Tim’s Tax News on the Tenth – October 2021

The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy. The policy has been modified over the years to clarify that relief applies only where the taxpayer is current with all tax filings and tax payments.

WHAT IS A FIRST TIME ABATEMENT?

The First Time Abatement policy (FTA) is an IRS relief policy that provides a means to remove assessed penalties under the criteria detailed below:

• The relief is a one-time abatement. The FTA cannot be granted more than once to a taxpayer. Once the FTA is granted that is the only time it will be issued to the taxpayer’s account.
• The FTA relief applies to the following penalties:
• Failure to file a required return under IRC § 6651(a) (1) (individual returns), §6698 (partnership returns) and §6699 (S Corp. returns). Each of these penalties accrues at 5 percent for each month or portion of a month the failure to file continues up to a maximum of 25% of the tax.
• Failure to pay taxes assessed IRC §6651(a) (2) and IRC §6651 (a) (3). These penalties accrue at 1/2 percent per month or part of a month that the failure to pay continues and has a maximum of 25% of the tax.
• Failure to deposit taxes which you are required to deposit under IRC §6656. This penalty ranges from 2 percent to 15 percent of the amount not timely deposited depending on how many days late is the deposit and whether the IRS has notified the taxpayer of the delinquency.
• To obtain the one-time FTA relief on the taxpayer’s first penalties the taxpayer must:
• Have filed all required returns or have filed a valid extension of time to file.
• Have paid or made arrangements to pay (i.e., installment agreement) all taxes currently due.
• Have not previously been required to file or if returns were filed, had no penalties in the last three years, a taxpayer being charged an estimated tax penalty will not disqualify the taxpayer for FTA relief.
• If multiple periods are involved (i.e., payroll tax quarterly returns), FTA will apply to the earliest period that meets the FTA criteria.
• For payroll taxes, the FTA applies to only one tax period.

WHEN IS FTA NEVER AVAILABLE?

The FTA relief is never available to a taxpayer for some penalties, such as late filed returns or unpaid tax for Form 706, U.S. Estate Tax Return, or Form 709, U.S. Gift (and Generation Skipping Transfer) Tax Return, or on Form 1120, or Form 1120S if returns were filed and a penalty assessed within the past three years. While a taxpayer is disqualified to seek relief for these limited penalties under FTA, the taxpayer can still try to seek relief if they can establish “reasonable cause” for the delinquency.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 28 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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Lavelle Law, Ltd. is registered with the Illinois Department of Financial and Professional Regulation as an approved continuing education provider for CPE for CPAs and Enrolled Agents. If your organization is seeking CPE courses in the area of Business Law, Innocent Spouse Relief, IRS Collections, Tax Scams (including ID Theft), or other areas in tax law that can be taught at your office, please contact me at thughes@lavellelaw.com.