The First Time Abatement (FTA) penalty waiver program is a relatively unknown program that allows taxpayers to request a waiver of failure-to-pay (FTP) and failure-to-file (FTF) penalties that have been applied to past due tax obligations. Introduced in 2001, this program allows taxpayers who have run into trouble with their tax obligations to avoid paying these penalties, which can often be a significant additional financial burden. Prior to this fee waiver program, the only option in requesting a fee waiver was based on “reasonable cause”, meaning that a taxpayer must provide proof that the reason they were late either filing or paying their taxes was based on circumstances the IRS agreed were valid. This is a much harder burden of proof for the average taxpayer to prove.
This issue deals with the concept of “reasonable cause”, so before we proceed let’s define what that is. Reasonable cause relief is most often “granted when a taxpayer has exercised ordinary business care and prudence in determining their tax obligation but nevertheless failed to comply with these obligations” (IRM 22.214.171.124.2) The reasonable cause standard can also be proven through proof of one of the following: death or serious illness of the taxpayer or a member of their immediate family; fire, casualty, natural disaster or other disturbance; and the taxpayer’s inability to obtain records through no fault of their own.
Both FTP and FTF penalties can be up to 25% of any unpaid tax. The FTA penalty waiver program allows taxpayers who have been compliant in the past with their tax filing and payment obligations to have FTP and FTF penalties waived. This relief can also be applied to penalties for failure to deposit (FTD). Although interest must still be paid, it is much less of a financial burden to a taxpayer than having to also pay FTP and FTD penalties.
If the taxpayer is requesting FTA and is facing penalties from multiple filing periods, if the waiver is granted, it will be applied to only one tax period, the earliest period that meets the guidelines. Although it is stated that the FTA penalty waiver is a one-time waiver, if a taxpayer is granted the waiver, they may qualify for the waiver in the future if they once again meet its criteria of 3 years in compliance in filing and paying taxes prior to the year the penalty was applied, and they must also be current with their taxes and payment obligations.
Unfortunately, the IRS does not widely provide the general public much information in regards to this penalty waiver program. A search of the IRS website for “First-Time Penalty Abatement” results in very limited information being provided. The FTA is almost a “secret” waiver that the IRS should make the public more aware of, but may be choosing not to do so in order to maximize revenue from these various penalties.
If you have been assessed either of these penalties, consultation with a qualified tax professional may increase your chances in being granted abatement of these often costly penalties.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.