Discussion:It might be wrong, but it just isn't fair!
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Discussion Forum Index --> Tax Questions --> It might be wrong, but it just isn't fair!
| 13 July 2007 | |
| Would the IRS EVER consider this? So often I have situations where there is no intent, a human error is made and because the situation doesn't fit right into the 'box' of what is right, the IRS assesses penalties and interest. Basic situation here, taxpayer is employee of 100% owned S corp. Insists on doing own payroll tax returns and usually messes them up somehow. For last year, payroll tax returns were prepared but the final payroll tax deposit was made as a personal ES vs. a withholding payment. The payroll tax returns were prepared showing the payment as FWT (what, two years before we hear back on that??), so when the 1040 was filed we showed the payment, of course, as an ES. Although they ended up with an overpayment of nearly $12,000, IRS assessed penalty. After over two hours and 6 agents and faxing POA 4 times, I could not grovel my way out of this one. Again, no intent, just oversight/mistake/error and what about all those people out there who don't even pay taxes? Any hope? | |
Chautauqua (talk|edits) said: | 13 July 2007 |
| No hope. IRS feels that by following the letter of the law they are being even-handed to all taxpayers. Possibly some truth to that. I met an accountant who was trying to avoid a penalty of $35,000 on a payroll tax deposit that was three days late. BIG payroll, of course. I never heard how he came out. | |
Michaelstar (talk|edits) said: | 13 July 2007 |
| LJ - Unfortunately, your client is in a bad situation. I doubt that he even has reasonable cause and based on your story it sounds not. Your client should give up (if they already have not) preparing p/r tax returns and making tax deposits. Use one of the larger third party companies like Paychex/ADP (and I am sure you have suggested this more than once). As you know - the penalties and interest being paid would more than cover the processing fees.
Sorry to hear you've had to deal with such a frustrating situation. | |
| July 13, 2007 | |
| LJ, I have had an incredible amount of luck recently writing penalty abatement letters. Have you tried that?
The IRS abated a penalty for a corporation missing the next-day deposit requirement on a payroll liability that exceeded $100,000. The IRS also abated a penalty for a 990 that was filed greater than a year after the due date. Both of these letters claimed reasonable cause and past history of compliance. However, the reasonable cause in both of these letters could have easily been rejected by the IRS. | |
Michaelstar (talk|edits) said: | 13 July 2007 |
| LJ - I agree with PVVCPA that consideration for the prior history of compliance usually works in the favor of the taxpayer. Also, if you write the letter, send it certified mail and do not get an answer back within 30 days - you can at that point request to deal with the taxpayer advocate - that group has been very reasonable in the past on the abatement of penalties. | |
| July 13, 2007 | |
| On both letters, I included a brief paragraph about what steps the taxpayer has taken to ensure that this does not happen again. And I always throw in a sentence about how the assessment of the penalty is not consistent with the Service’s stated goal of enhancing compliance. | |
Death&Taxes (talk|edits) said: | 14 July 2007 |
| And I was told to include a line that the mistake was not wilful and there was no intent to defraud. Don't ask me why, but the word 'wilful' strikes a chord.
Seems to me this is one time a letter works better than 'groveling' on the telephone. Keep the letter to one page, if possible, and make your points in short numbered paragraphs. Don't get into IRS dalliance in taking two years; that is an issue for a Section 6404 claim. | |
| 16 July 2007 | |
| Okay, D & T, my ignorance. What do you mean by, "IRS dalliance in taking two years; that is an issue for a Section 6404 claim."? | |
Death&Taxes (talk|edits) said: | 17 July 2007 |
| "(what, two years before we hear back on that??)" I guess I misread your intent with this comment. | |
| 17 July 2007 | |
| I meant that it will probably take two years before the SSA lets us know that the W-3/W-2s were wrong. Sorry, that was confusing. | |
| 17 July 2007 | |
| I usually write" due to circumstances beyond taxpayer's control". Just recently abated $15 K in penalty for late filing and payment. | |
| July 18, 2007 | |
| Sashka, that would qualify as reasonable cause, but it is important to make sure that it is actually a true claim. The IRS would not consider ignorance of the law as "circumstances beyond taxpayer's control." | |
| 18 July 2007 | |
| About two years ago I was sucessful in getting approximately $500k of penalties and interest on the penalties abated for late payment and filing of 36 months of 941's to the IRS. It was for a non profit religious school and I used every trick and excuse possible in the book. I even got a letter from Senator Schumer to recommend penalty abatement. The Service denied the request at first (very nasty RO) but after much negotiation and threatening (CNN, CBS, Etc.) with the Appeals office in Long Island, NY we won.
BTW- The penalty abatement request was 14 pages long and lots of quoted verbeage from several case studies and IRC. Thought I would share that with you. | |
| 18 July 2007 | |
| For getting $500k in penalties abated, I hope the fee was considerable.
I concur that the IRS may very well abate the penalties....once. The client needs to show what steps have been taken to ensure the error does not happen again. I tell every one of my business clients to sign with a payroll service. Just one error on a client-prepared payroll will offset the entire years' service fees. By the way...I see Bank of America is offering free payroll to small business clients. Anyone have any experience with their service? | |
Death&Taxes (talk|edits) said: | 18 July 2007 |
| One handy tip I found out about by chance: if the circumstance involves alchohol abuse, AA can work wonders and I suspect that Drug Intervention organizations can help in similar circumstances. As a result of an TCMP audit of a law partnership many years ago, it was found that one partner had been hiding receipts in a personal 'escrow' account. His partner had no knowledge of this. All money from that account went into the offender's personal bank accounts. At that point, the offender had me communicate with an attorney referred by AA; this man took over that angle of the case. As a result of his work, all penalties were abated on the partner. From that time on, I have referred people with similar problems to AA.
That the Service is more lenient to those with personal weaknesses may not seem 'fair' but it does seem to be unofficial policy. | |
