- Which of the following is correct regarding the client's request for first-time penalty abatement?
Answer: The client qualifies because an estimated tax penalty under IRC § 6654 is disregarded in the first-time abatement lookback, and the 2024 balance due has been paid.
IRM 20.1.1.3.3.2.1 (First Time Abate). FTA is an administrative waiver that covers the failure-to-file and failure-to-pay penalties under IRC § 6651(a)(1) and (a)(2), among others. For a 2024 penalty, the taxpayer must have filed the same return for the three preceding tax years, 2021 through 2023, and have no unreversed penalties for those years; an estimated tax penalty under IRC § 6654 or § 6655 is disregarded. The client's only prior penalty is the 2022 § 6654 penalty, which does not count, and the 2024 return has been filed and the balance paid, so the client qualifies. Choice B is correct. Choice A misstates the requirement: FTA does not require that the tax was paid by the original due date; it routinely removes failure-to-pay penalties, which by definition arise from late payment. Choice C misstates the scope of FTA: it covers both the failure-to-file and the failure-to-pay penalty, and paying after the original due date does not bar relief from the failure-to-file penalty. Choice D misstates the timing: FTA is applied to penalties that have already been assessed, so the request may follow the assessment.
- Which of the following is correct regarding the failure-to-pay penalty during the installment agreement?
Answer: The failure-to-pay penalty remains 0.5% per month, because the return was filed after the extended due date, so the reduced installment-agreement rate does not apply.
IRC § 6651(h). The 0.25% per month failure-to-pay rate applies only to a taxpayer who filed the return on or before the due date, including extensions, and only for months in which an installment agreement under IRC § 6159 is in effect. This client filed five days after the extended due date, so the reduced rate is unavailable and the 0.5% rate continues. Choice D is therefore correct. Choice B ignores the timely-filing condition. Choice C is wrong because an installment agreement does not stop the failure-to-pay penalty from accruing. Choice A is wrong both because the reduced rate, even when available, applies only for months the agreement is in effect, not retroactively, and because this client is not eligible for the reduced rate.
- Which of the following is correct regarding the client's reasonable-cause request?
Answer: The request should be denied, because the duty to file a timely return is personal and non-delegable, and reliance on an agent to perform the filing is not reasonable cause under the ordinary-business-care standard.
Treas. Reg. § 301.6651-1(c); United States v. Boyle, 469 U.S. 241 (1985). The reasonable-cause exception to the failure-to-file penalty requires the taxpayer to show that the failure was due to reasonable cause and not willful neglect, measured by whether the taxpayer exercised ordinary business care and prudence. Under Boyle, the duty to file a timely return is personal and non-delegable; a taxpayer who entrusts the filing to an agent and relies on the agent's assurance that it was done has not shown reasonable cause. Choice A states the reliance rule too broadly: reliance on a professional can support reasonable cause for a substantive question, such as whether a return is required, but not for the ministerial act of filing. Choice C is wrong because the preparer's negligence is not imputed to the IRS and does not relieve the taxpayer of her own filing duty. Choice D is wrong because reasonable cause is a facts-and-circumstances standard; death, serious illness, and disasters are examples of circumstances the IRS considers, not an exclusive list.
- Which of the following is correct regarding abatement of interest under IRC § 6404(e)?
Answer: The IRS may abate interest on a deficiency when interest accumulated because an IRS employee unreasonably delayed processing a taxpayer's response to a notice, if no significant aspect of the delay is attributable to the taxpayer.
IRC § 6404(e). The provision is discretionary: the IRS may abate interest attributable to an unreasonable error or delay by an IRS officer or employee in performing a ministerial act, and no significant aspect of the error or delay may be attributable to the taxpayer. Choice A is correct. Choice B misstates the law: there is no 12-month mandatory abatement rule. Choice C misstates the law: interest is not categorically immune from abatement when an IRS processing delay caused it. Choice D misstates the rule: delay stemming from the taxpayer's own installment-agreement request is not the kind of IRS ministerial error covered, and it is not the only basis for abatement.
- Which of the following is correct regarding the request under IRC § 6404(e)?
Answer: The IRS may not abate the interest, because the supervisor's legal review of the conservation easement issue was a substantive act, and IRC § 6404(e) covers only errors or delays in ministerial or managerial acts.
IRC § 6404(e)(1). The IRS may abate interest attributable to an unreasonable error or delay by IRS personnel in performing a ministerial or managerial act, provided no significant aspect of the error or delay is attributable to the taxpayer. The provision does not reach delays in substantive acts, such as deciding the merits of a legal position. Because the 14-month delay here resulted from the supervisor's substantive legal review of the conservation easement issue, § 6404(e) does not authorize abatement. Choice B is incorrect because it omits the threshold requirement that the error or delay be in a ministerial or managerial act. Choice C is overbroad: interest continues to accrue during IRS deliberations and is abated only in the narrow circumstances of § 6404(e). Choice D misstates the scope of the provision: § 6404(e)(1) applies to interest on a deficiency, not only to interest on tax shown on a return.
- Which of the following is correct regarding the IRS first-time penalty abatement procedure?
Answer: First-time penalty abatement may waive an IRC § 6651 failure-to-file or failure-to-pay penalty without a reasonable-cause showing when the taxpayer has a clean history for the preceding three tax years, has filed all required returns, and has paid or arranged to pay the tax.
IRM 20.1.1.3.3.2.1 (First Time Abate). First-time abatement is an administrative waiver, not a reasonable-cause determination. A taxpayer may have an IRC § 6651 failure-to-file or failure-to-pay penalty waived without showing reasonable cause if the taxpayer has no penalties for the preceding three tax years, has filed all currently required returns or has a valid extension, and has paid or arranged to pay the tax due. A prior § 6654 estimated tax penalty does not count against that clean history. Choice C is correct. Choice A is wrong because first-time abatement does not apply to the accuracy-related penalty under § 6662. Choice B is wrong because first-time abatement does not apply to the estimated tax penalty under § 6654. Choice D is wrong because first-time abatement may be requested by phone, by letter or on Form 843, carries no user fee, and requires no reasonable-cause showing.
- Which statement is correct regarding the availability of first-time abatement?
Answer: She is eligible because an IRC § 6654 estimated tax penalty is not treated as a prior penalty under the first-time abatement clean-history test.
IRM 20.1.1.3.3.2.1 (First Time Abate). FTA is an administrative waiver that may remove the failure-to-file, failure-to-pay, and failure-to-deposit penalties for a single tax period. The taxpayer must have filed the same return for the three preceding tax years and have no unreversed penalties for those years, except an estimated tax penalty, which is disregarded. For the 2024 penalty, the lookback years are 2021 through 2023. The only prior penalty is the 2022 IRC § 6654 penalty, and it does not count, so her history is clean. Her 2024 return was filed on time under a valid extension, and the balance has been paid. Choice D is correct. Choice A treats the 2022 estimated tax penalty as disqualifying; estimated tax penalties are excluded from the clean-history test whether or not they were abated. Choice B is wrong because the IRC § 6651(a)(2) failure-to-pay penalty is expressly covered by FTA. Choice C is wrong because a return filed by the extended due date under a valid extension is timely filed, so the extension does not affect FTA eligibility.
- Which statement is correct?
Answer: No suspension is available because the $8,000 is tax shown on her return, so interest and the failure-to-pay penalty continued to accrue.
IRC § 6404(g)(2)(A) and (C). The § 6404(g) suspension does not apply to any penalty imposed by § 6651, or to interest, penalties, or other amounts with respect to any tax liability shown on the return. The client's $8,000 was shown on her own return, and the failure-to-pay penalty is imposed by § 6651(a)(2), so neither the interest nor the penalty is suspended, however late the IRS's notice. Choice B is correct. Choice C applies § 6404(g) to self-reported tax and to a § 6651 penalty; its dates (36 months from the April 18, 2022, due date, then 21 days after the November 1, 2025, notice) would matter only for an IRS-identified adjustment not shown on the return. Choice D treats the IRS's routing error as grounds for open-ended relief until payment; no provision suspends interest or the failure-to-pay penalty on self-reported tax until it is paid. Choice A misstates IRC § 6404(e), which covers unreasonable errors or delays in ministerial or managerial acts, not ministerial acts only.
- Which of the following is correct regarding the suspension of interest under IRC § 6404(g)?
Answer: For an individual taxpayer, if the IRS fails to send a notice stating the liability and its basis within 36 months after the later of the return due date or filing date, interest is suspended on the underpayment but not on the amount shown on the return.
IRC § 6404(g). For an individual taxpayer who files on or before the due date (including extensions), the IRS must send a notice stating the liability and its basis within 36 months after the later of the return due date or the date the return was filed. If it fails to do so, interest on the additional tax not shown on the return is suspended, but interest on the amount shown on the return is not. Choice D is correct. Choice A misstates the remedy: § 6404(g) suspends interest; it does not bar the assessment of tax, and the suspension ends 21 days after the required notice is provided (IRC § 6404(g)(3)). Choice B misstates the scope and the start date: the rule applies to individual taxpayers, not all taxpayers, and the 36-month period runs from the later of the due date or filing date, not from the date of first written contact. Choice C misstates the notice requirement: a notice stating only that the return is being examined does not state the liability and its basis, so it does not satisfy the provision, and interest would still be suspended if a proper notice is not sent within 36 months.
- An individual taxpayer did not request an extension of time to file, did not file a 2025 return, and did not pay any of the $12,000 of tax owed by the April 15, 2026 due date. The taxpayer filed the return and paid the full amount on October 1, 2026. Assuming no reasonable cause or other waiver applies, what is the combined amount of the failure-to-file and failure-to-pay penalties under IRC § 6651?
Answer: $3,060
IRC §§ 6651(a)(1), 6651(a)(2), and 6651(c)(1). The return was six months late because any part of a month counts as a month. For the first five months, both the failure-to-file and failure-to-pay penalties apply; the 5% failure-to-file rate is reduced by the 0.5% failure-to-pay rate, so the combined rate is 5% per month, reaching the 25% failure-to-file cap. In the sixth month, the failure-to-pay penalty continues at 0.5%. The combined penalty is 25.5% of $12,000, or $3,060. Choice B is correct. Choice A is 30% of the tax, the result of applying 5% for six months without the cap and ignoring the failure-to-pay penalty. Choice C is 28% of the tax, the result of adding a full 3% failure-to-pay penalty to the 25% failure-to-file cap without reducing the failure-to-file percentage for the months both apply. Choice D is 25% of the tax and omits the failure-to-pay penalty for the sixth month.
- Which of the following is correct?
Answer: Interest on the additional $12,000 is suspended from April 18, 2025, through September 22, 2025, because no notice was mailed within 36 months after the return's due date; interest on the $30,000 shown on the return is not suspended.
IRC § 6404(g). For an individual who files a timely return, interest is suspended if the IRS does not provide a notice specifically stating the liability and its basis within 36 months after the later of the date the return is filed or its due date without regard to extensions (§ 6404(g)(1)). The suspension begins the day after the 36-month period closes and ends 21 days after the notice is provided (§ 6404(g)(3)); a notice of deficiency can serve as that notice (Treas. Reg. § 301.6404-4). The rule applies separately to each item, and it never applies to tax shown on the return or to § 6651 penalties (§ 6404(g)(2)(A) and (C)). The 2021 return was filed on April 15, 2022, before its April 18, 2022, due date, so the 36-month period ran from April 18, 2022, and closed on April 17, 2025. The notice of deficiency was mailed on September 1, 2025, and 21 days later is September 22, 2025. Interest on the $12,000 omitted-gain adjustment is therefore suspended from April 18, 2025, through September 22, 2025, while interest on the $30,000 shown on the return keeps running. Choice A is correct. Choice B wrongly extends the suspension to the $30,000 balance the taxpayer reported. Choice C misstates the scope: § 6404(g) does not suspend § 6651 penalties. Choice D describes the IRC § 6404(e) standard (unreasonable error or delay in a ministerial or managerial act), which is not the test for the § 6404(g) suspension.
- Which of the following is correct regarding abatement of a penalty attributable to erroneous written advice from the IRS?
Answer: The IRS must abate a penalty attributable to erroneous written advice furnished in response to a specific written request if the taxpayer reasonably relied on the advice and provided adequate and accurate information.
IRC § 6404(f); Treas. Reg. § 301.6404-3(b). The IRS must abate any portion of a penalty or addition to tax attributable to erroneous written advice furnished by an IRS officer or employee acting in an official capacity, if the advice was given in response to the taxpayer's specific written request, the taxpayer reasonably relied on it, and the penalty did not result from the taxpayer's failure to provide adequate and accurate information. Choice B is correct. Choice A misstates the scope: relief is not limited to private letter rulings and is not conditioned on a request filed before the return's due date. Choice C misstates the required showing: the advice need only be erroneous, not knowingly false, and the taxpayer must show reasonable reliance, not a detrimental change of position before the due date. Choice D misstates the remedy: § 6404(f) reaches interest only to the extent it is imposed on the abated penalty itself (Treas. Reg. § 301.6404-3(c)); it does not abate interest on the underpayment of tax.
- Which of the following is correct regarding the client's right to challenge the penalties?
Answer: The client may raise the penalty issue at the CDP hearing and, if the IRS sustains the determination, may petition the Tax Court within 30 days of the notice of determination; the earlier abatement request does not bar that challenge.
IRC §§ 6320(c), 6330(c)(2)(B) and 6330(d)(1); Treas. Reg. §§ 301.6320-1(e)(3) and 301.6330-1(e)(3), Q&A-E2. At a CDP hearing a taxpayer may challenge the existence or amount of the underlying liability, including assessed failure-to-file and failure-to-pay penalties, if the taxpayer did not receive a statutory notice of deficiency and did not otherwise have an opportunity to dispute the liability. A prior opportunity for a conference with Appeals counts as such an opportunity, but a denial letter that offered no Appeals conference does not. The client received no deficiency notice and was never offered an Appeals conference, so the settlement officer erred by refusing to consider the penalties. After the notice of determination, the client may petition the Tax Court within 30 days (§ 6330(d)(1)). Choice C is correct. Choice A treats the denied abatement request as the prior opportunity to dispute; only a deficiency notice or a prior opportunity for an Appeals conference bars the challenge, and the client had neither. Choice B is wrong because the CDP determination gives the Tax Court jurisdiction even though these penalties were assessed without a deficiency notice. Choice D is wrong because failure-to-file and failure-to-pay penalties are part of the underlying liability for the period, and no deficiency proceeding is available for them.
- Which of the following is correct regarding the client's estimated tax penalty?
Answer: The IRS may waive the penalty because the client retired after attaining age 62 during 2025 and the underpayment was due to reasonable cause and not willful neglect.
IRC § 6654(e)(3). The estimated tax penalty generally cannot be abated for ordinary reasonable cause, and first-time abatement does not apply to it. However, the Secretary may waive the penalty for casualty, disaster, or other unusual circumstances, and may waive it for a taxpayer who retired after attaining age 62 or became disabled during the tax year or the preceding tax year if the underpayment was due to reasonable cause and not willful neglect. The client retired at age 66 in 2025, and his underpayment resulted from a mistaken belief about withholding, so the IRS has authority to waive the penalty. Choice A states the general rule and correctly notes that FTA is unavailable, but it ignores the newly retired exception in § 6654(e)(3). Choice B recites only the casualty, disaster, or unusual-circumstances waiver and omits the retirement and disability waiver. Choice D is wrong because first-time penalty abatement does not apply to estimated tax penalties under § 6654.
