Are You Eligible for First Time Tax Penalty Abatement?

 Posted on October 19, 2017 in Tax Appeals

If you are unable to file your tax return by the April 15 deadline, or if you cannot pay the taxes that are due at that time, you are likely experiencing financial hardship. Unfortunately, this hardship will only be compounded by the penalties that the IRS charges for failure to file or failure to pay taxes. However, you may be eligible for relief through a first-time penalty abatement (FTA) waiver.

What is FTA?

The IRS created the FTA waiver in 2001 to encourage compliance with tax requirements. Under this program, both individuals and businesses who have been compliant in the past can receive amnesty for penalties levied against them.

According to a 2012 report by the Treasury Inspector General for Tax Administration (TIGTA), more than 90 percent of the people who qualify for FTA do not use it because they are unaware that it is available. 

What Are the Requirements for FTA?

To qualify for a FTA waiver, taxpayers must meet the following criteria:

• They did not have any tax penalties in the three years prior to the year in which they received the penalty;
• They have filed all current required returns, or they have filed an extension; and
• They have paid any taxes that are due, or they have made arrangements to pay these taxes through a payment agreement or payment plan. 

The FTA waiver applies to failure-to-file and failure-to-pay penalties for individual taxpayers. Businesses are eligible for FTA waivers for failure-to-file, failure-to-pay, and failure-to-deposit penalties. Estate tax and gift tax returns are not eligible for FTA waivers.

Should I Request a FTA? 

Before applying for a FTA waiver, taxpayers should determine whether they are eligible for penalty relief due to reasonable cause, such as disability, catastrophic circumstances, or inability to obtain records. Since an FTA is a one-time waiver that only applies to a single tax period, it is best to only use it if other options are not available. 

Taxpayers should also be aware that requests for penalty abatement to the IRS are evaluated using an automated software program called the Reasonable Cause Assistant (RCA). This system has been known to incorrectly deny relief to people who should be eligible for FTA waivers. In these cases, a tax attorney can ask IRS representatives to override the RCA determination, and they can appeal a denial of a FTA request. 

Contact an Experienced San Jose Tax Lawyer 

If you have been penalized by the IRS for failing to file a tax return or failing to pay taxes, you need a knowledgeable tax attorney who can help you understand your options for penalty abatement and negotiate with the IRS on your behalf. Contact the San Jose tax attorney at John D. Teter Law Offices by calling 408-866-1810. 

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver

http://www.aicpa.org/InterestAreas/Tax/Resources/IRSProcedureAdministration/Pages/IRSPenaltyAbatement.aspx

https://www.thetaxadviser.com/issues/2013/jul/buttonow-july2013.html