Did the IRS withhold information about tax penalty relief programs?

A study undertaken by the federal Treasury Inspector General for Tax Administration shows that a major tax penalty relief program offered by the Internal Revenue Service (IRS) has been grossly underutilized. The program, known as the First-Time Abatement (FTA) waiver program, would have saved taxpayers nearly $200 million in penalties had they been aware of the program and sought the relief offered by it, the Inspector's report reveals.

What is it?

The FTA waiver program offers a way to recognize past compliance with tax codes, rules and regulations by giving a veritable "do-over" on the first instance of non-payment of taxes or failure to promptly file a tax return. The waiver essentially "erases" or abates the penalties charged to an individual taxpayer because he or she has - for the first time - filed a return that is incorrect, neglected to file a return, filed a return that is incomplete or forgot to make a tax payment.

The Inspector sees the proper administration of the FTA program as a way to ensure that "taxpayers' confidence in the tax system" isn't jeopardized.

Improper administration?

It is important to note that while the FTA will not in any way diminish the underlying tax debt owed, it still offers a sizable benefit by waiving the penalties/fines/interest incurred because of the first instance of tax-related non-compliance. In the past, the FTA waiver program has been available only to those taxpayers who:

  • Knew of its existence (no small feat, considering the tax code is tens of thousands of pages long with countless individual provisions)
  • Specifically asked for relief from tax-related penalties under the program

According to the Inspector's report, the IRS has not been properly administering the program, something evidenced by the estimated $181 million in unclaimed penalty relief that could have been collected in years past. The report takes a hard line on the issue of abatement, saying that the FTA program will be much more helpful once it is administered in a way that ensures "taxpayers are aware of their potential to receive the waiver based on their past compliance history."

Looking for relief?

The FTA program can bestow a great benefit to those facing penalties, but it is not the only type of abatement or relief program available. There are also programs or procedures that could lessen the consequences of:

  • Failing to promptly file tax return
  • Failing to pay taxes by the due date
  • Improperly using financial vehicles like trusts to skirt tax payments
  • Incorrectly calculating or paying estimated taxes
  • Artificially inflating or deflating the value of properly to avoid taxation

No matter what type of tax-related issue you have, an experienced and knowledgeable tax attorney will be able to give you more information about possible legal options you may have to find relief.

While Robert J. Fedor, Esq., L.L.C. is based in Westlake, Ohio and Chicago, Illinois, the attorneys provide national and international representation for residents of all states, including but not limited to Texas, New York, Florida, Pennsylvania, Michigan, Georgia, North Carolina, New Jersey, Virginia, Washington, Arizona, Massachusetts, Indiana, Tennessee, Missouri, Maryland, Wisconsin, Minnesota, Colorado, Alabama, South Carolina, Louisiana, Kentucky, Oregon, Oklahoma, Connecticut and Illinois.