National Taxpayer Advocate Fights for FTA Penalty Relief from the IRS

National Taxpayer Advocate Erin M. Collins today released her statutorily mandated midyear report to Congress. The report says the tax-return filing season generally ran smoothly this year, urges the Internal Revenue Service to prioritize a broad array of technology upgrades, and sets forth key objectives of the Office of the Taxpayer Advocate for the upcoming fiscal year.

Taxpayer Advocate Service objectives for Fiscal Year 2024

As required by law, the report identifies TAS’s key objectives for the upcoming fiscal year. In light of the challenges taxpayers have been facing over the last three years, Collins wrote that TAS will be placing heavy emphasis on working with the IRS to improve the processing of tax returns and taxpayer service generally. Among the objectives the report identifies is the following:

  • Implement systemic first-time penalty abatement but allow substitution of reasonable cause. Under existing procedures, the IRS will provide a first-time abatement (FTA) of penalties for failure to file, failure to pay and failure to deposit required tax if a taxpayer is otherwise compliant and has not used FTA within the prior three years. However, FTA is generally provided only if a taxpayer requests FTA or reasonable cause relief. In 2021, the IRS granted FTA to about 200,000 taxpayers requesting relief from these penalties, but there were about 4.3 million taxpayers eligible for relief from these penalties who did not receive it. The result was that a relatively small percentage of sophisticated taxpayers or taxpayers who paid for professional assistance received penalty abatements just for asking, while the overwhelming majority of taxpayers who do not know the IRS is willing to abate these penalties did not. Also, TAS believes taxpayers who qualify for “reasonable cause” penalty relief should receive it and not be forced to use their once-in-three-year FTA waiver.

The FTA waiver is an administrative waiver that the IRS may grant to relieve taxpayers from failure-to-file, failure-to-pay, and failure-to-deposit penalties if certain criteria are met. The policy behind this procedure is to reward taxpayers for having a clean compliance history; everyone is entitled to one mistake.

We help many clients with burdensome penalties; sometimes, we use the FTA, and sometimes we use other penalty relief strategies. The problem with the FTA is that it should be automatic, not upon request. We applaud the TAS for his recommendation and hope the IRS adopts it. Also, “reasonable cause” penalty relief is a matter of law (meaning penalty relief should be granted if eligible) and should not jeopardize FTA eligibility.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.