Jim Buttonow, CPA, CITP
SVP Post-Filing Tax Services
Published on: June 24, 2021
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Taxpayers hate paying IRS penalties. Unfortunately, most taxpayers assessed an IRS penalty do not request relief or are denied relief because they do not follow some basic do’s and don’ts
In some cases, requesting post-filing relief or “abatement” of penalties is not practical. However, for two of the most common IRS penalties, relief is available if you follow some simple rules for requesting and securing abatement.
There are over 150 different IRS penalties for late filing, late payment, return errors, and other noncompliant activity. However, the three most common IRS penalties are related to late filing and late payment of taxes. The penalties are:
In 2019, these penalties made up 95.5% of all IRS civil penalties for individual taxpayers.
These penalties can be costly. The average penalty amounts for 2019 for individuals were:
Taxpayers can request relief from penalties. For the failure to file or pay penalty, taxpayers can request that the IRS “abate” the penalties. Abatement is simply removing the penalties after they are assessed to the taxpayer. Failure to File (FTF) and Failure to Pay (FTP) penalties generally require abatement because the IRS assesses these penalties electronically (through its computer systems) when a return is filed, or a transaction is made on a balance due account.
Other penalties generally require different procedures to request relief. For example, the estimated tax penalty is generally not “abatable” by the taxpayers. Rather, taxpayers can request an exclusion from the penalty when filing their tax return (individuals use Form 2210).
Other penalties are proposed during IRS audits and investigations. These include accuracy or fraud penalties, and usually require the taxpayer deal with IRS auditors or appeals officers prior to the assessment of the penalty. Taxpayers can request abatement of return accuracy penalties after they are assessed, but the abatement process may require using special IRS procedures or taking the IRS to court. This can take years to resolve.
In 2019, only 12% of the FTF and FTP penalties were abated. For individual penalties, only 9% were abated.
There are several reasons for the low abatement rate. First, many taxpayers do not ask for abatement. Second, if they do ask, the IRS commonly denies many initial abatement requests. Finally, taxpayers may not appeal the adverse determination from the IRS. Taxpayers who want to request penalty relief for the FTF and FTP penalties need to follow some simple rules to increase their chances for success.
For the FTF and FTP penalties, the IRS has two primary reasons that it abates these penalties:
When requesting FTF and/or FTP penalty relief, it is important to follow some best practices. Here are some do’s and don’ts when requesting abatement for the FTF and FTP penalties:
Successful penalty abatement can take some time. FTA can be approved by phone instantly. However, the final reduction of the penalty will take place in about three weeks. Taxpayers should always review their account to make sure the IRS correctly abates the penalty. Taxpayers can review their account transcript for the years in question to verify the abatement.
Abatement for reasonable cause can take a considerable amount of time, depending on whether an appeal is needed. Initial penalty abatement requests usually take 2-3 months for an initial determination. If an appeal is required, it can add 6-12 months to the process. For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.
About the Author
Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.