Failure to Pay Penalty

[AccTaxMan]

Client has a huge past due tax bill with "Failure to pay penalty" on top of it. How likely is it to be able to have the penalty waived?

[JohnH]

I think very unlikely. The FTP penalty is essentially a surcharge to increase the effective interest rate on unpaid taxes. Your client would have probably paid the equivalent of the interest PLUS the FTP penalty if he had borrowed the money to pay the taxes in the first place. If it weren't there, many people would just not pay the taxes and just incur the relatively low interest charge while stringing out the payment as long as possible.

But having said all that, I'd still ask IRS t forgive it. I just don't recall ever having seen it happen.

[Roland Slugg]

But having said all that, I'd still ask IRS t forgive it.

Well, the T/P needs to do more than just ask. He needs to furnish an explanation, and it should be a good one that he can prove upon request. In fact if I were assisting a client, I would attach the proof to the original abatement request.

On one screen of the IRS's web site it says this:

You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

A serious health issue is probably the most legitimate and most common reason why the IRS would reduce or waive a FTF and/or FTP penalty. Depending on the nature, severity and duration of the health issue it could serve to get penalties waived that had been accruing for a fairly long period of time. Force majeure is another, but that would probably only work for a limited amount of time. No doubt there are others.

[Gretel]

How about that one time free ticket for every taxpayer. If this is the first and only time that taxpayer is delinquent he should qualify for this.

[smithtax]

Gretel is correct. Congruent with the Fresh Start Program, TP is allowed a one-time penalty waiver for late payment and/or late filing IF TP has been compliant for the past 3 years.

Otherwise TP will need reasonable cause to request abatement.

[JohnH]

Does anyone have a cite for that? I thought the Fresh Start provisions regarding forgiveness of the FTP penalty only applied for 2011 returns, only covered taxpayer who are unemployed, and only covered taxes paid by Oct 15, 2012. But maybe they expanded the program or its applications and I missed the memo.

I'm still thinking the probabilities of getting it forgiven are very low, but noharm in trying. Best bet is to write a letter that will make 'em cry.

[geekgirldany]

I found this:

http://www.nolo.com/legal-encyclopedia/new-penalty-relief-installment-payment-eligibility-under-irs-fresh-start-program.html

Looks like John is right about the restrictions.

I have a client that has not filed for three years and was trying to find a way for him to avoid the penalty. So far no go.

[Gretel]

Weird. I swear I did not make this up. The one time forgiveness I am thinking of was there already before the "Fresh Start" initiative and I have used it for one of my clients but can't remember who it was.

Searched for the code, here it is: 20.1.1.3.6.1 (11-25-2011)
First Time Abate (FTA)