Interest & Penalties Paid by Me?

[erchess]

I would

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

[David1980]

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

[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.

[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.

[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.

[veritas]

I would write the check

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

[JohnH]

Interest - Yes.
Penalties - No

[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?