Benefiting from the First-Time Penalty Abatement
Many taxpayers are unaware of the First-Time Penalty Abatement (FTA) options that are available both with the Internal Revenue Service and the North Carolina Department of Revenue. These programs are not well publicized, but can be a source of significant savings for normally compliant taxpayers. The waiver is available to both individuals and businesses for failure-to-file, failure-to-pay, and failure-to-deposit penalties. Unfortunately this particular relief is not available for the estimated tax and accuracy-related penalties.
One of the requirements for qualification for the FTA is a clean compliance record. The taxpayer must demonstrate filing and payment compliance and a three-year clean penalty history. This means that the taxpayer must either be current on the taxes involved, write a check for the taxes due with the abatement request, or have an installment plan in place. Also all tax returns must be up to date or have a valid extension in place.
The three year time period and compliance record requirements apply only to the type of tax to which the penalty relates. For example, payroll taxes and income taxes are different types of tax. One thing to keep in mind, however, is that once you use the FTA for a penalty on a particular type of tax the FTA will be unavailable for the next three years should a similar penalty be assessed for that tax. Therefore, caution should be used in requesting abatement for small penalties.
A request for FTA can be made by writing a letter asking for relief and explaining why it should be given. The notice assessing the penalty should be attached. Often the IRS or NCDR initially denies the request for abatement because of misinterpretation of the rules, so don’t give up if you don’t get an abatement upon your first request. Also, it may take 60 to 90 days or more to get a response to your FTA request, and in the meantime letters may continue to come in the mail showing the penalty as still due. Be patient and consistent. Taxpayer Assistance can be contacted if necessary after the initial request is made.
Please contact our offices at 828-327-2727 if you would like assistance or more information regarding The FTA request.
Article by: Lorrie Eaton, Senior Tax Manager