John Bullis: A worthwhile reason to contact the IRS
IRS charges many different penalties. Failure to file (on time, including extensions) can be 25 percent of the tax due. Failure to pay is more like additional interest. Congress felt too many taxpayers were not paying IRS because the cost of the interest was low compared to getting a bank loan.
The failure to deposit penalty relates to payroll taxes not paid to IRS in a timely manner. The required dates vary, but as the amount of taxes increases, the delay in paying over the payroll taxes is reduced.
Some taxpayers have been charged penalties for the above items and have just paid whatever the penalty notice said. Many of them could have requested “First Time Abatement” (FTA) and IRS would have canceled (abated, waived) the penalties.
If the taxpayer was not previously required to file a return or if no significant penalties (except the underpayment of estimated tax penalty) had been assessed in the prior three years, IRS will abate (cancel) the penalties — but only if requested to do so. The main idea is to write to IRS and point out that the prior three years were filed and paid without problems, and ask for the penalties to be abated (canceled).
The purpose for granting the (FTA) abatement (waiver) was to reward past-tax compliance and promote future compliance. That is an administrative waiver and only applies to a single tax year.
IRS indicates you can request the “first time penalty relief” over the phone or in writing. It is no great joy to call IRS and be on hold for 30 minutes or longer. Maybe writing a letter is better, especially if you mail the letter priority mail (to get a receipt).
You must specifically request the penalties be abated to be considered for penalty relief under this IRS program. IRS does not widely publicize the opportunity to request this particular waiver (abatement), so most qualifying taxpayers don’t even know that relief is available.
Our family has a saying about Moses. “If Moses had not made a noise in the bulrushes, where would he be? Sometimes it is OK to make a noise.” Or in this case, make a request.
Some penalties are more serious. The Accuracy Related Penalties under Internal Revenue Code 6662 need more facts and circumstances to get abatement. That 20 percent penalty is expensive, and you need to show “reasonable cause” to get it canceled. Reasonable cause can be a lot of different things (divorce, illness, bad advice from IRS or a professional tax preparer, etc), but it must be clear there was no willful neglect.
Did you hear? “Public sentiment is everything. With public sentiment, nothing can fail. Without it, nothing can succeed.” — Abraham Lincoln.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.