Discussion:Forgot extension - now what?

Explain to client that you have paid the penalty, and ask that if it's refunded based on your abatement request, to please return the funds to you.

The course of events was not optimal, but it really does feel pretty good to be able to say to everyone that you guarantee your work and are accountable for errors.

1. Ask for the waiver and also mention that the return was only 16 days late, not 34? 2. Only ask for a correction to the penalty amount? 3. Only ask for the total waiver and hope for the best?

One final question. Payment is due 10/15/07. Should I pay the penalty now and request a refund?

Reg Sec 301.6651-1(c)(1) says "if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause."

I have for many years relied on Treas Reg Sec 301.6724-1 for guidance with reasonable cause arguments, with 100% success with nonprofits and Form 990. Generally, I find that I only need to establish that there are "significant mitigating factors," and that the filer acted responsibly.

First, I establish exactly what led to the late filing. If it is a first time filing of Form 990, or if the filer has a good history of compliance, or if the nonprofit is small and is run by volunteers, these are "significant mitigating factors." Then I establish that the filer acted responsibly once the non-filing was discovered by preparing and filing the return within a reasonable period of time. The argument is even more powerful if the error is corrected BEFORE being discovered by the IRS. This demonstrates that the organization is acting responsibly and in good faith.

The same reasonable cause provisions that are available to the filer are also available to the filer's agent (CPA). So if you are the CPA responsible for the extension and missed because your tickler file or due-date tracking system failed, you can make a reasonable cause arguement (unless perhaps you have established a history of missing deadlines). The fact that you are correcting the error shows that you are acting responsibly. The fact that you have a due date tracking system shows the same.

As suggested in a post above, you should always explain to the IRS what procedures the filer has put into place to prevent future compliance failures. I always end by "respectfully requesting that all assessed penalties and interest be abated." Then I thank the IRS for their forbearance and consideration.

I have never advised a client to pay late filing penalties before requesting abatement. No need to pay unless willful neglect is overwhelmingly evident. I just got abatement for a nonprofit client that was assessed a $20,000 late filing penalty. Even after being notified by the IRS of the delinquency, the client took 10 months to actually file the return and had received "intent to levy " notice!

As noted in previous posts, the IRS is quite forgiving of nonprofits, and seems particularly inclined to abate when a well composed and logical reasonable cause argument is sent.

I once worked for a large firm that had a 14 page "standardized" abatement request letter that cited every case known to man. It never failed. I've pared it down to about 3 or 4 pages and made it a lot more friendly.

Bottom line: charities should not be sending money to the IRS for late filing of Form 990, but be advised of the new filing requirements regarding Form 9909-N.