I’m working on a case where the client is asking us to pursue Penalty Abatement for IRC 6663 75% Civil Fraud penalties.
On the face of it, I really don’t want to touch this with a 20′ pole, but I feel like I owe it to the client to see if there’s ANY angle I can use without risking my EA rights.
In the years before contact, she had her return “prepared” by someone (ghost preparer, using consumer software, not signed). Regardless of whose idea it was to do it, she submitted two years of returns where she showed huge Schedule C losses (about half her six-figure, W-2 income) for a “nail salon” with no paying customers. Zero substantiation. To add to the disallowance of all expenses, the IRS also dinged her for unreported business receipts for a ton of cash deposits into her account, which she claimed were made by relatives to whom she loaned money (because all of my family knows my bank account details…).
Even if she had a preparer to throw under the bus, she signed the returns, so she’d be liable anyway. She’s probably very lucky this stayed on the Civil side, because she’s in Law Enforcement–not sure what would happen to her ability to maintain her job.
We should be able to get her into an IA or PPIA, but I am ready to tell her that we have no leg to stand on even asking for a Penalty Abatement.