Each year, taxpayers are expected to file their returns and pay their taxes, knowing that if they fail to do so, they could face hefty penalties and fines. Let’s say you are an honest taxpayer and one year you don’t pay your taxes. This could have happened for a variety of reasons such as major disasters or IRS error. You may be surprised to know that a program exists that helps taxpayers who find themselves in one of these unfortunate situations. Enter: First-time Abatement.
First-time Abatement (FTA) is an IRS penalty waiver program that offers the option to receive penalty relief to taxpayers during a single tax period. The taxpayer has either failed to file their returns (FTF), failed to pay (FTP) their taxes due, or failed to make a deposit on an installment program (FTD), and is now being fined (potentially significantly). In order to receive the waiver, the taxpayer must demonstrate full compliance for the past three years, and, according to an April 2013 update, must be current with filing and payment requirements. The program provides a way for well-meaning taxpayers who make a mistake for the first time to avoid penalties.
In a 2012 report from the Treasury Inspector General for Tax Administration (TIGTA), they identified 278,840 taxpayers with FTF penalties and 1,367,750 taxpayers with FTP penalties who qualified for the waiver. The report took a sample of those qualified taxpayers and found that 91.2% of them were never granted waivers for their incurred penalties. Mainly, this is because taxpayers and tax professionals are not aware that the program exists. The IRS does not advertise the opportunity to request an FTA and taxpayers cannot be considered unless they request their penalties to be abated.
In total, the TIGTA report estimated that the unabated penalties totaled more than $181 million. These penalties are not designed to be revenue-producing for the Treasury, but rather to encourage taxpayers to file and pay. It is a way for the IRS to reward taxpayers for past compliance and promote future compliance. If you want to avoid penalties, read our complete Web Tax Guide for tips to prep you for tax season.
As a taxpayer, it may seem unfair that the IRS does not publicize the FTA. From the IRS’s perspective, the tax system is a voluntary self-assessed system and therefore, taxpayers and tax professionals are responsible for paying their taxes on a set date and knowing the rules that apply. At Meaden & Moore we work hard to stay on top of the wide range of tax laws and will do our due diligence to insure that our clients receive the best tax advice possible.