Do You Owe the IRS? This Program May Help
If you find yourself out of compliance with federal tax officials, but have otherwise been a reliable taxpayer, a newly revised IRS program may help you get back into compliance free of penalties.
A less-than-well-known aspect of IRS tax penalties is that taxpayers with a good compliance history may be eligible for a first-time abatement (FTA). The FTA option is a good thing to keep in mind if you ever find yourself receiving an IRS communication.
Penalties eligible for FTA penalty relief include:
- The failure-to-pay penalty (FTP)
- The failure-to-file penalty (FTF)
The failure-to-deposit (FTD) penalty
The FTP and FTP penalties are calculated on a monthly basis and the FTD deposit amount depends on the number of days late. Penalties and interest (compounded daily on unpaid taxes) can add up quickly. If you haven’t filed or paid on time, consult your advisor about setting up an installment agreement or other options.
The FTA-type of penalty removal is based on a taxpayers’ compliance history. It is a one-time consideration available only for a first-time penalty charge.
First-time abatement is not available in all cases, however. The IRS provides a list of exclusions in its FTA policy, which it recently modified. For example, FTA relief does not apply to:
- returns with an event-based filing requirement, such as Form 706, U.S. Estate Tax Return and Form 709, United States Gift (and Generation - Skipping Transfer) Tax Return;
- the Daily Delinquency Penalty (DDP);
- Form 1120, U.S. Corporation Income Tax Return/Form 1120S, U.S. Income Tax Return for an S Corporation if, in the prior 3 years, at least 1 Form 1120S was filed late but not penalized
- Information reporting dependent on another filing, such as various forms attached
The IRS also stated that its list of items ineligible for FTA is not all-inclusive.
You may be able to obtain FTA relief if you 1) have not been required to file a return or have no prior penalties for the preceding three years and 2) have filed all currently required returns (or filed a valid extension) and paid or arranged to pay any tax due. For example, the IRS will consider a taxpayer current if the taxpayer has an open installment agreement and is current with installment payments.
The FTA administrative waiver is available only for a single period. So if you request penalty relief for two or more periods, FTA relief will apply to the earliest tax period if it meets FTA criteria. Reasonable cause relief may be available for the other periods.
Hopefully you won’t be in a position to need penalty relief. If you are, and you’ve been current and compliant with your taxes, the FTA might prove helpful.