The American Institute of CPAs is asking the IRS to expand the First Time Abatement program in order to cover more types of tax and information return penalties.
In a March 5 letter to the tax agency, the AICPA also recommended that taxpayers be allowed to reverse automatically applied FTA relief when they demonstrate reasonable cause so they can save their one-time abatement for a future need.
Expanding and refining the FTA program would reduce IRS administrative burdens, help taxpayers better understand available penalty relief options, and support voluntary compliance, the AICPA says.
In 2001, the IRS created an administrative waiver for certain penalties that allowed eligible taxpayers to have the penalties forgiven or abated. Called the First Time Abatement program, this waiver allows the IRS to administratively waive penalties for:
- Failure to file a tax return on time.
- Failure to pay tax on time.
- Failure by a business to deposit taxes when due.
Taxpayers who qualify for the FTA include individuals, corporations (including S corporations), and partnerships. Filers of estate and gift tax returns don’t qualify, nor do not-for-profit organizations, according to Tucson, AZ-based accounting firm R&A CPAs.
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To be eligible for the FTA, the taxpayer must be up to date on filing all required tax returns and have paid or arranged to pay any tax due. In addition, a taxpayer must have a “clean” filing history for the three years prior to the tax year in which the taxpayer received the penalty. A clean history means that a taxpayer filed all tax returns correctly and on time, made any required tax payments on time, and didn’t have other penalties assessed, R&A CPAs says.
The AICPA says there are many additional penalties for which taxpayers could demonstrate clean compliance history.
“Expanded FTA relief allows taxpayers to overcome a speedbump, to continue otherwise compliant behavior, and to be more educated about our complex tax system,” the AICPA said in a media release. “Additionally, eligibility for FTA relief has many nuanced exceptions that add complexity to tax administration and confuse taxpayers. Refinements to the existing FTA program would make tax administration clearer and less burdensome on taxpayers, their practitioners, and the IRS.”
The AICPA’s letter to the IRS recommends the following actions:
- Expand FTA to Section 6652 penalties and corresponding annual filings.
- Provide FTA relief for information return penalties.
- Expand FTA to estate and gift tax-related filings that can recur more than once.
- Allow FTA relief for the Section 6656 penalty even in cases where the Electronic Federal Tax Payment System is required but not used.
- Automatic application of FTA relief and review of reasonable cause statements.
- Promote taxpayer awareness of FTA availability.
- FTA relief should be available for multiple periods if the failure stems from a single overall error
“Our recommendations would alleviate significant tax administrative burdens on the IRS, increase taxpayer awareness of the availability of FTA relief, and promote voluntary taxpayer compliance,” Daniel Hauffe, senior manager for tax policy and advocacy with the AICPA, said in a statement. “Ultimately, expanding application of the FTA program and simplifying the procedures reduces unnecessary complexity and reinforces the fairness of penalty administration.”
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