(If this is not the appropriate SE for this question, I apologize and would be happy to be directed elsewhere. Thank you.)

I recently found out that I didn't declare a distribution from an inherited IRA in 2020, and have received a substantial understatement of income tax penalty. The mistake was an honest one, and I'm trying to have the penalty eliminated, though not making much progress.

In my research I've noticed the IRS can eliminate penalties via First Time Abate, which by my understanding is their way of forgiving a mistake if it was your first one and you have a history of being tax compliant. What is quite frustrating in my case is that this relief is not offered for accuracy-related penalties such as mine, but only offered for three specific penalties: Failure to File, Failure to Pay, and Failure to Deposit. So it seems that a taxpayer who doesn't file a return at all is eligible for First Time Abate, but someone like me who makes a good faith effort to file a return, which ends up being inaccurate, is not eligible for First Time Abate.

Why might the IRS limit First Time Abate to only some penalties? Specifically, why aren't accuracy-related penalties eligible for First Time Abate?

  • That's a question you should address to your congress people, since they're the ones writing the laws.
    – littleadv
    Sep 4 at 12:50
  • @littleadv: Yes, I guess you're right that whoever came up with this policy would be the best to ask. I thought that perhaps someone here might have some intuition concerning the motivation behind the policy.
    – Jared
    Sep 4 at 19:34
  • @littleadv: many abatements are based on the law written by Congress (although fleshed out quite a lot by regulations written by Treasury with advice from IRS), but the 'first time abate' program is not; it is an administrative policy created entirely by IRS (although Congress has had plenty of time to act to cancel it, and has not done so). Sep 7 at 3:42
  • @dave_thompson_085 that may be so, but doesn't change the fact that the people best suited to change or at least explain the policy are the elected officials. I assume there's some legal basis allowing the IRS to enact such a policy, if it was blatantly illegal they'd be sued alread
    – littleadv
    Sep 7 at 3:46