When it comes to the issue of filing their taxes or paying off tax debt, most business owners likely don't give it more than a second thought, as they are supremely confident that they would never file their return late or fail to remit payment in a timely manner.
While this confidence is admirable, the reality is that circumstances beyond people's control can arise that prevent timely tax filings and payments. This is significant, of course, as those who do not file on time face a failure-to-file penalty, which is typically 5 percent of the unpaid taxes for every month the return is late not to exceed 25 percent of unpaid taxes.
Similarly, those who do not pay their tax debt on time face a failure-to-pay penalty, which is typically one-half of 1 percent of the unpaid taxes for every month or part of the month after the taxes go unpaid not to exceed 25 percent of unpaid taxes.
While this is understandably a less than desirable development, business owners should be aware that the Internal Revenue Service may provide administrative relief from these penalties via its First Time Penalty Abatement -- or FTA -- policy.
What is the FTA policy?
The FTA policy essentially grants individuals and business owners relief from failure-to-file and failure-to-pay penalties for one tax period provided they satisfy certain criteria.
What are these criteria?
An individual or business owner is eligible for an FTA waiver if:
- They have filled all required returns or an extension of time to file.
- They have either paid or arranged to pay any taxes owed.
- They have been assessed no tax-related penalties in the preceding three years.
Why does the IRS do this?
The FTA policy is essentially a manifestation of the agency's belief that all taxpayers are entitled to one mistake.
Does the FTA policy apply to other penalties?
An FTA waiver can only be secured for failure-to-file penalties, failure-to-pay penalties and failure-to-deposit penalties.
If you are a business owner with questions or concerns relating to tax penalties or other tax compliance issues, consider speaking with a skilled legal professional to learn more.