The first screw up is on the house.
Nobody should call the IRS charitable. Their job is to take your money through threat of violence. As much as we like to harp on corporations trying to scam us into paying up (or selling us a faulty washing machine that breaks and floods our laundry room then refuses to give us a new washing machine), the IRS is one of the few organizations in the US that will actually show up to your house with guns if you refuse to pay.
That being said, they’re not totally unreasonable. Take the First Time Abate program. The IRS Revenue Manual Section 126.96.36.199.6.1 (totally rolls off the tongue) provides penalty relief for many of those penalties when you just happened to have a bad year and screw up on your tax return.
Qualification for the First Time Abate program is conditional on your doing your best. Specifically, the IRS has laid out the following criteria:
(1) You have no other penalties (except estimated tax penalties, which don’t count) for the previous three tax years; and
(2) You’re now all caught up on your taxes–or are up-to-date on your installment payments
Think of this as one of those Accident Forgiveness Programs that the President from the original 24 Series keeps hawking. Except instead of not having your insurance premiums go up, you won’t have men with guns showing up demanding you pay an extra $1k for filing your tax return a day late.
Even better, since the First Time Abate program only looks at penalties for the previous three years, you can actually use it every time you’ve had three years without a penalty. Now if only the IRS would hand out Good Filer punch cards, my life would be complete.
Even if you’ve had an unreversed penalty in the previous three years, you still could qualify for the First Time Abate program. In that same section of the IRS manual, under 188.8.131.52.6.1 Paragraph 5 (The name of my Dungeons & Dragons Bard), the IRS gives an even bigger boon by stating that any penalties from the previous three years must be of a “significant amount.”
What does “significant amount” mean? No idea. I called the IRS just last week to ask, and the guy on the line made an eloquent speech about how $100 could be significant. Considering my client had only a previous $140 penalty and a couple hundred thousand of annual revenue, I’m pretty sure my client would disagree.
The moral of this story is that if you have a penalty from late filing, don’t panic. Give the IRS a call or send them a letter requesting penalty relief under the First Time Abate clause. If you’ve been a Good Little Filer, you should get that expense crossed off your list of bills, and maybe even a pat on the head.
Just make sure you don’t screw up again next year.