Why First Time Abate will not fix your 1099 penalty: the relief order and the five questions

What First Time Abate covers, and the 1099 exclusion

FTA covers three penalties: failure to file under IRC 6651(a)(1), failure to pay under 6651(a)(2) and (3), and failure to deposit under 6656 (IRM 20.1.1.3.3.2.1(1)). It is granted on a clean history, "the same return filed for the 3 preceding years" with no unreversed penalties on those modules and no prior FTA abatement, on a single tax period, before reasonable cause is considered, and the taxpayer is told the removal was for good history "not based on their reasonable cause statement" (IRM 20.1.1.3.3.2.1(4), (10), (12)).

Then the list of what it "does not apply to": "Information reporting that is dependent on another filing," "Returns with an event-based filing requirement," and, by name, "Form 1099 series information returns," alongside Forms 8300, 706, 709, 990, 3520, 5471 and 5472 (IRM 20.1.1.3.3.2.1(7)-(8)). A 972CG penalty, and the CP215 that assesses it, is an IRC 6721 penalty on Form 1099 series returns. FTA is not available for it, however clean the history, and a response that asks for it is asking for something the examiner cannot give.

One useful footnote: since July 2024, Form 945 accounts for tax year 2022 onward carry TC 971 AC 995 (compliant) or AC 996 (FTA-type relief granted) on the transcript, and from January 2026 AC 996 "will also systemically reverse an assessed FTD penalty" (IRM 20.1.1.3.3.2.4). A payer can read its own Form 945 FTA position from the account transcript.

The four categories, in order

The sequence matters because the handbook tells staff to apply relief "if criteria are met, in the following order" (IRM 20.1.1.3(1)), and relief is considered only "after the penalized module ... has been thoroughly analyzed and corrected" (IRM 20.1.1.3(4)). A Form 8809 extension that was approved and never posted is not a reasonable-cause story; it is an account error that makes the late-filing portion wrong on its face. A duplicate transmittal that doubled the count is the same. Lead with those, cite the acknowledgment, and save the narrative for what is left. The IRC 6724 waiver, the "reasonable cause" every 972CG response invokes, is classified by the handbook as a statutory exception, considered second, and worked under IRM 20.1.7.12 rather than the general standard.

The five questions

IRM 20.1.1.3.2(8) tells the examiner to establish:

1. "What happened and when did it happen?"
2. What facts and circumstances prevented compliance during the period of non-compliance?
3. "How did the facts and circumstances result in the taxpayer not complying?"
4. "How did the taxpayer handle the remainder of their affairs during this time?"
5. "Once the facts and circumstances changed, what attempt did the taxpayer make to comply?"

And the rule that follows: "Reasonable cause does not exist if after the facts and circumstances that explain the taxpayer's noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time" (IRM 20.1.1.3.2(9)). Question 4 is the one payers forget. A system failure that stopped the 1099 run but not the payroll run, the sales tax filing or the 941 is a system failure the examiner will weigh against you.

The four review factors

"Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur" (IRM 20.1.1.3.2.2). Four things are reviewed: the reason, where "the dates and explanations should clearly correspond with events on which the penalties are based"; compliance history, "at least three" prior years, where "a first-time failure to comply does not by itself establish reasonable cause" and a repeated penalty "may indicate that the taxpayer is not exercising ordinary business care"; the length of time between the event and compliance; and whether the circumstances were beyond the taxpayer's control, including "whether or not the taxpayer could have anticipated the event." The dates are the whole case. The Reasonable Cause Assistant, the software used for other penalties, "is programmed to include reasonable and specific time frames" (IRM 20.1.1.3.6.5); information return penalties are decided by hand, but by examiners trained on the same clock.

Explanations the handbook pre-judges

Read the second row twice. It is the most common 972CG explanation and the handbook's weakest category. The information-return regulation has its own reliance test (the vendor was chosen with reasonable judgment, the data was sent in time, and the vendor itself had reasonable cause), which is stricter still; see how the IRS judges a response.

Signed, under penalties of perjury, one penalty at a time

"The taxpayer must provide a written statement, signed under the penalty of perjury, requesting penalty relief for all other penalties. For example, requests for relief received either orally or without an authorized signature may NOT be considered for the following: TIN penalties, Information return penalties, or Penalties assessed by a compliance program" (IRM 20.1.1.3.1(7)-(8)). A faxed signed statement is accepted. And: "The request must identify the penalty or penalties for which relief is requested and address the reason(s) applicable to the penalty or penalties since each penalty is for a different type of failure" (IRM 20.1.1.3.5(5)). A 972CG carries a penalty reference code; 505 is late filing plus bad TINs, 507 is paper filing plus bad TINs. Each failure named, each addressed, or the unaddressed one stands. The code decoder tells you how many failures your code contains.

Undue hardship and the e-file penalty

Hardship "generally does not affect a person's ability to file," with one exception the handbook states for this audience: "Undue hardship may establish reasonable cause for failure to file on magnetic media under Treas. Reg. 301.6724-1" (IRM 20.1.1.3.3.3(3)). That is the hook for a payer penalized under code 501, 504 or 507 for paper filing without a Form 8508 waiver: the two-cost-estimate hardship argument the waiver would have needed can still be made after the fact, under reasonable cause, and the penalty unit honors it with the same evidence (IRM 4.19.25.8.2).

Relying on IRS advice: what to log

Oral advice from the IRS can support relief where the penalty allows reasonable cause, if you can document "the question asked, the advice given, the office and method by which the advice was obtained, the date, and the name of the employee who provided the information" (IRM 20.1.1.3.3.4.2). Every call to the 866 line begins with an employee name and ID number. Write it down with the date and what you were told; it is the only way the call becomes evidence.

Questions people ask