You or your business may qualify for First Time Penalty Abatement (FTA).
As you probably know, the Internal Revenue Service (IRS) can assess penalties to both individuals and businesses for not complying with the tax rules. For example,
- Late filers are generally subject to a penalty for Failure to File (“FTF”) a tax return, which amounts to 5% of the tax owed for each month the return is late, up to maximum of 25%.
- An S Corporation or Partnership can also be subject to the FTF penalty. A penalty of $195 per partner or shareholder per month may be assessed these entities for each month (or part of a month) that the tax return is late (up to a maximum of 12 months).
- A Failure to Pay (“FTP”) penalty of ½% per month may be charged to a taxpayer who does not pay their taxes on a timely basis. This penalty may be assessed against any taxpayer that has a tax liability and is computed, based on the tax owed for each month it is late, up to a maximum of 25%.
- Finally, a Failure to Deposit (“FTD”) penalty can be charged if a tax payment is not made timely, in the correct amount, and in the correct manner. This penalty is most often charged to businesses that file a Form 941, Employer’s Quarterly Federal Tax Return. The percentage rate of this penalty depends on several factors, including the number of days the payment is late.
What if I told you that you could get a “do-over”? In fact, if your circumstances are right, you just may be able to. What are the ways a taxpayer can get a “do-over”?
If any of the above penalties are assessed, it’s possible that they can be removed if reasonable cause is established. However, to succeed with a facts and circumstances appeal, a taxpayer must be able to prove that circumstances beyond their control prevented them from filing or paying timely, and, even then, it may not be enough to establish reasonable cause. For example, a major illness or natural disaster are situations that may fall into this category.
If reasonable cause cannot be established with IRS, the next step may be to try and remove these penalties under the First-Time Abatement (“FTA”) procedures. Be aware that FTA relief is generally not available for a taxpayer or business that does not have a track record of timely filing compliance. In order to qualify for penalty abatement under the FTA program, taxpayers must be current with their tax filings and payments for the current and previous three years. An existing installment arrangement with the IRS does not preclude one from qualifying for the FTA rules, as long as payments are current with IRS.
Certain tax returns can never qualify under FTA relief, including those returns that require a particular event to occur in order to file them. Examples include Form 706 (Estate Tax Return) or 709 (Gift Tax Return). In addition, relief may only be granted once every three years. Therefore, if penalties are being charged for multiple years, IRS may consider FTA relief for the earliest year only, and reasonable cause would have to be established in order for penalty abatement to be considered for the remaining years.
Since the IRS hardly publicizes FTA relief procedures, most people are not aware they could qualify. It is definitely an avenue that should be investigated and utilized, if the criteria are met. Keep in mind, it is best to contact the IRS in writing when undertaking any important communication.
If you have questions as to how we can help you with the potential abatement of penalties, or any other tax issues that may affect you or your business, contact us at info@zinnerco.com or call 216-831-0733.
