TIGTA Scrutiny of IRS Penalty Abatement Situations

A recent audit (issued September 19, 2012) by the Treasury Inspector General for Tax Administrating (TIGTA) found that IRS isn’t quite on the ball when it comes to consistent application of abatement of failure to file (FTF) and failure to pay (FTP) penalties.

It’s not widely known that since 2001, IRS has had “administrative waiver” capability, pursuant to which FTF and FTP penalties for taxpayers who had demonstrated full compliance over the prior three years could be waived.  The purpose for granting the waiver, called a First-Time Abate (FTA), is to reward past tax compliance and promote future tax compliance.  But most taxpayers with compliant tax histories are not offered and do not receive the FTA waiver, according to TIGTA, who estimated that for tax year 2010, about 250,000 taxpayers with FTF penalties and some 1.2 million taxpayers with FTP penalties did not receive penalty relief even though they qualified under the FTA waiver criteria.

TIGTA estimated the unabated penalties totaled more than $181 million, and further that the FTA waiver is not used to its full potential as a compliance tool because it is granted to taxpayers before they demonstrate full compliance by paying their current tax liability.