Penalty Abatement

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    Daniel Gibson

    Hi Everyone: I’ve got a client who thinks they only need to file their Federal/NJ 1040 tax returns every 3 years, since they have no amounts due when they file them. So we filed 2012/2013/2014 in 2016. Sure enough, all refunds. So this year, we prepare 2015/2016/2017and lo and behold there’s $34,000 (tax of $21K, interest of $3K and late filing/payment penalties of $9K) due for 2015 Federal Return. 2016/2017 are refunds.

    My strategy is as follows for 2015 Federal Return: File the return, without making a payment, showing the tax due and estimated tax penalty. Wait for the notice from the IRS on the amount due for 2015. Then submit a streamlined installment payment for the tax. At the same time, request an abatement of the late filing/payment penalties for reasonable cause, with the first time abatement as a back-up plan.

    What do you think? Would anyone handle it differently?


    Bryan Haarlander

    Dan, I hope your client has learned a valuable lesson and will be filing his returns annually. Personally, we would never keep this person as a client. These clients have a very short memory, and when the sh_t hits the fan, they likely will blame you for not filing an annual tax return for them. From your brief overview, I see no reasonable cause to have the penalty abated. If they qualify for the FTA, that may be the only recourse you have. You did not mention his state tax returns. He may be stuck with those penalties & interest assessments. If the client has the ability to full pay, you should consider that to avoid additional interest assessments. Good luck

    Daniel Gibson

    Thanks Bryan. Trust me, this client is the exception, not the rule for our practice. Thanks for your input.

    Robert Parker

    Dan – a bit late to the party – just signed on with Eric – what I have done in this type of case is file the refund years and apply/carry back the refunds to the owing year – lowers the amount owed and the penalties and interest – and then pursue any abatement or payment plan after getting the updated IRR notices –

    Incidentally, really enjoyed your webinar on Audit yesterday – your discussion of Form 8275 cleared up a nagging question about how to deal with a clients income reporting issues –

    Robert Parker EA

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