The Internal Revenue Service will send notices to taxpayers in many situations after filing a tax return, when they did not file, when they did not pay, or when they fail to deposit (TFR- Trust Fund Recovery). Unfortunately, many taxpayers ignore the notices to their detriment. There are available relief that often times taxpayers do not take advantage of them.
Taxpayers must answer to correspondence from the Internal Revenue Service when an action is required. Do not dismiss any letter. Generally, taxpayers have 30 days to answer to an IRS correspondence before the IRS takes any further actions.
There are many ways to resolve a tax debt. Last week, we discussed the reasonable cause exception. When the reasonable cause exception does not work or fail, taxpayers could request an abatement of the penalty, if they are qualified.
First Time Abatement (FTA)
This is an administrative waiver that was implemented in 2001. It is available for penalty relief the first time a taxpayer is subject to one or more of the referenced penalties for a single return. The Internal Revenue Service provides this administrative relief from the following penalties when the qualifying criteria are met:
1. Failure to file (FTF) penalty under IRC 6651(a)(1) for tax returns, IRC 6698(a)(1) for Partnership returns, or IRC 6699(a)(1) for S Corporation returns.
2. Failure to pay (FTP) penalty under IRC 6651(a)(2) when the tax shown on the return is not paid by the due date and/or IRC 6651(a)(3) when the tax required to be shown on a return, but was not, and the tax was not paid by the date on the notice or demand to pay.
3. Failure to deposit (FTD) penalty under IRC 6656 when the tax was not deposited in the correct amount, within the time period prescribed, and/or in the required manner.
Taxpayers may qualify for the First Time Abatement for a penalty described above when they have been tax compliant. A taxpayer is considered compliant, if 1) You filed the same return type, if required, for the past 3 tax years before the tax year you received the penalty; 2) You did not receive any penalties during the prior 3 years, or any penalty was removed for an acceptable reason other than the First Time Abatement; 3) You filed all required returns or filed a valid extension of time to file; 4) You paid or have a valid payment plan to pay all taxes due for years other than the one you are requesting relief for.
Taxpayers could request the First Time Abatement for a penalty even if they have not fully paid the tax on their return. However, the Failure to Pay Penalty will continue to increase until the tax is paid in full.
The IRS charges interest on penalties. Interest continues to accumulate until the amount or balance owed is paid in full. The interest will be automatically reduced or removed if any of the penalties are reduced or removed.
Hiring a tax resolution expert is the best action a taxpayer could take in a tax matter before the IRS or a state tax authority.
We offer FREE initial consultation!!!