What kills people when they have an IRS tax debt is the interest and penalties. If you don’t file and pay your taxes when they become due, you can eventually find yourself owing much more than the original tax assessment. It is possible to negotiate an abatement of penalties, but it isn’t always easy, especially for “repeat offenders.”
By “repeat offender” I mean those who have a history of non-compliance, (i.e., failure to file on time and/or failure to pay on time). The IRS treats repeat offenders differently. If you have no missing returns and no prior penalties for the preceding three (3) years, then you may qualify for “first-time abatement penalty relief.” First-time abatement may be granted without consideration of individual circumstances and excuses. However, if you do not meet the criteria for first-time abatement, then your only recourse would “reasonable cause penalty relief,” which can be very difficult to prove. Chances are, what you consider a reasonable excuse for not filing on time or not paying on time will not be considered reasonable by the IRS.
The California Legislature is currently considering adoption of a bill that would provide a first-time abatement option for California taxpayers. Under AB 1777, the Franchise Tax Board would give preference to non-repeat offenders like the IRS. The requirements would be as follows:
- No prior timeliness penalties imposed for current year and four (4) prior years;
- The taxpayer has paid all current tax due, or is in a valid installment agreement;
- The taxpayer is otherwise compliant with FTB filing requirements
As you can see, the California version of first-time abatement, as proposed, would be more restrictive than the Federal version, as it requires a slightly longer history of compliance. It seems like California looks to the IRS for guidance in administration of its tax laws, and then tries to figure out how it can make things just a little bit tougher for California taxpayer.