AICPA asks IRS to expand First Time Abatement program

The American Institute of CPAs has submitted a letter to the Internal Revenue Service recommending the First Time Abatement program be expanded to cover additional types of tax and information return penalties. 

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The letter asks the IRS to allow taxpayers to reverse automatically applied FTA relief when taxpayers demonstrate reasonable cause, so they can save their one-time abatement for a future need. The Institute believes that expanding and making targeted refinements to the FTA program would reduce the IRS’s administrative burdens, as well as help taxpayers better understand the available penalty relief options, and support voluntary tax compliance.

 The IRS now provides FTA relief based on different factors, such as whether the taxpayer can demonstrate a clean compliance history and the type of penalty assessed. But there are many other kinds of penalties for which taxpayers could demonstrate a clean compliance history. Expanded FTA relief enables taxpayers to overcome a speedbump, to continue otherwise compliant behavior, and to be more educated about the overall tax system. In addition, eligibility for FTA relief has many nuanced exceptions that add complexity to tax administration and confuse taxpayers. Refinements to the existing FTA program would make tax administration clearer and less burdensome on taxpayers, their practitioners, and the IRS, the AICPA believes. 

AICPA’s letter recommends the following actions: 

• Expand FTA to Section 6652 penalties and corresponding annual filings.
• Provide FTA relief for information return penalties.
• Expand FTA to estate and gift-tax related filings that can recur more than once.
• Allow FTA relief for the Section 6656 penalty even in cases where the Electronic Federal Tax Payment System is required but not used.
• Automatic application of FTA relief and review of reasonable cause statements.
• Promote taxpayer awareness of FTA availability.
• FTA relief should be available for multiple periods if the failure stems from a single overall error

“Our recommendations would alleviate significant tax administrative burdens on the IRS, increase taxpayer awareness of the availability of FTA relief, and promote voluntary taxpayer compliance,” said Daniel Hauffe, senior manager for tax policy and advocacy with the AICPA, in a statement Friday. “Ultimately, expanding application of the FTA program and simplifying the procedures reduces unnecessary complexity and reinforces the fairness of penalty administration.”