Partnership Penalty Abatement

Technical topics regarding tax preparation.
#1
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Client formed new entity but claimed no activity. After further review, there was activity and ended up filing initial Form 1065 four months late. It was a 2019 return.

Received late filing penalty notice and requested relief under Rev Proc 84-35 as all partners filed timely.

Notice today said

We approved your request to remove the penalties. However, we granted penalty relief only because this filing was the first time you were required to file a return. This type of penalty removal is only available one time. We'll base our decision to remove any future penalties on reasonable cause criteria.

My question is... Does this mean they have used up their First Time Abatement Penalty Relief or is there some other First time relief. The intent of using 84-35 was to avoid wasting the first time abatement. The penalty was $2,460 so it was not that big of a deal. Why would they deny 84-35?
 

#2
dave829  
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Where the taxpayer qualifies for first-time abate and also for relief under reasonable cause (such as under Rev. Proc. 84-35), IRS procedure is to abate the penalty under first-time abate. See IRM 20.1.1.3.3.2.1(11):

(11) Per IRM 20.1.1.3, penalty relief under Administrative Waivers, including FTA, is to be considered and applied before reasonable cause. If FTA criteria are met, the FTA waiver will be applied before reasonable cause and the taxpayer must be notified that we removed their penalty or penalties based on their prior history of compliance and not based on their reasonable cause statement.
 

#3
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Yes, this sounds like you/they used up the first time penalty abatement.
It was likely the first step the receiving agent took, and it worked so they kicked out the abatement letter.
First Time would likely not work on a future filing as they don't have a clean record now anyway, just my 2 cents.
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I hope you charged for the penalty abatement.
 

#4
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Doesn't the FTA require compliance for the past 3 years? Which means, even if this partnership client had the penalties abated under the rev proc, they still be denied the FTA for the next 2-3ish years? So, it doesn't really matter which one was used in this exact situation as nothing was really "wasted"?
 

#5
dave829  
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ManVsTax wrote:Doesn't the FTA require compliance for the past 3 years?

No. It's EITHER the taxpayer wasn't required to file a previous return OR a clean filing history for the previous 3 years. See IRM 20.1.1.3.3.2.1(4).
 


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