Nearly a million and a half Americans missed out on $181 million in tax-penalty relief because the Internal Revenue Service (IRS) failed to inform them about possible waivers.

Under the tax code, penalties can be assessed for not filing a tax return or for failing to pay the full amount shown. But Americans who have paid on time and in full for the previous three years can ask for the penalties to be waived.

The problem is that the IRS did not bother to tell 1.45 million tax filers in 2010 about this opportunity, known as the First-Time Abate.

J. Russell George, the treasury inspector general for tax administration, whose office discovered the IRS failure, said in a statement: “Penalty waivers should not be granted only to taxpayers or preparers with knowledge of IRS processes.”

“If the IRS does not administer these and other penalties fairly and accurately, taxpayers’ confidence in the tax system will be jeopardized,” George added.

IRS officials acknowledged the mistakes and said they would take action to prevent them from happening again.

-Noel Brinkerhoff

To Learn More:

First Time Abatement for FTF and FTP Penalties (by Jack Townsend, University of Houston Law School)

IRS Never Told Taxpayers They Could Get Penalty Relief (by Michael Cohn, Accounting Today)

Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance (Treasury Inspector General for Tax Administration) (pdf)