Select Page

Taxpayers in Southern California can face substantial penalties when they do not meet deadlines imposed by the Internal Revenue Service. There is a penalty for failing to file a tax return in a timely manner, and there is a penalty for failing to pay the tax owed on time. The longer a taxpayer waits beyond the due date to file a return or pay tax, the more these penalties grow. If not dealt with, they can reach 25 percent of the unpaid taxes.

In 2001, the IRS began giving some taxpayers a break. If a taxpayer is assessed a failure to file or a failure to pay penalty, the IRS can offer a waiver if the person was otherwise compliant during the previous three tax years. This measure is called a First-Time Abate, or FTA. The crucial point to remember about the FTA is that the IRS will not award it on its own initiative; taxpayers who qualify for it must make a request in order to receive it.

The FTA has the potential to help a substantial number of taxpayers who ordinarily follow the rules but who, for one reason or another, did not do so. The Treasury Inspector General for Tax Administration performed an audit of the FTA to see if it was being used properly, and the results were not encouraging.

In a recently released report, TIGTA found that approximately 90 percent of taxpayers who qualified for FTA in 2010 did not receive it. For the 2010 tax year, TIGTA estimated that over 1.4 million taxpayers had over $181 million in penalties that could have been abated through FTA.

Part of the problem lies with the IRS’s failure to publicize its availability. The FTA is not mentioned on the IRS’s webpage that discusses penalties, nor is it discussed in the instructions included with Form 1040, the basic individual income tax return. TIGTA recommended that the IRS take steps to promote the FTA more, and the IRS agreed to do so.

Source: Treasury Inspector General for Tax Administration, “Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance,” Reference Number: 2012-40-113, Sept. 19, 2012

• As the TIGTA reports shows, a number of taxpayers are missing out on a FTA. There are other options for relief from tax debts, including for those who may not qualify for a FTA. You can learn more by visiting my Irvine penalty abatement page.