Discussion:Accuracy related penalty
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| 2 May 2007 | |
| Client just got a letter for omitted income on 2005 return. IRS is correct & there is ccuracy related penalty involved also. Taxpayer wants to ask for releif of the penalty. Client says he never got the 1099-R & he forgot about it. So other than being an oversight there's no other reason it was left off.
Any suggestions? Should he pay the entire amount & ask for the penalty back? | |
| 2 May 2007 | |
| Don't pay penalty in the first place - attach statement stating 1099R never received. This has always worked for me at any rate. Reg. 1.6664-4."Reliance on an information return, professional advice, or other facts, however, constitutes reasonable cause and good faith if, under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith." | |
| 2 May 2007 | |
| I agree with Solomon, but I would take it 1 step further. Recalculate the return and have your client send in the additional tax and interest amount. At least that way the clock stops running on the interest. Beg, very nicely, that your client has always been on time (if this is the truth) and that it was not a willful omission. | |
| 3 May 2007 | |
| Under sec. 7491 re burden of proof, the IRS has the burden of production as to any penalty, a/k/a the facts. A strictly correct response is the IRS has no facts other than the omission itself, and we're not providing you any. :-)
The Reg cited above states that reliance on an information return is not necessarily reasonable cause, so therefore failure to receive a 1099 isn't either. If IRS obtains a statement from the payer that 1099s did go out and no one complained over nonreceipt except for bad address, the statement is self-serving. Unlike the case alleged nonreceipt of one 1099-INT out of a bunch we may get for various CDs which matured, I would add some facts as to how t/p forgot about a retirement plan distribution. I presume also that this 1099R isn't an annual thing t/p receives every year. | |
Gilesinsight (talk|edits) said: | 24 May 2008 |
| In the 2007 tax return Client did not include an estate K1 which will increase taxable income and tax liability by a factor of 4. If the 2007 return is amended within the next few days, will he avoid accuracy penalty because it was reported before IRS issued a notice?
Thanks Lawson | |
Death&Taxes (talk|edits) said: | 24 May 2008 |
| I have said it before and will say it again, IRS rarely penalizes 1040X filers. Amend it and pay the added tax.
I would add here that IMO a 4X increase should warrant a penalty, unless there was a very good reason the taxpayer did not know it was coming. The client should have told the preparer that something was in the wind when he had the return prepared. In this case, I would have tried to get an estimate, and extended the return with a payment of that estimated liability. | |
| 24 May 2008 | |
| "Factor of 4" does not tell us enough to know whether a penalty would be assessed, even in the event the IRS finds the error prior to it being amended. Increasing tax from $1 to $4 is a factor of 4. It gives no sense, however, of true magnitude of error. | |
Gilesinsight (talk|edits) said: | 24 May 2008 |
| Taxpayer is Head of Household one child. Taxable income went from 17K to 68K.
Thanks Lawson | |
| 27 May 2008 | |
| I have one, a CP-2000, where the client omitted a W-2 that generated an increase in tax of over $5,000 but balance after withholding dropped to about $3,000 with penalty proposed. Has anyone dealt with this before? If so, how? | |
Donniecastleman (talk|edits) said: | 27 May 2008 |
| Question, I have on my desk a situation with a client that they didn't receive a 1099 and just got pegged for not including it on their income. Before I would amend the return with the changes and have it work itself out in the system, but I heard at the seminar in Vegas that you should include the changed forms attached to the CP-2000 and an explanation letter without filing a 1040X. Which is the "safer" thing to do, as I don't want to draw unneeded attention to my client by an IRS rep. | |
TheTinCook (talk|edits) said: | 27 May 2008 |
| You should not file a 1040x in response to a CP 2000. It'd be way too slow even if it were allowed.
The explanation you send back with the response form should include pro forma forms when necessary.
| |
Donniecastleman (talk|edits) said: | 27 May 2008 |
| Yes, being that they didn't claim the income, they also didn't claim expenses related to the job so there will be tax owed but won't be as much as the CP-2000 says so. Thanks for that! | |
Death&Taxes (talk|edits) said: | 27 May 2008 |
| With the exception of the Atlanta center, I have had success by getting a POA, and making the changes to the schedules required, with additional expenses if necessary, and faxing same with cover letter, copy of CP-2000 page indicating that some items were incorrect, and the revised forms. With Atlanta I find often I must follow up with a call to Practitioner Hotline.
Michael: was the penalty based on the $5,000 or the net? | |
| 27 May 2008 | |
| D&T Penalty was based on gross deficiency before withholding credit. | |
| 27 May 2008 | |
| The accuracy related penalty is imposed on the increase in tax, not the increase in net tax due. So if the tax was over $5k then the accuracy related penalty will be imposed. Unless you can come up with a really good excuse these days, its unlikely to get waived, unlike in the past with the 'kindler gentler IRS'. A few years ago, if it was one mistake in a long history of filing correct returns, a waiver was often given. Now, not without a good excuse of which, 'I didn't get the 1099' is not a good one.
And you don't file a 1040X in response to a CP2000, as TinCook says. you send an explaination and a proforma if necessary. and don't forget to amend the state returns if there are any changes there. | |
Death&Taxes (talk|edits) said: | 27 May 2008 |
| I agree with Joan: without a medical reason, or another reason beyond control of the taxpayer making him unable to handle his affairs, waiver is hard to come by. Yet I have seen forgivness if, e.g. AA intercedes for a recovering alcoholis or NA for a subtance abuser. Fair? Not really, but that is the way it goes. | |
| 13 August 2008 | |
| Back to accuracy-related penalty: I am reviewing a 2006 tax return and providing calculations for a return that had a 1031 exchange with recognized gain of $235,000 as a result of boot received that should have been reported on the 2006 tax return. The resulting increase in tax is approx $46,000. I'm reading here and in other places that the 6662 accuracy-related penalty will not be imposed by the IRS if an amended return is filed for 2006. Is this just common IRS practice, or is this based in the code, regs, or other source? I have seen the same advice offered in other discussions here [1] and here [2]. (PS - How do I do an internal link?) How confident can the TP be that they will not be hit with an accuracy-related penalty on this? | |
Death&Taxes (talk|edits) said: | 13 August 2008 |
| Do remember that an amended return can be audited; I've had at least one on a Golden Parachute tax. So there is no practical guarantee that a penalty will not be assessed, particularly since the issue is complicated and might need review. | |
