Shortly after September 15 of each year, I spend multiple hours as a CPA writing letters to the IRS in response to late filing notices for partnerships and S corporation tax returns. In almost all cases, after writing the letter, the IRS will abate the penalty and the taxpayer will not owe for the late filing.
However, the client has heartburn from receiving the notice; I have spent time writing and mailing the letter; and the IRS has wasted valuable time and resources responding to the letter.
Instead of all of this wasted time, it would be nice if the IRS would automatically apply their “first time abatement” program to these penalty issues automatically before mailing the notices. This first time abatement applies if in the last three years, the taxpayer had not been issued a penalty for filing or paying late. If they were in full compliance the IRS could automatically waive the penalty. If the taxpayer filed multiple returns (such as 2010 and 2011 at the same time and both were late), then the abatement could apply to the first return.
The Treasury Inspector General for Tax Administration just issued a report admonishing the IRS to apply this program on a consistent basis to all taxpayers. In the report, they noted that in 2010 that approximately 250,000 taxpayers who filed late and 1.2 million taxpayers who paid late could have qualified for this abatement.
Assuming that the taxpayers, CPA and IRS time for each of these penalties is at least $100 (most likely much higher), then we spend at least $150 million dealing with these penalties. The IRS could have easily programmed their computers to automatically deal with this and save all of us time and money.
Paul Neiffer, CPA