Most people dislike paying taxes, but they hate paying IRS penalties. It may seem IRS penalties are arbitrary to most of us, but IRS policies are clear and deliberate on their reason for existence. That is to deter taxpayer’s noncompliance, and not to generate revenue.
In 2001, the IRS established FTA (first time penalty abatement waiver) to help administer the abatement of penalties consistently and fairly, reward past compliance, and promote future compliance. This little-known administrative penalty waiver allows a first-time noncompliant taxpayer to request abatement of certain penalties for a single tax period — one tax year for individual and business income taxes and one quarter for payroll taxes.
FTA Applies Only to Certain Penalties and Certain Returns
For individual taxpayers, FTA is available for two of the most common penalties: failure to file and failure to pay penalties.
For business and payroll taxpayers, FTA applies to the failure to file, failure to pay and/or the failure to deposit penalties. S corporation and partnership late-filing penalties also qualify for FTA.
Estate and gift tax returns do not qualify for FTA.
FTA does not apply to the estimated tax and accuracy penalties. Accuracy penalties are based on the specific facts and circumstances for each person or business and each tax year or period.
To Qualify for FTA, You Must Meet the Clean Compliance Criteria Rules
You must have a clean three-year penalty history. You cannot have any significant penalties in the past three years on the same type of tax return. The IRS has not publicly defined significant amount. The estimated tax penalty is an exception and would not disqualify you from receiving FTA. Prior penalties that the IRS abated for cause also do not disqualify you from FTA.
And finally, you must have filed all required returns. And, if you owe, you must be current on your payment arrangement with the IRS.
Paul Toepel is a CPA who has lived in Las Sendas for more than 19 years. His firm, Toepel Company, PC, is a full-service, Mesa based CPA firm offering a variety of services for more than 30 years.
These services include tax preparation and representation, accounting, fraud prevention, and QuickBooks setup and support. Their mission is “To provide exceptional service, knowledge and experience, all while making you and your business successful.”
For more information, call (480) 833-8300, or visit toepelcompany.com.