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Thread: CPA advice? Penalty abatement

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    Default CPA advice? Penalty abatement

    I filed a return late and now have some penalites to deal with in addition to what I owe in taxes. I'm wondering if any of you have any experience in requesting penalty removal/abatement from the IRS (yes, if you're a CPA, I am indeed asking for free advice ). From what I can tell, they are granted if you can give them a reasonable explanation (and proof) for why you didn't file or pay on time. I'm just curious about the best tack to take with this, and also wondering if you have a better chance at receiving it if you have an attorney or accountant write your request.

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    Default Re: CPA advice? Penalty abatement

    A lot of this depends on the nature of the 'penalties' involved. If there is an underlying dispute in regard to whether or not the individual/business actually owes the tax upon which the penalty was based, or if there is a risk that the IRS will bankrupt the individual/business by assessing the penalty, then the IRS is in a somewhat vulnerable position and may be predisposed to negotiate.

    But if the penalty is indisputable, i.e. a private contractor who reported earning X dollars last year but who did not send in sufficient quarterly estimated tax payments, and/or did not file and make the April 15th annual payment on time, and there is essentially no risk of the private contractor going bankrupt as a result of the penalty, then the IRS is very probably going to play hardball (because the IRS is not facing a 'something is better than nothing' scenario as in the earlier example). If the latter is the case, I'd recommend saving the attorney/accountant fees and just sucking it up on the estimated tax underpayment / late annual payment penalty charges.

    Just as a 'public service' announcement, even if you had filed for an extension on your tax return filing date prior to the April 15th deadline, you would still have been whacked with late payment penalties ... because the IRS still would have held you to making the April 15th annual tax payment before that deadline, despite your actual tax return being filed at a later date.

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    Last edited by Melonie; 04-24-2005 at 09:57 AM.

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    Default Re: CPA advice? Penalty abatement

    You are at least looking at a penalty for "failing to file" it has been a while since i had any dealings with taxpayers in this category but as I remember my training I got from the IRS this is a fixed amount vice a % of what you owe. The logic as I remember was that if you didn't owe anything then the "failing to file" penalty would always be 0 and the accured interst would always be 0, with a fixed amount if you go long enough you can turn a return you would get a refund on into a return you owe on.

    I know you are saying "well if I didn't owe anything, why would I not want to file?" Some people just don't want to bother with it, if they can get their witholding such that they over pay by like 100 dollars they may decide that going through all the hassle of doing or getting their taxes done isn't worth 100 dollars.

    I have never heard of a "normal" John Q. Public taxpayer successfully pettitioning the IRS to waive a penalty, just because they want to be nice, not saying it doesn't happen just never heard of it.

    Maybe there is something to the "we want something rather that nothing" idea.

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    Default Re: CPA advice? Penalty abatement

    My accountant asked me to send her my adjusted gross income and total tax from 2003 so that she can send something off for me to avoid the penalty. Plus I already sent in an estimated payment from 2004 (havn't done Q1 2005 yet, oh well.(

    BTW, if you need a great accountant for Texas Susan my lady RULES! She knows I dance and totally loves it, she's a regular patron at Expose, LOL!

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    Default Re: CPA advice? Penalty abatement

    Thanks, Kat, that rocks. However, I probably need to use one here. I'm trying to straighten out all of my financial shit is so we can finish locking down our pre-(now post-)nup.

    PH, I know that there have been successful penalty abatement cases, otherwise I wouldn't think of trying it. And I know what kind of penalties I am looking at because I am already dealing with them. But thanks for the, um, response.

    So Kat, were you late in filing for 2003? I would be really curious to hear how your accountant gets around the penalty for you, and if she does, I will for sure want her number.

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    Default Re: CPA advice? Penalty abatement

    Well if you say you know average taxpayers, just your normal working people (non-bussiness owners) that have had there penalties waved by the IRS good for you.

    I guess the the question I would have is what would be the IRS's motivation for wanting to do it? Just because they wanted to be "nice?" Not really the image the IRS wants to foster.

    Lets face it most people pay there taxes and are pretty honest about it not because it is the right thing to do, that comes into it but it is mostly because we are afraid of what will happen if we do not. The IRS knows this and wants to keep that fear alive and would hesitate to send the message that we don't need to be scared.

    They went the kinder gentler route a few years ago, it didn't work out so well from a collecting all the taxes that are owed standpoint.

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    Default Re: CPA advice? Penalty abatement

    Quote Originally Posted by phonehome
    I guess the the question I would have is what would be the IRS's motivation for wanting to do it? Just because they wanted to be "nice?" Not really the image the IRS wants to foster.
    Well, it happens. They printed it all over my paperwork. Here is a link to the relevant IRS web page. They don't do it just because you say, "I forgot, please don't charge me," but if you can give them reasonable cause and proof of why you didn't file/pay on time, it is possible to have some penalties abated. I'm looking for advice from people who have had experience with this specific issue or ideas on how to deal with it, not from people who don't believe it exists.

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    Default Re: CPA advice? Penalty abatement

    My accountant asked me to send her my adjusted gross income and total tax from 2003 so that she can send something off for me to avoid the penalty.
    Katrine I don't want to put words in your mouth, but this sounds like a scenario I went through myself a few years back concerning potential penalties on 'inadequate' estimated tax payments. IRS rules state that the total estimated tax payments must be within a certain percentage (I think 10%) of the actual taxes due on a certain amount of total reported income, and the IRS attempted to assess a penalty for 'supposedly' underpaying based on that year's reported income resulting in significantly more tax money being due than I had previously sent in estimated tax payments to cover.

    But elsewhere in the IRS rules it also states that total estimated tax payments are considered to be 'adequate' if the amount of estimated tax paid for one year is equal to the actual total amount of taxes owed and paid in the previous year. This was the reason that I was able to get the IRS to drop their underpayment of estimated tax 'penalty', because even though the amount of estimated taxes I paid that year was not within the required percentage of the actual taxes due on that year's income (because my total income had risen significantly due to new and bigger breast implants), the total amount of estimated tax payments I sent in WAS equal to the amount of income tax I had actually owed and paid in the previous year (when my implants were smaller and I was earning substantially less money).

    Katrine, it sounds like your accountant is working along the same lines in your case based on the particular info requested. This was (for me at least and probably for you as well) a situation where the IRS penalty claim was in fact disputable because one IRS rule said I owed a penalty while another IRS rule said that I didn't owe the same penalty. Actually, the IRS could have done us all a favor if only they had checked their own records of previous tax returns before attempting to assess the penalty.

    However, I'm sure that for other taxpayers in a similar situation who were not aware of, or who didn't have an account to make them aware of, the second IRS rule, then the IRS was able to collect extra money from them in the form of an incorrect penalty assessment. But the reason that the 'supposed' underpayment of estimated tax penalty was dropped (in my case at least) was because the IRS was forced to drop the penalty claim because it violated one of their own 'special case' IRS rules, not because the IRS wished to be 'kinder and gentler' and not because my accountant was able to convince the IRS to 'bend' any existing rules.

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    Last edited by Melonie; 04-25-2005 at 11:26 PM.

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    Default Re: CPA advice? Penalty abatement

    Penalties can be abated for medical reasons. I've had that work for clients in the past but they were legitimate excuses.

    Disaster area relief is also a valid excuse.

    Basically, the failure to file penalty will be abated if the taxpayer can show reasonable cause for not filing and that the lack of filing wasn't due to willfull neglect. So, if you can show them you were unable to file, and you get an agent willing to listen, you might make out ok. You're in sales. Sell your story to them

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    Default Re: CPA advice? Penalty abatement

    When I help a client prepare returns for "back years" I have rarely been able to get penalties waived without there being some valid reason. One client was in nursing care after a stroke and the IRS did waive the penalties (but not the interest)

    My best advice is to file all the returns up to date as best you can. Send in as much as you can toward the tax liability and penalties and then set up a payment plan for the rest. And don't miss a payment. And also make sure you are making quarterly estimates.

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    Default Re: CPA advice? Penalty abatement

    I filed 2003 on time. I had taxes taken out on W-2 so I received a refund, which I rolled over to 2004, since I knew I would owe.

    My estimated payment for 2004 was over the amount I need because I just used the standard deduction for my estimate.

    Melonie, I think this is what my accountant is doing. Hopefully I'm safe from penalty.

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