Request for Penalty Abatement

[Burke]

I recently requested penalty abatement for payroll liabilities submitted with Form 941 for a church, when half-way through the year, the amt exceeded $2,500 for the first time ever, and they no longer qualifed for quarterly reporting. Payroll forms submitted by volunteer treasurer. By the time they got the letter and penalty assessment, another quarter had come and gone. Church has since signed up for ETFPS and is submitting monthly, IRS said "Sorry," and more or less said ignorance is no excuse. Do we have any recourse to pursue further? Never had this happen before.

[ChEAr$]

I recently requested penalty abatement for payroll liabilities submitted with Form 941 for a church, when half-way through the year, the amt exceeded $2,500 for the first time ever, and they no longer qualifed for quarterly reporting. Payroll forms submitted by volunteer treasurer. By the time they got the letter and penalty assessment, another quarter had come and gone. Church has since signed up for ETFPS and is submitting monthly, IRS said "Sorry," and more or less said ignorance is no excuse. Do we have any recourse to pursue further? Never had this happen before.

From personal experience earlier this year with a client, there's no chance in "heck" that IRS will relent on this one. The denial didn't actually say it, but that old adage is correct:
"Ignorance of the law is no excuse."

[Snaggletooth]

Payment/Reporting

Burke, are you speaking of tax deposits or tax reporting?

My guess is there would be no change in "reporting" until told by the IRS. This would mean a change from 941 monthly, quarterly, Sch B, 944, etc. The $2500 limit is clearly on the reverse of the tax form 941 just above the monthly numbers, and this violation is simply a matter of filling the form out correctly.

Changing the frequency or periodicity of the tax DEPOSITS may be a different question, and more subject to penalties. Another old adage..."It's all about the money..." My guess is their REAL heartache is with the deposit requirements changed along with their other circumstances, but I suppose that is my question...

[Burke]

I was referring to tax deposits. Heretofore for years, they had submitted the amts due by check when they filed the 941. Then along comes a new minister who decides he wants withholding, which put them over the $2,500 quarterly maximum. According to Chear$, it looks like they are out of luck to the tune of $1K.

[gboykin]

I can't think of a case that I did not have the penalties abated on this. Usually my letter is worded that this is the first time that any deposits have not been made on time, and the client has since signed up for EFTPS to make the future deposits. I'm surprised that yours were not abated. If it were me (or the treasurer), I would call the number on the notice and ask if the assister could please abate the penalty.

[Burke]

My experience exactly. Never had it happen before, and I stated circumstances just as you describe. I was floored when it came back "No." It's worth a shot. After all, when we called about this in the beginning, the IRS person put a 60-day hold on the account and told us to submit a letter requesting abatement, which we did.

[gboykin]

Has the tax been paid? I had one this past year that was an individual return that I made a mistake on. Theirs would not abate the penalty until we had an installment agreement in place, since they couldn't (or didn't want to) pay the balance in full. Once the IA was in place, I requested penalty abatement and it was accepted.

Or, have you tried account resolution through e-services?

[S T]

Had a few "employers" that did not make their "tax deposits" timely due to change in payroll amounts and IRS sent a "warning notice" stating they would not assess the penalty "this time" - I was trying to find the "example" but so far have not located - if I locate I will post for you, the notice was a couple of years old.

I am sure you already reviewed Notice 931 and the lookback rules - but in case you did not here is the link http://www.irs.gov/pub/irs-pdf/n931.pdf

I believe since it is a "first time" action, you can abate due to the lookback rules which generally run from July 1st of the prior year through June 30th of the next year - just FYI

Might be they are accessing penalties, based on the fact that all "employers" were to convert to EFTPS Jan 2011, if the amount exceeded $ 2,500 with form 941 ( that is the issue?) probably the penalty for not making the EFTPS payment http://www.irs.gov/taxtopics/tc757.html Request abatement based on prior history and NOT being on EFTPS and that it now has been corrected.

There are penalties for depositing late, or for mailing payments directly to the IRS that are required to be deposited, unless you have reasonable cause for doing so.

Good Luck

Sandy

I know I was jumping through "hoops" to have employers signed up on EFTPS in 2011.

[JohnH]

Fortunately I haven't had to write a penalty abatement request in a while, but the last couple of times I had one rejected, I just wrote another with a few more details and pretended the first letter didn't exist.

I've also found it universally helpful to write to letter from the client's perspective, in their own words with a few details & grammatical cleanups, and let them sign it. I've always harbored a suspicion that IRS is somewhat less forgiving of penalty abatement requests which are clearly written by tax pros. Trying to fill a request with code sections, revenue procedures, and/or case references might just be the worst thing one can do.

[gboykin]

I always write the letters from the clients perspective and have them sign them. Seldom have I written the letter on my letterhead and signed. Only when I have POA and there are other issues.

[ChEAr$]

I'll add a few more comments to my initial reply above.

In my client's case, the client was unaware of change in requirements until IRS sent a schedule b for 2nd quarter 2012 to be completed, but not until end of September! So here was the sign that something was amiss. The schedule B was completed and returned and for the 3rd quarter report schedule b was attached as should be.

Bang, bang, penalties were assessed for both these quarters. But what about first quarter which was first quarter in penalty status according to those lookback rules?
Unbeknownst to us IRS had already abated the penalty for first quarter, it being first offense. Did they notify client? no. Had they sent a letter last year alerting client to new deposit rules? NO. IRS had ALWAYS sent these letters before.

Attempts to get abatements for 2nd and 3rd quarters were to no avail. However there is software out there by which you can re order payments to the benefit of a client to lower the penalties. That 149 $ was well \worth the cost.

to recap:
1. IRS no longer sends letters alerting taxpayers to changes in deposit frequencies.
2. IRS takes action without notifying taxpayer, e.g. forgiving penalties for first time offense.
3. There is a huge body of literature available for research justifying IRS hard line on refusing abatements on 941 penalties. I have copies of all of it in my files now.

[JohnH]

Good to know all this. If IRS isn't alerting people to the change, then assessing & forgiving the first penalty without notice, followed by dragging their feet on notification for the next couple of quarters, it appears to be a set-up. Virtually guaranteed to confiscate large penalties from unsuspecting taxpayers.

Seems like something else preparers need to track for growing clients.

[Burke]

Unbeknownst to us IRS had already abated the penalty for first quarter, it being first offense. Did they notify client? no. Had they sent a letter last year alerting client to new deposit rules? NO. IRS had ALWAYS sent these letters before.

Attempts to get abatements for 2nd and 3rd quarters were to no avail. However there is software out there by which you can re order payments to the benefit of a client to lower the penalties. That 149 $ was well \worth the cost.

to recap:
1. IRS no longer sends letters alerting taxpayers to changes in deposit frequencies.
2. IRS takes action without notifying taxpayer, e.g. forgiving penalties for first time offense.
3. There is a huge body of literature available for research justifying IRS hard line on refusing abatements on 941 penalties. I have copies of all of it in my files now.

I had the church forward their 941's for the entire year. Yup, just as you said, they first exceeded the $2,500 threshold for the 3rd quarter (albeit by only a small amt) and the IRS apparently ignored that. No action taken. No notification. Bang, 4th quarter penalties assessed. 3rd Qtr form 941 shows "monthly depositor" on Page 2 and details liability for each month, as did 4th Qtr form. This was done automatically by software program which produced 941, and TP did not notice.

Am interested in your comment about software program to "reorder payments?" Can you elaborate what that does?

[ChEAr$]

payment reordering

It's an online calculation tool for 149$ per year, Here's the link:

http://www.timevalue.com/products/payrollpenalty/overview.aspx

You simpy put in tax liaibilities, payments and dates and program calculates about different scenarios, selects the one producing least tax and you print out the calculations to send to IRS with you "plea" letter.

[Gary2]

I always write the letters from the clients perspective and have them sign them. Seldom have I written the letter on my letterhead and signed. Only when I have POA and there are other issues.

Do you file them with an 843 (which you've no doubt signed in the Paid Preparer section)? Or do you just give the clients the corresponding 843 address, and have them mail the request without the formality of the 843?