TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, October 18, 2012

TIGTA: IRS Unjustifiably Withholds $181 Million in Relief from Tax Penalties from 1.5 Million Taxpayers

TIGTA The Treasury Inspector General for Tax Administration yesterday released Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance (2012-40-113):

The Internal Revenue Code imposes a Failure to File (FTF) penalty for failing to file a tax return and a Failure to Pay (FTP) penalty for failing to pay the tax shown on any tax return by the date prescribed.  The IRS can abate both penalties under certain circumstances.  If the IRS does not administer these and other penalties fairly and accurately, taxpayers’ confidence in the tax system will be jeopardized. 

The IRS waives FTF and FTP penalties for some taxpayers who have demonstrated full compliance over the prior three years. The purpose for granting the waiver, called a First-Time Abate (FTA), is to reward past tax compliance and promote future tax compliance. However, most taxpayers with compliant tax histories are not offered and do not receive the FTA waiver. TIGTA estimated that for Tax Year 2010, approximately 250,000 taxpayers with FTF penalties and 1.2 million taxpayers with FTP penalties did not receive penalty relief even though they qualified under FTA waiver criteria. TIGTA estimated the unabated penalties totaled more than $181 million.

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There's an interesting District Court refund case in Phoenix involving a labor lawyer whose CPA mailed an extension request on April 17, 2007 -- the due date for 2006 returns, because April 15 was a Sunday and April 16 a holiday in DC.

When he filed his return in October, IRS assessed a $14,000 late-filing penalty. When he protested, an Appeals Officer told him that his extension request was not valid because it had not been mailed by April 16.

The Justice Department answer to his complaint was due a couple weeks ago, but they needed more time because IRS had not been able to provide the information needed for a response. The parties stipulated to -- an extension.

Posted by: Bob | Oct 18, 2012 8:21:16 AM