abatement eligibility will still be intact as your emergency backup.

Start using BoomTax today and build the kind of compliance track record that protects your business. With proper systems in place, FTA becomes insurance you hope you never need rather than a lifeline you are counting on.

Conclusion: Take Action on Penalty Relief

First time 1099 penalty abatement represents one of the most valuable but underutilized relief options available to businesses. If you have received a penalty notice for late 1099 filing and have a clean compliance history for the past three years, you may be able to eliminate your entire penalty simply by asking.

Key takeaways from this guide:

  • FTA is available to taxpayers with three years of clean compliance history who are current on all filings and payments
  • You must request FTA - the IRS will not apply it automatically
  • Phone requests are often the quickest way to get an immediate decision
  • Written requests provide documentation and are preferred for complex situations
  • If FTA is denied, reasonable cause relief may still be available
  • Prevention is better than abatement - use proper systems and software to avoid penalties entirely

If you are facing a 1099 penalty, do not simply pay it without exploring your relief options. The potential savings of hundreds or thousands of dollars makes a brief phone call or letter well worth the effort.

For more information on 1099 compliance and penalty prevention, explore our guides on avoiding 1099 penalties, late filing penalty amounts, what to do if you missed the deadline, and 1099 reporting requirements.

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