Penalty Abatement for First-Time Homeowners Moving During Tax Year

Overview

Moving and buying a first home are major financial and logistical events. For many taxpayers, the timing and costs of a relocation can interfere with tax filing or payment responsibilities. Penalty abatement is a tool that can remove or reduce certain IRS penalties when a taxpayer demonstrates reasonable cause or qualifies for administrative relief like the First-Time Abatement (FTA).

In my 15 years advising clients, I’ve seen well-documented requests win relief when taxpayers clearly connect the timing, expense, or disruption of a first-time home purchase and move to missed deadlines. This article explains who is likely to qualify, what documentation the IRS wants, how to submit a request, and practical strategies to improve your odds.

(Authoritative references: IRS Publication 556: Taxpayer’s Rights (https://www.irs.gov/publications/p556); IRS penalty relief overview (https://www.irs.gov/individuals/penalty-relief).)

Who can qualify?

There are two common paths to penalty relief for taxpayers who moved while buying a first home:

• First-Time Abatement (FTA): An administrative waiver that can remove certain penalties (failure-to-file, failure-to-pay, and failure-to-deposit) if you meet IRS eligibility rules. Typical FTA criteria include having a clean penalty history for the prior three years, having filed required returns or currently being in compliance, and not having previously received FTA for the same type of penalty. See the FinHelp primer on First-Time Penalty Abatement (FTA) for specifics: First-Time Penalty Abatement (FTA).

• Reasonable Cause Abatement: If FTA doesn’t apply, the IRS may abate penalties when you show reasonable cause — that circumstances beyond your control prevented timely filing or payment. A move and costs tied to buying a first home can be persuasive if you document the disruption (see evidence list below). For guidance on building evidence and form rules, see our detailed walkthrough: How to Request Penalty Abatement: Evidence, Forms, and Timing.

Note: The IRS evaluates requests case-by-case. Being a first-time homeowner is not an automatic pass; you must connect the move to the tax failure and provide supporting documentation (IRS, Publication 556).

Common scenarios where abatement may help

• You missed the filing deadline because your closing, paperwork, or move consumed the time needed to prepare returns.
• A last-minute, large outlay (security deposit, major repair discovered at closing, unexpected moving expense) depleted funds needed to pay estimated tax or a balance due.
• A job-related relocation resulted in overlapping deadlines, lost records, or temporary inability to access needed documents.
• Serious family emergencies that coincide with the move (medical events, death in the family) that prevented you from filing on time.

In practice I’ve seen clients qualify after showing that the move created both a timing disruption and a cash flow shortfall that directly caused late payment.

What penalties are typically eligible?

• Failure-to-file (FTF) penalty
• Failure-to-pay (FTP) penalty
• Failure-to-deposit (employer payroll) penalties (in some FTA cases)

Accuracy-related penalties or fraud penalties are harder to abate and usually require stronger grounds; FTA normally does not apply to fraud penalties.

Documentation the IRS wants

To persuade the IRS you had reasonable cause related to a first-home purchase and move, assemble organized evidence. Strong requests are chronological and specific:

1. Closing documents: Closing Disclosure, HUD-1, or settlement statement showing purchase date and costs.
2. Proof of move: signed lease termination, moving company invoices, truck rental receipts, or packing/moving paid receipts.
3. Cash-flow evidence: bank statements showing large withdrawals or transfers tied to the purchase or repairs.
4. Repair or contractor invoices if unexpected home repairs consumed funds needed to pay taxes.
5. Employer relocation letters or job-start records that show timing overlapped with filing deadlines.
6. Medical records, death certificates, or other documents if a family emergency accompanied the move.
7. Postmarked mail, email timestamps, or a timeline showing attempts to comply (e.g., draft returns, correspondence with tax preparer) to show you tried to meet obligations.

Organize a short cover letter that lists the attached documents and ties each item to key dates (e.g., closing date, due date for tax payment, date you discovered repair). In my experience, a clear timeline is the single most persuasive element.

How to submit a request

1. Confirm which penalty was assessed and read the IRS notice carefully — it shows how to respond and gives contact information.
2. Check FTA eligibility first. If eligible, ask for FTA with a concise explanation and copies of supporting documents. If the IRS accepts administratively, it often removes the penalty without a lengthy back-and-forth.
3. If not eligible for FTA, prepare a reasonable cause letter and attach evidence. In many cases you can:

• Respond to the IRS notice in writing to the address on the notice.
• Call the phone number listed on the notice to discuss options and request abatement.
• Work with a tax pro or enrolled agent who can represent you before the IRS.

1. Form 843 (Claim for Refund and Request for Abatement) can be used in some situations to request refund or abatement (see Form 843 instructions and exceptions). Form 843 is not always required; often a written request or telephone request tied to the notice suffices. (IRS Form 843: https://www.irs.gov/forms-pubs/about-form-843)

File as soon as possible. Penalties and interest can continue to accrue; early requests may limit total cost. If you think you qualify under FTA, the IRS sometimes applies it automatically, but you should still verify and request correction if needed.

What to include in your reasonable cause letter (brief template)

• Salutation and return reference: include IRS notice number and taxpayer identifying info.
• One-paragraph timeline: key dates (purchase, closing, move, due date, when you filed or paid).
• One-paragraph explanation: explicitly connect the move/home purchase and the specific reason (cash shortage, paperwork delays, medical emergency) to the missed deadline.
• Evidence list: bullet list of attached documents with short descriptions and dates.
• Closing and request: politely request abatement of the named penalty and note willingness to provide additional information.

Keep it factual, concise, and date-focused. Avoid emotional language; the IRS evaluates documentation and facts.

Likely outcomes and timing

• Administrative acceptance: If you qualify for FTA, relief can be quick and administrative.
• Manual review for reasonable cause: These requests can take longer (weeks to months). Expect follow-up questions.
• Partial abatement: The IRS may abate some penalties but not all, or grant relief for one tax year and not another.
• Denial and appeal: If denied, you can appeal the decision through the IRS appeals process or request a Collection Due Process hearing if collections are involved.

Remember interest on unpaid tax generally continues to accrue even if penalties are abated. Relief applies to penalties, not typically to interest unless you ask for refund of interest under qualifying rules.

Common mistakes to avoid

• Waiting too long: Don’t delay — file the request as soon as you receive penalty notice or discover the issue.
• Vague statements: A letter that says “I was moving” without dates, documents, or timeline is unlikely to succeed.
• Assuming automatic relief: Being a first-time homeowner does not guarantee abatement; you must meet FTA rules or show reasonable cause.
• Overlooking alternative relief: If you can’t abate penalties, consider payment plans or an Offer in Compromise to address the remaining balance.

Example case (realistic, anonymized)

Client “A” closed on a first home on April 10. The client’s bank statement showed a $20,000 withdrawal for down payment and a $3,500 contractor invoice for urgent repairs discovered at closing. The client missed the April tax payment and received a failure-to-pay penalty. We submitted a reasonable cause letter attaching the settlement statement, contractor invoice, and a short timeline. The IRS abated the FTP penalty. Interest on the unpaid tax remained but the client saved several hundred dollars in penalties.

When to get professional help

If the penalty is large, involves multiple years, or you receive a notice threatening levy or levy action, consult a tax professional, enrolled agent, or tax attorney. In my practice, a qualified representative can often accelerate communications with the IRS and frame the case more effectively.

For general instructions on forms, evidence, and timing, consult our deeper guide: How to Request Penalty Abatement: Evidence, Forms, and Timing. For background on when the IRS will use administrative waivers versus reasonable cause, see: The Basics of Penalty Abatement: Reasonable Cause vs Administrative Waivers.

Final tips

• Build a clear timeline tying your home purchase/move to the missed tax action.
• Attach supporting financial records — organized and labeled.
• Start with a phone call if you need quick clarification, but follow up in writing with copies of documents.

Professional disclaimer: This article is educational and does not constitute individualized tax advice. Tax rules change; consult a licensed tax professional or the IRS if you need guidance specific to your situation.

Authoritative sources

• IRS Publication 556, Taxpayer’s Rights: https://www.irs.gov/publications/p556
• IRS Penalty Relief overview: https://www.irs.gov/individuals/penalty-relief
• IRS Form 843, Claim for Refund and Request for Abatement: https://www.irs.gov/forms-pubs/about-form-843