Here’s some good news for taxpayers with three or more consecutive years of great compliance history: if you had a clean tax record prior to recent penalties, you can apply to have those fees waved through the First-Time Penalty Abatement Program (FTA).
Created in 2001 by the IRS, the FTA is a program designed to reward compliant taxpayers by waiving penalties ranging from failure to file and pay, to failure to deposit. And though it’s only applicable for a single tax period or year, anyone with a good compliance history can apply for an FTA.
Surprisingly, however, few people actually know of interest abatement, much less take advantage of it. According to the Treasury Inspector General for Tax Administration, only 8% of taxpayers in America applied for and received an FTA in 2012.
To combat this, as of this year, the IRS is currently exploring the possibility of automating FTA waivers, but in the meantime, one can now request and receive an FTA through a simple phone call, while the IRS also seeks to promote abatement awareness by inserting informational pamphlets on the back of tax notices.
One thing is clear though: tax professionals need to understand the rules surrounding FTAs.
For one, clients need to understand that fee abatement only applies to certain failure to file, pay, and deposit penalties, and never estimated tax or return accuracy fees.
For another, tax professionals should first seek Reasonable Cause Penalty Abatement whenever applicable (IRS error or late payments due to hardships, for example) before pursuing an FTA, as one can then save First-Time Abatement for another time. To do this, however, tax professionals should always confirm that the penalty waiver is correctly classified under Reasonable Cause, as the IRS will tend to automatically file any abatement as an FTA.
Either way, if you have a good compliance history, it’s a comforting thought to know penalty abatement could be possible.
(This post was based off of this article, written by Jim Buttonow.)
