2210 Penalty Assessed

[S T]

Will IRS consider a 2210 Annualized Method form late and reduce the Underpayment Penalty, submitted after IRS Assessed the penalty? 2210 AI was not submitted with the Tax Filing. Do I have to submit with Form 843?

Not huge - $ 147, but should be less based on Annualized Method - if I can "muddle" through the form correctly.

Taxpayer and spouse were on Regular Wages and Withholding for 8 months, then went to SE income in the last 4 months, which is what triggered the penalty, even though we had submitted the ES payment in Sept 2011 and Jan 2012. There were refunds for overpayment, just underpayment due to the changeover between wages and SE income timing.

Sandy

[Koss]

Underpayment Penalty

I don't think Form 843 is necessary.

If you are within the time frame during which the penalty can be appealed, then you simply prepare an appeal letter and send in the Form 2210 with it.

BMK

[S T]

Thanks Koss,
Current 2011 Tax Filing on time by 4/15/2012, so I guess I will muddle through the AI portion of 2210, and see if I can reduce.

Sandy

[S T]

What a "PITA" this is trying to calculate the AI-----No wonder I don't visit this form very often!

Trying to work it manually, there is little support out there for a workable calculator, My Tax Software has one in the program, and found out that it is wrong - so programmers are fixing for the line items I questioned.

Question, if anyone knows, Line 14, on the AI - other taxes which would include AMT calculation - is the AMT calculation calculated on "each column" as represented - I am thinking yes, according to the instructions, but software is calculating AMT the same amount in each of the columns A - D. (Software is showing Same Amt for each column)



Sandy

[appelman]

I have just sent the 2210

as a response to the billing letter, along with the recalculated payment. The 2210 isn't THAT ALL bad. Your software should do a lot of it for you.

[OtisMozzetti]

My experience with annualization of estimated tax has been that the state tax authority, the Franchise Tax Board, has been known to simply ignore the annualization schedule submitted. Then it becomes necessary to get on the phone with them for a long, long time or to send a series of letters.

For my paying clients, it is possible to submit the federal 2210 if the breakdown of income and of deductions, etc., by quarterlike periods is known. However, the software is not able to send the annualization schedule to the state. For the paying clients, the work preparing the breakdown by quarterlike periods is usually but not always work that should incur a tax preparation service fee that is more than the savings in estimated tax penalty.

The one instance where I will do annualization is with my own tax return, where annualization of the state income tax can allow me to time the state payments into the proper year to maximize the bunching into alternating years of standard vs. itemized deductions. However, I always breathe easier whenever it is possible for me to just make estimated payments that do not require me to go through any annualization spreadsheet. Thus far, the tax authority has never asked me to provide the spreadsheet, but I certainly do have it for whatever years that I actually use annualization.

[S T]

Thanks Appleman and Otis, I rarely do the AI, and income timinig is everything, but I do have a situation for a client for 2011 where IRS assessed underpayment.

Question, if anyone knows, Line 14, on the AI - other taxes which would include AMT calculation - is the AMT calculation calculated on "each column" as represented - I am thinking yes, according to the instructions, but software is calculating AMT the same amount in each of the columns A - D. (Software is showing Same Amt for each column)

My question is on LINE 14 of the AI - calculating the AMT - doesn't that calculation have to be based on "each" column - should not be the same amt on line 14 for column A, column B, column C, and column D?? Such as $ 6,900 in each of the columns.

Example on tax return the AMT is $ 6900, but Column A (first period) amount based on Line 11 would yield $ 7,500, Column B (second period) would yield $ 6,800. etc.

My software does calculate the AI if the info is entered, however, I did find an error on a prior line item calculation and I have already talked with the software programmers, , which they are correcting, but Line 14 was also a question in the calculation.

I am trying to understand the instructions for the AMT calculation on AI Schedule, as I believe the Software Calculations might not be correct ??

Sandy

[Roland Slugg]

Taxpayer and spouse were on Regular Wages and Withholding for 8 months, then went to SE income in the last 4 months, which is what triggered the penalty, even though we had submitted the ES payment in Sept 2011 and Jan 2012. There were refunds for overpayment, just underpayment due to the changeover between wages and SE income timing.

Based on the above the AI method may not help very much, and its use might not even be necessary. Instead complete Part IV on page 3 of F-2210 and enter the actual FWHT in each column on line 19. (Your tax prep software (TPS) may have a worksheet for that line instead. Make sure the various amounts add up to the year's total per form(s) W-2.) If you don't make this "correction," your TPS will allocate the FWHT (but not the ES payments) equally to each of the four periods, and your clients will benefit if it's allocated entirely to the first three periods. Please note that the periods are NOT equal in length.

The above may not eliminate the underpayment penalty, but it should reduce it.

Regarding the use of Schedule AI, the time-consuming part is getting the information from the client (or calculating/estimating it yourself) broken down by the four periods. Once you have that it's easy to enter it in the TPS, which should do all the rest. But because of the difficulty getting or figuring the breakdowns, Schedule AI is usually not cost effective in any but the largest cases, where the penalty is several hundred $$$ or more.

[Nashville]

My Two Cents

For what its worth, the $164 penalty should be measured against the time required to gather the information from the client, PLUS your time as a preparer. This occasionally comes up with some of my high-income clients who have an influx of income late in the year, and the AI WILL in fact work and remove a proper amount of the penalty.

However, it's like preparing four separate tax returns on an annualized basis, then plugging the numbers into the software (which may or may not work correctly). And you can't do this without four distinct periods of income and expense with information from the client. More often than not, the client doesn't want to go through the misery of gathering the information.

Example: Client has $10,000 in interest. You need twelve bank statements to determine exactly when the interest was credited to the client's account or CD. Dividends are even worse, especially if there are capital gains distributions. But all this is Do-able if the amount justifies the time and trouble.