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IRS Fails To Offer Penalty Relief To Taxpayers

by Mike Godfrey, Tax-News.com, Washington

19 October 2012


The United States Internal Revenue Service (IRS) failed to inform about 1.45m taxpayers that they qualified for relief from penalties totalling close to USD181m, according to a new report released by the Treasury Inspector General for Tax Administration (TIGTA).

The Internal Revenue Code imposes penalties on taxpayers with a filing requirement who fail to file a tax return, or fail to timely pay the full tax shown on any tax return. The IRS waives these penalties for taxpayers who have demonstrated full compliance over the prior three years, but only if the taxpayers request penalty relief.

The purpose for granting the waiver, called a First-Time Abate, is to reward past tax compliance and promote future tax compliance. However, TIGTA found that the IRS does not widely publicize the opportunity to request this waiver, and most taxpayers with compliant tax histories are not offered and do not receive the waiver.

In the 2010 tax tear, TIGTA estimated that approximately 250,000 taxpayers with Failure to File penalties and 1.2m taxpayers with Failure to Pay penalties did not receive penalty relief even though they qualified under First-Time Abate waiver criteria. TIGTA estimated the unabated penalties totaled more than USD181m.

"Penalty waivers should not be granted only to taxpayers or preparers with knowledge of IRS processes," said J. Russell George, the TIGTA. "If the IRS does not administer these and other penalties fairly and accurately, taxpayers' confidence in the tax system will be jeopardized." he said.

Further, TIGTA found that the First-Time Abate waiver is not used to its full potential as a compliance tool because it is granted before taxpayers demonstrate full compliance by paying their current tax liability.

TIGTA recommended, and the IRS agreed, that the First-Time Abate waiver be better used as a compliance tool by ensuring taxpayers are aware of their potential to receive the waiver based on their past compliance history, and making receipt of the waiver contingent upon taxpayers paying their current tax liability.

TAGS: individuals | compliance | tax | tax compliance | law | Internal Revenue Service (IRS) | tax authority | United States | penalties | individual income tax

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