Interest & Penalties Paid by Me?

[zeros]

Recently discovered that I failed to add some income to client's 2012 return. My fault. I mentioned that I would pay for the interest and penalties if they should charge back to him. Is this a deductible item for me?

[JohnH]

Interest - Yes.
Penalties - No

[veritas]

I would write the check

to the client and have them pay the interest and penalty.

[ChEAr$]

John H, I see veritas and I disagree with you. To us it's simply a return of fees, i.e. debit income account.

If the penalty had been imposed on the preparer, I would agree, non deductible.

[Nashville]

Harlan is Correct

Penalties non-deductible for the client and if interest is "personal" interest it is non-deductible as well.

Falls into the category of "Sales Returns and Allowances" for us.

A slick way to handle this would be to give the client credit on next year's return if amount is small and he can wait.
Of course smart people are suspicious of credits as the bill can be "grossed up" such that there is no concession. Retail stores live and die by doing such things.

[JohnH]

OK.
I see the point.
Handle it as a return of fees, which reduces income, and thus indirectly deductible to us.
The client's position is essentially unchanged since neither penalties or interest are deductible by the individual anyhow. (interest would be deductible by a business taxpayer, though)

If I ever make a mistake on a return I'll keep this in mind.

[David1980]

For the taxpayer, would you treat the reimbursement of interest/penalties as income or would you treat it as a "return of fees"?

[erchess]

I would

treat it as a return of fees. It.s hard for me to see the rationale for treating it as income.

[AZ-Tax]

Who else pays penalties & interest when at fault?

If my memory serves correctly, there was a thread on this a while back but I cannot locate it. I do recall one of the threads saying NO their policy was not to pay penalties and interest. If my fault, I do pay penalties and interest but believe me I have had some disagreements with some TP's who tried to tell me they gave me the document but they never did.

[S T]

I don't find the thread on prior posts on interest and penatlies either

example: CP 2000 and I did not report an item that was furnished to me, or reported incorrectly - I discount the Clients Bill and Reflect the Interest and Penalty. Happened to me in 2010 - I totally spaced it and did not report a small W-2 - was most definitely my error in preparing the tax return.

If the client did not furnish the information to me such as a stock trade, a 1099R, interest reporting on 1099 INT, etc I do not discount the Client Billing. It was the client's omission of furnishing documents - That happened as well on several clients on 1099R forms that surfaced on some CP 2000 notices.

I had another situation for 4/15/2013 extensions - and thought that the client was due a refund based on info received and I made the decision to place on extension rather than completing the return. It was my judgement call. Turned out the client owed some $$ - so I calculated the interest and penalties and reduced her Billing as a Goodwill gesture. It was totally my miscalculation.

Sandy

[taxea]

to the client and have them pay the interest and penalty.

I write the check to the taxing authority with the TP info on the memo line and include a cover letter directing where to "receipt" the funds. If the check is written to the client I don't think it properly documents the purpose of the expense.

[ChEAr$]

I write the check to the taxing authority with the TP info on the memo line and include a cover letter directing where to "receipt" the funds. If the check is written to the client I don't think it properly documents the purpose of the expense.

And upon audit, IRS would disallow this as a deduction, since the preparer had no liability to the taxing authority.

Either make some adjustment in the fee next year, or write the check to the client and keep a copy of the notice as
documentation.

[taxea]

if it was my error I pay it....on second thought I don't expense it.

[geekgirldany]

Mistake I Made...

Instead of making a new thread thought I would post this here,

I just found a mistake I made on a client's return last year. On the OIH Deduction, I reversed the Direct and Indirect Expense box. I do not know why I missed it other than I was so sick last year. Still not going to use that as an excuse.

Client will end up paying around $1,900 in taxes with estimate of about $130 in penalties.

I thought instead of offering to pay the interest and penalties later that I would not charge for preparing this years tax return, which is about $280 fee.
Would this be enough or should I also pay the interest and penalties as to extend as good will?

[ttbtaxes]

I would pay the penalty but it would be paid to the client who would pay the IRS/state notice as instructed. I would not be so quick to pay the interest as the client has had the use of the money. The few times it has occurred, I never offered to pay the interest, just the penalty, and the client never groused. If they did, I would explain how they've had use of the money.