PILLA TALKS TAXES - Featured Article
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DID IRS CHANGE THE FIRST TIME ABATEMENT POLICY?

Penalty Abatement for First Time Failure is Still an Option

by Daniel J Pilla 

It is often the case that discussions in the news about the IRS and its policies are just not correct. That appears to be the case with certain reports on the IRS’s First Time Abatement Policy.

In How to Get Tax Amnesty, chapter 9, I talk about the legal authority for penalty abatement relief generally, and the IRS’s administrative policies to abate penalties specifically. One of the administrative policies for penalty abatement is the so-called First Time Abatement Policy, expressed in IRM part 20.1.1.3.3.1. This section was updated in November 2017. 

The policy provides that the IRS will automatically abate any delinquency penalties if the taxpayer qualifies under the rules set out in the IRM. The delinquency penalties included in the policy are: 

1. Failure to file penalties under §6651(a)(1), §6698(a)(1), or §6699(a)(1),

2. Failure to pay penalties under §6651(a)(2) and §6651(a)(3), and

3. Failure to deposit penalty under §6656.

To be eligible for a first time abatement, you must be current with all tax return filings to the extent required, and taxes must be paid. If you owe taxes, you must have an agreement in place to pay in full, and you must be current with your payments. In addition, you must have had no penalties imposed for any of the three years immediately preceding the year in question. This is the so-called look-back period. Said another way, if you have a clean slate insofar as penalties are concerned for the prior three years, the IRS will give you a mulligan on failure to file or failure to pay for the year in question. 

Some news reports stated that the rule was changed to eliminate the three-year look-back period. If that were so, the first time abatement would be available just once in a lifetime, as opposed to once every four years, as I explain in How to Get Tax Amnesty, page 118. But this is not the case. The IRS’s website currently explains the program as follows: 

You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service’s First Time Penalty Abatement policy if the following are true:

• You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.

• You filed all currently required returns or filed an extension of time to file.

• You have paid, or arranged to pay, any tax due.

www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver

I examined the IRM carefully in this regard. I see no change to the three-year look-back period. Therefore, it remains true that the penalty is available once every four years, as I write in How to Get Tax Amnesty.

This article is from the June 2018 Pilla Talks Taxes Newsletter.   It is one of the cutting edge articles you can read when you are a subscriber to Dan's electronic newsletter, Pilla Talks Taxes.    Newsletter subscribers can read and download the entire issue by logging in at http://taxhelponline.com/subscriber-login.html