ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – DOES THE FTB HAVE A FIRST-TIME PENALTY ABATEMENT PROGRAM?
By Robert S. Schriebman
Is there such a thing as a first-time penalty abatement “get-out-of-jail-free” program? You will be happy to learn that the IRS has had a long-standing first-time penalty abatement program for late filing and late payment penalties. “First-time” does not mean a once in a lifetime opportunity. In reality, the IRS has a three-year look back rule when it comes to abating these delinquency penalties. You can have more than one bite at this apple. The rules for first-time abatement are found in Chapter 20 of the Internal Revenue Manual.
Does the California FTB also have a first-time abatement program? The answer was given in the recent OTA decision in D. Garibaldi (2020-OTA-372). This article will discuss the Garibaldi case and the FTB’s position on first-time penalty abatements.
The Garibaldi Case
In 2018, Garibaldi attempted to make an online electronic estimated tax payment of $80,000 toward his 2018 FTB personal income tax liability. The facts were not clear but, it may have been his first attempt at an electronic payment. Something went wrong. His bank information was defective. He received confirmation that his payment had been requested, but not that the payment was made.
Thinking he made the payment in good faith Garibaldi filed his 2018 FTB return reporting the estimated tax payment and a total amount due which he remitted with his return. In June 2019, the FTB notified him that he still owed $80,000. The FTB also assessed a late payment penalty and an increase in his self-reported underpayment estimated tax penalty, plus interest. He paid the deficiency and filed a claim for refund requesting abatement of the penalties and interest based on reasonable cause and a history of good tax compliance.
The OTA decided that all late penalties can only be abated due to reasonable cause. Reasonable cause is based upon ordinary business care and prudence. Failing to enter correct bank information into the electronic system and failing to check his bank account balance for confirmation of the $80,000 payment do not demonstrate due diligence and do not show reasonable cause.
Garibaldi argued before the OTA that he had a history of good tax compliance and, like the IRS, he should be given first-time abatement relief. However, the FTB has no such program, and California law allows abatement only on a showing that failure to pay was due to reasonable cause. Sorry Mr. Garibaldi, no penalty relief!
The California Legislature has considered the institution of first-time penalty relief that would go along with the IRS version. This is only fair. California has adopted a great majority of Internal Revenue Code laws. But in this case, the Legislature, in its peculiar wisdom, decided not to do so.
Their research disclosed that based on FTB penalty data, for the failure to file a tax return and failure to timely pay the amount due penalties, California receives $93 million in revenue each year. You draw your own conclusions. (See Assem. Bill No. 1777 (2013-2014 Reg. Sess.)
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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