My client is filing their tax return next week with a large Federal balance due. Thus, in addition to the liability for tax, they will have a late payment penalty, late filing penalty, and interest on the balance due.
Their past payment record is clean (no unpaid taxes, no prior penalties) so I'm thinking of recommending they apply for late filing penalty abatement under the "first time penalty" abatement process.
Is there a requirement to pay the tax prior to requesting late filing penalty abatement?
Is it better to pay the tax, all penalties, and interest and then request late filing penalty abatement? Or….
Is it better to file the return, pay the tax, pay the interest, (and not pay the late filing penalty) and then request late filing penalty abatement?
I believe you file the return and if the IRS doesn't automatically apply the first time abate penalty, they can request that or reasonable casue if that applies. It's best to ask for reasonable cause if it qualifies and save the first time abate.
If the client can pay the tax due when the return is filed, then that’s the appropriate course of action. Furthermore, it will stop further accrual of interest on tax and on the penalty if the penalty is not abated under FTA or lacks reasonable cause.