Need help with 6664 penalty

[BHoffman]

I made a data entry error.

My internal control works like this: Data entry....goes to Review....then goes to Copy and Assemble. This return obviously went straight to Copy and Assemble.

The accuracy related penalty is around $1,100.

Treas Reg 1.6664-4(b) states in part: "....An isolated computational or transcriptional error generally is not inconsistent with reasonable cause and good faith..."

http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A%2C_Sec._1.6664-4

This is what I cited when asking for abatement. The request for abatement was sent with the response to the CP2000. It came back today with the penalty still showing as due. I'm pretty devastated. I called AUR and was told to fax the written request for abatement and a copy of the Treas. Reg. so I did. Now, I guess it's wait and see.

Here's what I wrote:

Request for Abatement of the Accuracy-Related Penalty

Dear Sir or Madam:

Mr. and Mrs. Taxpayer hereby request that you abate the accuracy-related penalty in accordance with IRC § 6664(c)(1) which states:

"c) Reasonable cause exception for underpayments
(1) In general
No penalty shall be imposed under section 6662 or 6663 with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith to such portion."

Please see attached Treasury Regulation Subchapter A, Sec. 1.6664-4(b) and note specifically:

"...An isolated computational or transcriptional error generally is not inconsistent with reasonable cause and good faith...."

The additional tax amount was due to an isolated transcriptional error.

Please accept our sincere apology for any inconvenience caused by the error. We beg for your consideration that this was an isolated transcriptional error and respectfully request that our request for abatement of penalty be granted. Thank you for your assistance in helping us to resolve this matter.

I also sent a copy of the Treas Reg with that sentence underlined.

Can anyone offer any other advice? Is there another step I can take if this second request is denied? Form 843?

Miraculously, the client wants to retain my future services. I've refunded the fee and paid the interest. They've offered to help get this penalty abated in whatever way they can.

Thanks for listening. I feel so bad.

[ChEAr$]

I hope you had a good stiff Tia Maria tonight (that IS what y'all drink out there in Arizony,
isn't it?). My thoughts are with you and can sympathize. Although I've never had to fight an accuracy related penalty, I have been successful in getting regular old penalties removed
for the reason that my client depended on me and I goofed; well,in case where it was I who goofed and not client.

The old regulation I used to quote, and I thought it was 1.66666 something like that, I was told several years ago had been rescinded and I couldn't rely on it any longer. Come to think of it it as New York Enrolled Agent who brought it to my attention.

My tack would be to stress that taxpayer client should have to suffer any accuracy penalty because it was not he who made the mistake, even if that blankety blank reg I referred to above had been rescinded. Although this 1.66664 thing sounds awfully similar.
Maybe NYEA will chime in here. (He and I went to the same college, btw)

[BHoffman]

Thanks Harlan. I talked to a friend who used to work for the IRS and now represents people who are having problems. He said the notice that arrived today was just another CP2000 "Proposed New Balance" and even though the penalty was still there doesn't necessarily mean they will not abate it. He said to wait for the letter that specifically states whether the penalty has been abated or not, and respond if necessary.

So, it's a waiting game. My buddy said to appeal if they deny the request because that is a face-to-face meeting and might work out better if I can plead the case in person. This client has no prior problems and has filed timely and correct returns for many years. That should help. That Treas Reg 1.6664-4 info regarding the "isolated transpositional error" might help. A Tia Maria might help.

[New York Enrolled Agent]

My tack would be to stress that taxpayer client should have to suffer any accuracy penalty because it was not he who made the mistake, even if that blankety blank reg I referred to above had been rescinded. Although this 1.66664 thing sounds awfully similar.
Maybe NYEA will chime in here. (He and I went to the same college, btw)

What college is that - the school of hard knocks?

I don't believe there ever was a code section 6666, so I can't comment on that. Perhaps the discussion was about reasonable cause under the penalties in §6651 v. §6662. I really don't remember.

For Beth - you asked for advice:
#1 IMO, Always write the letter as if it's written by the taxpayer. Your last paragraph suggests that (but please delete the word beg) but most of it doesn't. The tax examiners who evaluate these letters don't know code or regs. It's perfectly ok to quote a reg but I would not attach another page with regulations. Keep it short & simple. By all means use reasonable cause but I don't think you need to be overly technical.

#2 I don't think you explained what happened. "The additional tax amount was due to an isolated transcriptional error." In plain English - our preparer inadvertently [whatever - give the facts]. We relied on the preparer. We have no record of previous errors, blah, blah, blah.

#3 I agree with your friend - appeal if you are denied the abatement. However, don't count on a face-to-face. Most appeals officers on CP2000 cases are in the campus centers. The Appeals people are highly trained - these are the guys and gals you can give the regulations to. I had dealings with 5 Appeals Officers in the last two years. Never saw one of them. IMO, face-to-face is overblown in most situations.

[ChEAr$]

What college is that - the school of hard knocks?

I don't believe there ever was a code section 6666, so I can't comment on that. Perhaps the discussion was about reasonable cause under the penalties in §6651 v. §6662. I really don't remember.

Do the initial J.H. in Balmer ring a bell?

It was section 6661.

As to what to do. NYEA advocated writing the letter from point of view of taxpayer/client. I disagree.
I would obtain a POA and write the letter myself, signing it and taking full responsibility for the transcriptional error. In my view IRS tends to think that if a taxpayer writes the letter, they're just trying to get off the hook by blaming the preparer, and that's a lame excuse.

Others I suppose have different experiences.

[BHoffman]

Harlan and NYEA

Thank you so very much for responding and I will take that advice gratefully

I think I just want to forget about it until IRS gives their decision or I'll just be driving myself crazy with the "shoulda, coulda" stuff. If IRS sits down hard on that penalty after all efforts to abate are exhausted, then at least we have some savings to pay for it and won't have to borrow. I just feel bad because it is a lot of wasted money and due to my stupid mistake, "isolated transcriptional error" or not.

The expensive dog surgery and hubby being a construction worker in a very slow work environment as he desperately is looking for employment right now doesn't help. I feel very guilty, like I've let my family down. He is being very supportive. Sort of makes it worse.

[BHoffman]

Got the letter today

This problem occured because I entered the Fed W/H amount into the Taxable Amount field on a 1099R. I did not enter the Fed W/H amount at all. The net result was addtional tax due of a bit under $6,000.

The IRS has refused to abate the penalty stating:

"The substantial understatement penalty is assessed when there is a large underreporting of income. To overlook such a large amount of income generally does not demonstrate ordinary business care and prudence. Therefore, we must deny your request for a penalty waiver because the information provided does not establish reasonable cause or due diligence."

The information I provided stated the following:

1. The problem was an isolated transcriptional error.
2. The client has never had any prior problems with IRS and has always filed timely and accurate returns.
3. The original tax return resulted in the same amount of tax as the prior 3 years and so did not draw the attention of the client.
4. The rules regarding taxable portions of pension distributions can be complex.
5. The client responded immediately to the IRS notice.
6. The error was due to my data entry error.
7. The client did not act willfully or with intent to disregard or neglect responsibility.

My old boss said to keep answering the rejection letters and that I only need one "Yes" answer.

Any advice would be welcome. I'm going to try again.

[veritas]

Put in some

sad news like illness or a death of the family dog. Not saying make it up or anything just use all the ammo you got.

[BHoffman]

Are you serious?

[veritas]

This isn't my original idea

Are you serious?

I remember reading it somewhere. Just think of the people your dealing with.

[BHoffman]

I have no idea who I'm dealing with. I assume the IRS is staffed with different kinds of people.

[Black Bart]

Dear Hoff,

Put in some sad news like illness or a death of the family dog. Not saying make it up or anything just use all the ammo you got.

I believe Veritas is suggesting the "hearts and flowers" (maudlin sentimentality) approach in a letter from the taxpayer himself (agree with NYEA there). I've used it successfully on occasion myself to kill off penalties (never threw in the family dog before but probably not as far-fetched as it sounds considering the animal advocacy in vogue nowadays).

However, that needed to be done in the first letter and I think your situation is past that now. I'd call the Taxpayer Advocate (877-777-4778), explain the situation, fax all the correspondence to your assigned case worker, and let them go to bat for you. They are usually sympathetic, on your side, and "against" the IRS (although they're part of it).

I've had very good luck with two out of three. One rep went the extra mile, miraculously cutting red tape and working out a huge, insoluble mixed-up records mess (took two months, but thoroughly/completely done); the second involved removing large prior years' penalties (pleaded wife's mental illness--she wasn't really nuts, but neurotic enough). Third rep was a surly b**** -- no help at all; had to throw in the towel and pay up.

But...it's free and two out of three is not bad. There's nothing to lose; if they turn you down you'll still owe the penalties -- which is exactly where you are now.

[Dusty2004]

What I know

A friend - the first year they did e-filing - at the end of the year got a letter saying they were suspending him for not filing several 8879's. He called and spoke with an individual at the E-file help desk and was basically told "Do not tell us you forgot or were to busy - there has to be a good reason - death - illness in family etc".

In his case his mother had passed away - they had to put his 95 year old father in a nursing home - etc. It was all true - did not really have anything to do with why he missed sending them in - he just forgot. But by composing that letter he was re-instated.

Dusty

[BP.]

Now listen, B- Try and give yourself a break on this, OK? You do your best; you are human. You are also braver than most of us by posting about your experience. Good Luck- No doubt you can work it!