Discussion:Tax penalties

However, if someone has that many years of 1099s on file, there is a good chance the IRS has already filed Substitutes for Returns on several of those years. For that reason, before anything is done, you should be in contact with the IRS and get Account Transcripts to see exactly what action has taken place on each year in question. Make sure your Power of Attorney goes back the full ten years (I always go back a couple additional years as well as the full three years into the future that the IRS allows) to ensure that you cover each and every possible year that could be a problem. In addition, you should always request W-2 and 1099 information from the IRS. The records they have will not go back the entire time UNLESS they have SFR'd those years. If they have SFR'd them, you may want to file originals to replace the SFR's if the new returns will reduce the tax owed. In addition, if you file originals to replace SFR's, the new returns MUST be filed with one of two Service Centers and sent specifically to the Audit Reconsideration units along with copies of the SFR's or the new returns will NEVER be processed.

Also, I strongly disagree that severe depression is not a valid reason for penalty abatement. However, attaching a statement to the return is not the proper course of action because that statement will never be looked at nor will it ever end up with the proper unit. Instead, after the returns are assessed, a letter should be sent requesting penalty abatement. 99.99% of those will be denied at the initial level. From there, an appeal should be filed. In the past, the appeal would have been heard by an Appeals Officer in a local office, but with the new Appeals setup, it would likely be heard in one of the Service Center campuses with some of the new Appeals Officers. Unfortunately, I am not terribly enamored with their knowledge or their skill compared to their compadres in the local offices.

I would get good documentation from medical professionals showing treatment and medication during the years when the returns were not filed and the taxes were not paid. While I do not do many penalty abatement cases because many of them are unlikely to prove successful, this is precisely the type of case for which a penalty appeal is appropriate.

Here is the IRM info as it applies to P-5-133 and enforcement for a return

5.1.11.6.1 (05-07-2002) Enforcement for a Return The application of enforcement procedures will depend upon the facts of each case. Policy Statement P–5–133 outlines general guidelines and factors to consider when determining whether to pusue enforcement of filing requirements.

Specific Factors which must be considered when making an enforcement determination are:

Degree of flagrancy

History of noncompliance;

Impact on future voluntary compliance;

Whether the delinquency involves trust fund monies collected;

Special circumstances peculiar to a specific taxpayer, class, industry or type of tax;

Existence of income from illegal sources

Minimal or no Tax due (See LEM 5.2.4)

Cost to the service to secure a return with respect to anticipated tax revenue (See LEM 5.2.4).

Bankruptcy; contact Insolvency.

Filing requirements will normally be enforced for a six year period. However, all unfiled returns should be requested and the taxpayer may file for all open periods regardless of the age of the delinquency.

If, after consideration of the factors above, a determination is made that more or less than six years of filing requirements will be enforced, the revenue officer will document the case history with the facts and reasons supporting this decision. Managerial approval is required.

Calculate the 6 year period for enforcement by starting with the tax year that is currently due and go back 6 years. For example, if making a field call on October 1,2000, the enforcement period will cover tax years 1994 through 1999.

Policy Statement P–5–133 allows an investigating employee to close a Del Ret without enforcement because the non-filing is not willful, and:

There would be no tax due on the delinquent return; or

There would be minimal tax due on the return (minimal is defined in LEM 5.2.4); or

The cost to the Service to secure a return would exceed anticipated revenue. Anticipated revenue should be examined and calculated on a case-by-case basis over the length of the Collection Statute. Consideration should also be given to the impact of not filing a Federal Tax Lien for assessments not pursued based on a P–5–133 determination.

Generally, the non-filer's current ability to pay will not be the primary factor in determining whether or not to secure less than six years of returns. On a case-by-case basis, service employees will apply prudence when it is clear from information available that the non-filer does not have or will not have the ability to pay some if not all of the tax liability over the 10 year statutory collection period.

The following are examples of situations where we would not pursue 6 years of returns because the cost to secure the return would exceed anticipated revenue:

A defunct corporation where no assets exist to satisfy any part of a tax liability and there is no possibility of a transferee assessment;

A deceased taxpayer where no estate exists to satisfy any part of a tax liability and there is no possibility of a transferee assessment;

A foreign national taxpayer who has departed the United States with no expectation of return and no identifiable assets existing in the United States to satisfy any part of the tax liability, or collection cannot be pursued abroad through terms of a tax treaty or lack of a tax treaty;

A taxpayer whose minimum incarceration is a period equal to or exceeding the normal collection period and no identifiable assets exist to satisfy any part of the tax liability;

A taxpayer who has minimal assets and earning potential due to advanced age, illness, or debilitating condition which will permanently diminish income producing potential.

The following returns should be secured and should not be closed under the provisions of P-5-133:

nontaxable returns such as those in Form 990 series;

Form 1065, U.S. Partnership Return of Income.

IRS employee returns

"Net tax due" on employment tax returns is determined before the application of credits. See LEM 5.2.4 for P–5–133 thresholds

Inform the taxpayer, if personally contacted on a potential refund return, that a refund will only be issued if a return is filed within three years of the due date of the return.

One question: I sent a 4506-T , Request for Transcript of Tax Return., plus the 2848 My client came from NY- And no answer, after a month. Question: How long it would take to get an answer? Someone told me I can get the info on line. Is that true? If "yes" explain me how to do it , please. It is a mess- I don't know if you are willing to read something about it. She filed amended returns for years 2000,01, and 02 She filed 2 amendments for 2,001. The first 1040X signed on 4/16/2003- the wife 1040X- it show a refund of $2,458. Stamped by the IRS on April 17/2003 Reason: Report children that the preparer failed to include in the original return. Filing status is change to Head of Household , EIC increased. My note: Number of exemptions increased from one to four.-Three kids added. (My opinion- First : she is not explaninng to me what in the hell happened. I'm guesing that the husband- who owns a lot of money , was claiming the kids by himself , H of H and getting EIC. ... Got an audit The second 1040X signed on 02/28/2004- for the wife- it show a refund of $1,765. It was stamped by the IRS on March 2,004. In this one, the filing status is MF J and the husband income - $ 4,646 was added. Whatever, she said she never got a penny, I would need , the husband 1040X .I don't know if that 1040X was ever filed- But The husband is owing a lot of $ $$$. That does not make any sense to me I think someone in the IRS made some crazy mistake....or is not true that she

never had a refund- 

Thank you, Sorry about that mess

It sounds like your client is trying to pull something quite shady here. If she was married, she could not claim head of household. Only people living apart can claim HOH and then only if they provide more than 50% of the cost of keeping up a home. Separated individuals can claim HOH, but if your client and her husband both tried to claim the HOH, who did the children live with?

You also only mentioned the one year with 2 amendments to the original return. It sounds like they both may have tried to claim the HOH, maybe her for one child and him 3 children. Then she amended it to show all 4 childen, but husband may not have even amended his original return and if the children were already claimed, then IRS will have to iron out the problem with the taxpayers.

When she filed the second amendment, she filed married filing jointly...so hence, no HOH existed.

Maybe she did not receive a refund, but also I would bet she has received notices about all the returns flying around the IRS for her!!

Sandy

My criteria: The husband file H of H , claimed EIC , and after that , IRS got him, and he has the collection department behind him. God protect his ass etts If that is true. Okey. He owes money. Then, the wife still can amend her return ... If that result in a refund.. Then , she is probably not getting a cent, but at least that amount is going to reduce the husband debt. I want to see that -- I don't care if they did something wrong before- My job is to try to help them according to the tax code ...

I am curious because when I have had such a situation, I have filed more back years to completely preclude the service from attempting to enforce earlier unfiled years.

thanks

WillyB

IN a book, I don't remember the name : Dealing with the IRS , or something similar, the writer was offering the same advice : File all delinquency years. I have the same question. Lets wait for Skasselea