The IRS imposes fines and penalties for non-compliance of tax obligations. However, the agency has said that the purpose of abatement is not to generate revenue, it is to ensure compliance with tax laws. Hence, certain penalties can be waived or abated if you show good reason for it. This is not a right but a favor granted only once mainly because of consistent compliant behavior. This is due to a program created in 2001 called First-Time Abate (FTA). For individual and business taxpayers, this relief applies to two of the most common penalties, namely failure to file tax returns and failure to pay taxes. But for businesses, the amnesty can also apply to the failure to deposit payroll taxes.
The late filing penalty is 5% of the unpaid balance of tax owed for each month or part of a month the return is late, up to a maximum of 25%. The failure to pay penalty is levied at 0.5% of the unpaid liability for each month or part of a month after that due date that the taxes are not paid. This penalty also has a ceiling of 25%. In addition, you will also be charged interest on unpaid taxes until they are paid.
Your chances of obtaining an IRS abatement significantly improves if you have one of the following:
• Reasonable cause
This means circumstances beyond your control caused non-compliance. Examples are loss of job, loss of your home, physical or mental health problems including depression, addiction, or alcoholism, a substantial reduction of household income (because of a separation with your spouse, for example).
• IRS error
If your non-compliance to tax obligations is due to an IRS error, the IRS will reverse the penalties levied upon you, for example an incorrectly posted extension to file that results in a failure-to-file penalty or erroneous written or oral advice from the IRS that you relied on.
• Exceptions according to the law
Specific exceptions are provided by the law. For example, Sec. 6654(e) provides exceptions to the estimated tax penalty when the tax is less than $1,000, when there is no tax liability in the preceding year, or when the taxpayer is newly retired or disabled.
• Hazards of litigation
A hazards of litigation means the probability that the IRS determination will not be upheld in court. if such probability is high, the IRS will grant abatement.
You will only be considered for the FTA if you have at least three years of consistent tax compliance and you are current in all your tax submissions.