One-Time Penalty Abatement

The California Franchise Tax Board has implemented a new one-time Penalty Abatement program. This new program began on April 17, 2023. California Assembly Bill 194 has granted the FTB authority under Revenue Taxation Code(R&TC) Section 19132.5 to issue one-time abatements for timeliness penalties on individual income tax returns including Form 540, Form 540NR, and Form 540 2EZ. The new FTB one-time abatement can be applied to tax periods beginning on or after January 1^st, 2022. Abatements will only apply to timeliness penalties for one (1) taxable year. Taxpayers will be able to take advantage of the program once all of the 2022 tax year deadlines and payments periods have passed. This includes the November 16, 2023, California deadline for storm related postponement of filing and payment.

Who is Eligible?
Only individual taxpayers subject to personal income tax law are eligible for the FTB one-time penalty abatement. As such, business entities including estates, trusts, and fiduciaries are excluded from participating in this program. Anyone previously granted an abatement under R&TC Section 19132.5 is not eligible as this is a once-in-a-lifetime abatement.

What is Eligible?

1. Failure To File Penalty: Tax returns not filed by the due date.
2. Failure To Pay Penalty: Tax liabilities not paid by the due date.
3. Failure To Pay Penalty:  Tax liabilities only partially paid.

How to Qualify

1. Taxpayers must be compliant with all tax return filing requirements.
2. Taxpayers must be a first time R&TC 19132.5 applicant.
3. Taxpayers must have paid all outstanding liabilities other than the abatable penalties or  have an existing installment agreement in place that is current on all payments.

How to File
Individuals may apply for an FTB one-time penalty abatement orally or in writing. A request can be submitted by mailing Form 2918 to the FTB or by calling 800-689-4776.

Note: FTB Abatement Procedure Is Different Than the IRS Abatement
The FTB one-time penalty abatement is different from the IRS penalty abatement. The FTB abatement is a one-time program that does not reset eligibility every 4 years las does the IRS abatement program. For the FTB abatement to become reoccurring, legislation would have to be enacted to expand or reform the program.

Note: Reasonable Cause Abatement
The FTB one-time penalty abatement is different than a cancellation of penalties due to reasonable cause for late filings or late payments. If a taxpayer can prove they exercised ordinary care and prudence, but were still late in filing or paying, they may request a penalty relief based on reasonable cause by submitting Form 2917 to the FTB. This may be a better option for eligible taxpayers as taxpayers may still apply for the one-time penalty abatement if their  reasonable cause abatement was denied.

Tax Problems Solved
At RJS LAW, we help clients with tax audits and related problems of every kind. In addition, we advise clients with estate planning, probate, domestic, and international tax planning. Call us at 619-595-1655 for a free consultation if you have a tax problem or would like to discuss tax and estate planning to avoid tax issues.

Written by Judith Jeremie