Failure to pay

[bertrans]

Could anyone tell me where in the IRC it states unequivocally, that the Failure to Pay penalty may not be abated for reasonable cause, if the tax remains unpaid?

Client requested abatement: wife died. IRS accepts that there is reasonable cause, but rejects the request because the tax is not paid.. Section 6651- read it backwards & forwards - nothing about this.

Thanks.

PS: I realise that looking for an unequivocal statement in the Code may be a fool's errand!

[Bees Knees]

You are correct in that Section 6651 does not say the taxpayer must first pay the penalty before it can be abated. It merely says:

“…unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax…”

However, Section 6651 is part of chapter 68, Subtitle F, Title 26 of the U. S. Code. Chapter 68 concludes with Section 6751(b)(1) which says in part, “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.”

In other words, the IRS is in charge of administering the rules under chapter 68, including IRC Section 6651. IRS employees must approve penalties. In turn by extension, they are also in charge of abating penalties. Congress has given them the authority to set the procedures for doing this. Your only option, if you don’t like their procedure and don’t want to first pay the penalty before it can be abated, is to take the matter to tax court.

[bertrans]

Failure to Pay

Thank you, Bees! I shall try to convince my client to pay!

[Bees Knees]

I might add that something similar happend a few years ago with the 50% penalty for failing to take the required minimum distribution out of your IRA. You use to have to pay the penatly first, then ask IRS to abate it and refund to you the penalty.

A few years ago, IRS changed that policy. Form 5329 instructions now simply say attach a letter giving reasonable cause and ask for the penalty to be abated. No requirement to first pay the penalty. That procedure changed with no official act of Congress. IRS simply decided to change their mind.

They have the power (given to them by Congress) to do that.

[New York Enrolled Agent]

Bees

One small correction - " Your only option, if you don’t like their procedure and don’t want to first pay the penalty before it can be abated, is to take the matter to tax court."

The Tax Court only has jurisdiction to penalties when there are part of a deficiency. §6665. Stand alone penalties will not be considered by the Tax Court.

[Bees Knees]

Agreed.

For the penalties tax court won't touch, your only option is to pay the penalty, ask for an abatment, and if it is denied, sue for a refund in district court.

[joanmcq]

I'm confused. Is it because the TAX is unpaid or the penalty? If the taxpayer has not yet paid the underlying tax, I don't think they will even consider abating the penalty until the tax itself is paid.

[bertrans]

Failre to Pay

You are correct to be confused, Joan. The OP referred to unpaid TAX. However, the solution, short of court ( District, Appeals, or Claims - not tax court, since the assessment is not the result of an audit), remains the same: pay!