The IRS will liberally abate first time penalties; this includes both failure to pay, IRC 6651(a)(2) & IRC 6651(a)(3). and failure to file penalties, (IRC 6651(a)(1) , IRC 6698 & IRC 6699 on both income and payroll tax debts and returns. Failure to Deposit Penalties under IRC 6656 are also abatable.
The abatement is an Administrative waiver so there is no subjective evaluation or dispute over whether there is “reasonable cause” to abate.
However, First Time Penalty abatement (FTA) is limited to those taxpayers who are current with filing and paying requirements. How does the IRS define current compliance? Procedurally taxpayers are considered in current compliance if they have not failed to file a tax return in the past three years and failed to do so and/or had no prior penalties in the preceding three years, excepting the Estimated tax penalty.
Taxpayer can have an open installment agreement or offer in compromise if the taxpayer is current with their installment or OIC payments. He or she may still qualify for First Time Penalty Abatement!
If you are rejected for FTA, you may still pursue “reasonable cause” – the IRS will give a taxpayer an opportunity to fully comply. Essentially a taxpayer can get two bites at the apple.
The FTB Administrative Waiver can only apply to a single period. If a request for First Time Penalty Relief is considered for two or more periods, penalty relief applies only to the earliest period. Penalty relief on the subsequent periods will be based on the showing of reasonable cause and not willful neglect.
When your First Time Penalty is removed you will receive a letter similar to the following:
“We are pleased to inform you that your request to remove the (applicable penalty) has been granted. However, this action has been taken based solely on your compliance history rather than the information you provided. This type of penalty removal is a one-time consideration available only for a first-time penalty charge. IRS will base decisions on removing any future penalties on any information you provide that meets the reasonable cause criteria. You should receive notice of penalty adjustment within the next few weeks.”
Dana M. Ronald
photo credit: the half-blood prince via photopin cc 401(K) 2013 via photopin cc