California Tax Penalties: How to Request Abatement from the FTB

Common FTB Penalties

Late filing. If a return is filed late, the penalty is 5 percent of the tax for each month or part of a month it is late, up to 25 percent (Revenue and Taxation Code (R&TC) section 19131). For individuals and fiduciaries, a return filed more than 60 days late carries a minimum penalty equal to the lesser of $135 or 100 percent of the tax required to be shown on the return.

Late payment. If tax is paid late, the penalty is 5 percent of the unpaid tax plus 0.5 percent per month of the remaining tax, for up to 40 months, with the total limited to 25 percent (R&TC § 19132).

Failure to respond to a demand. If a taxpayer does not file a return or provide information after the FTB’s notice and demand, a penalty of 25 percent can apply (R&TC § 19133).

Accuracy-related penalties. California also imposes accuracy-related penalties on certain understatements of tax. These are usually proposed in a Notice of Proposed Assessment (NPA) and can be contested in a protest.

Reasonable Cause

The late-filing, late-payment, and demand penalties do not apply when the failure was due to reasonable cause and not willful neglect (R&TC §§ 19131, 19132, 19133). The FTB’s claim form describes reasonable cause as a failure that occurred despite the exercise of ordinary business care and prudence.

Each request turns on its facts. A persuasive request explains what prevented timely compliance, when the problem began and ended, and how promptly the taxpayer complied once it was resolved, and it includes records that support each point.

One-Time Penalty Abatement for Individuals

For taxable years beginning on or after January 1, 2022, R&TC section 19132.5 allows an individual to request abatement of a late-filing or late-payment penalty for one taxable year without showing reasonable cause. The FTB’s request form (FTB 2918, One-Time Penalty Abatement – Individual) lists the requirements: the taxpayer has not previously been approved for this abatement, has filed all required income tax returns, and has paid in full, or is current on an approved installment agreement for, all other taxes, penalties, fees, and interest due other than the penalty in question.

The request can be made orally or in writing. Because the statute covers only the late-filing and late-payment penalties, other penalties, such as the demand penalty or an accuracy-related penalty, require a different basis for relief.

How to Request Reasonable-Cause Relief

The FTB handles reasonable-cause requests as claims for refund. Individuals and fiduciaries use form FTB 2917, Reasonable Cause – Individual and Fiduciary Claim for Refund, and business entities use FTB 2924. FTB 2917 states that the FTB cannot act on the claim until the balance due for that tax year is paid in full.

Refund claims have deadlines. Under the FTB’s instructions, a claim generally must be filed by the latest of four years after the original due date of the return, four years after the date a timely return was filed, or one year after the date of the overpayment.

Penalties Proposed in an NPA

When penalties appear in an NPA, they can be contested in the same written protest as the proposed tax. The protest must be filed within 60 days after the NPA is mailed (R&TC § 19041).

If the FTB Denies the Request

If the FTB denies a refund claim, the taxpayer generally may appeal to the Office of Tax Appeals within 90 days after the denial is mailed (R&TC § 19324). If the FTB does not act on a claim within six months, the FTB’s Audit/Protest/Appeals guide (FTB 985) explains that the taxpayer may treat the claim as denied and appeal.

The Bottom Line

Identify the penalty, confirm whether it qualifies for one-time abatement, and gather the facts and records that show reasonable cause. Paying the balance and filing the correct claim form within the refund deadline keeps the request alive, and the Office of Tax Appeals is available if the FTB denies it.