Partnership Penalty Relief

[S T]

I have a client that is a LLC with election to file as a partnership.

Client was delinquent in filing Form 1065 for periods 2007 - 2010. IRS has applied the partnership late filing penalties for each year. 3 partners

I know I can use Rev Proc 84-35 - however, one statement that says all partners have timely filed their returns. I know for two of the partners, but not the 3rd partner.

Partnership returns all show losses for the periods of 2007-2010,

Client already being not due diligent in filing returns, is really NOT due diligent in forwarding me the IRS notices for the penalties assessed and now is at ACS - collections.

Question, can I submit a statement for each year under Rev Proc 84-35, even though I do not have knowledge that possibly one partner might not have filed their tax return, corrected/amended, etc

Client can not produce original notices, only the ACS - Collection notice - so would I send the request from penalty relief to that ACS-Collection, or what would be the alternative?

Thanks

Sandy

[Zee]

It appears you're familiar with the five requirements of IRS Proc 84-35 (I had to look them up), but for others that also may not know them I've listed them below. In answer to your question, I would suggest an abatement request include an answer/statement of each of the requirements. If you're indicating you don't know if one of the partner's filed at all how can you satisfy #5? As such, I probably wouldn't sign a letter requesting abatement without being able to answer each question. I suppose others might disagree. I would suggest contacting each partner.

If this partnership meets the following requirements it qualifies for a penalty
abatement.
1. Is this a domestic partnership?
2. Are there 10 or fewer partners?
3. Are all partners a natural person (other than a nonresident alien) or an
estate?
4. Is each partner’s share of each partnership item the same as his share of
every other item (a husband and wife and their estate shall be treated as one
partner)?1
5. Have all the partners fully reported their share of the income, deductions
and credits of the partnership on their timely filed income tax returns?

[S T]

Thanks Zee,

Yes, item #5 is what is giving me grief -

what if I have the TMP sign, stating "to the best of my knowledge - partnership K-1 forms provided"

I know that the TMP, and his wife (which are 2 of the partners) have filed ( I prepared those returns) , it is the 3rd partner, which is no longer involved in the LLC - so to contact that partner would not be a good decision. In fact I do believe that partner is "incognito - out of the country"

Aside from item #5, the LLC/1065 election shows a loss - so there is no income to be reported, and K-1 forms identify and report those losses.

Any other thoughts on this matter - It is a "mess" as it involves multiple years due to late filings.

Suggestions on who I would contact at IRS for the abatement relief? I do not have any of the "multiple" contact notices that would have been issued for the last 12-15 months , only the ACS notice.

Gotta Love the clients that are like "ostriches" and bury their head in the sand, and expect an easy solution

Thanks for listening or reading - really frustrated

Sandy

[Zee]

Thanks Zee,

Yes, item #5 is what is giving me grief -

what if I have the TMP sign, stating "to the best of my knowledge - partnership K-1 forms provided"

I know that the TMP, and his wife (which are 2 of the partners) have filed ( I prepared those returns) , it is the 3rd partner, which is no longer involved in the LLC - so to contact that partner would not be a good decision. In fact I do believe that partner is "incognito - out of the country"

Aside from item #5, the LLC/1065 election shows a loss - so there is no income to be reported, and K-1 forms identify and report those losses.

Any other thoughts on this matter - It is a "mess" as it involves multiple years due to late filings.

Suggestions on who I would contact at IRS for the abatement relief? I do not have any of the "multiple" contact notices that would have been issued for the last 12-15 months , only the ACS notice.

Gotta Love the clients that are like "ostriches" and bury their head in the sand, and expect an easy solution

Thanks for listening or reading - really frustrated

Sandy

Sandy- I assume the partnership did not elect to be treated as a TEFRA partnership, correct? At any rate, I'd compare the qualification requirements and designation to the partnership agreement and operating agreements (if they have them) and make sure the TMP was the same each year.

The TMP is responsible for communicating tax matters to all partners (how is he going to do that?). Once confirmed the TMP designation is correct, if an abatement letter is to be prepared I'd suggest helping with the draft and have the TMP sign & mail it in. As to item #5, the TMP might use general terms such as "I believe all partners filed income & expenses on a timely basis" (if that's true, or I I suppose "to my knowledge is just as good). I just don't have any other suggestions, but if I think of anything, I'll post.

[Zee]

Tefra

In reference to determining whether the partnership elected to be taxed under TEFRA, here’s an interesting 2012 thread from another board:

Initial Post

For years I have filed abatement requests under Rev Proc 84-35 for partnership late filing penalties, and for the most part I have had a 100% success rate. It worked so well, I even wrote some blog posts about it; however, in the last month or so I have been receiving some interesting responses from the IRS. In both cases, the IRS had previously abated the same penalty for at least two years or more with no problems at all.
The first notice said that they could not consider our request for penalty waiver under Rev Proc 84-35 because their records indicated that the partnership elected to be subject to the consolidated audit procedures under IRC 6221 through IRC 6233. When I made several inquiries on eServices, they claimed that a TEFRA election (Form 8893) was filed clear back in 2002. I had the client send me copies of the 2002 return and there is no record of such an election. Now the IRS is going back to their file department to find proof of the election. I thought this was a random error until I received a notice for another client...
The second notice stated that the IRS was "unable to verify that they met the qualifications for penalty abatement under Revenue Procedure 84-35" and that the letter "did not establish that the partnership has not elected to be subject to the consolidated audit procedures under IRC 6221 through IRC 6233". Again, we had filed the same standard abatement letter for the two previous years without any problems. I find it odd that they reference the consolidated audit procedures in both responses - is the IRS trying to find ways around Rev-Proc 84-35?
Anyone else receiving similar responses to their abatement requests? Any success stories in dealing with the IRS on this type of issue? Any help would greatly appreciated.

Added note: The above initial post doesn't indicate the number of partners. Since one of the requirements of Proc 84-35 is fewer than 10 partners, they letter seems to indicate they are questioning whether a TEFRA elelection was made. So, now I'm wondering if a partnership with less than 10 partners elects to be treated as a TEFRA partnership is the use of Proc 84-35 to abate penallties restricted?

Follow-up Post:

I was actually able to get the penalties abated. Here is how it happen:
The IRS took forever to go through the "file department" to find a copy of the 2002 return, so I kept calling them and sending them messages via eServices. After much back and forth with several IRS agents, they finally agreed to accept my copy of the tax return that proved no election was filed. However, they also required the client to sign a letter stating that no election had been filed.
We had the client send a signed letter and a complete copy of the 2002 return and the agent abated the penalties. Case closed - finally.