penalty

[Bjorn]

Aloha,

A taxpayer presented at our yearly meetings missing one 1099-R and we prepared and filed the original tax return where they owed about $2,000.00 with a bit of an under payment penalty. Just before 4-15 the taxpayer found another 1099-R with lots of federal withholding. When we amended the tax return {they did not pay the two grand on the original} the party only owed $77.00. So had we filed it right there would have been no under payment penalty because they would have owed only $77.00.

The IRS stated the self assessed underpayment penalty survives an amended tax return.

Is this the case? For this party the amount is not material, but it is not the "correct tax" the IRS is always saying everybody should pay.

Mahalo,

Bjorn

[DaveinTexas]

Hello

Nice to hear from you Bjorn, it's been a while. I don't know if this helps or if the IRS would consider this for penalty abatement but this return should have been filed as a Superceding return, one that takes the place of the original return as a new original return.

Just FYI, if you are "amending" or changing a return prior to the April 15th deadline or even with extensions before the Oct 15th deadline, consider filing a Superceding return. As for avoiding or reducing penalties, I think the definition in the CCA (below) gives rise to a reduction of penalties (in your client's case). AND, some States and other govt. agencies impose penalties on superceding returns so....

From CCA 200645019
A superseding return is generally treated as the taxpayer’s “return” and the corrections provided in the superseding return are in effect incorporated into, and treated as relating back to, and modifying or superseding the original return. See Haggar Co. v. Helvering, 308 U.S. 389, 395-96 (1940); see also Mamula v. Commissioner, rev’g 41 T.C. 572 (1964); Reaver v. Commissioner, 42 T.C. 72 (1964).

If you wanted to show your smarts and call the IRS for the client, it just may educate the IRS employee and help you deal with this problem in the future.

I know the penalty amount is small, so you would probably just be doing this out of principle and for a learning experience. It just might save a future client a lot of money and heartache too.

[Roland Slugg]

A "superceding return" is a revised return that is filed by the due date (including extension) of the original return. An amended return, filed on form1040-X, is treated as an original return if it is filed by the due date (including extension) of the original return. Thus, an amemded return filed on or before the filing deadline and a "superceding return" are one and the same.

If an amended return that's filed after the filing deadline for the original return reduces or eliminates the underpayment penalty (UP) shown on the OR, the UP is not automatically reduced or eliminated. It's unfair and shouldn't be so, but that's the way the IRS see it, and it says this in the instructions for form 1040-X. (See the instruction for Line 15 on Page 9.)

If this happened with one of my clients, I would write a letter to the IRS and have it accompany the 1040-X, requesting that the previously paid UP be abated. It's been my experience that the IRS is pretty lenient in such matters, so I would judge the chance of success as fairly good.

[Golden Rocket]

News You Can Use

Going forward into your next year (presumably 2014), the Original Return determines the amount which is necessary to pay in for estimated taxes, and this will not be changed by virtue of an amended return.

Assume his 2013 tax liability originally was $12,000 and now is only $10,077. (Trying to use your numbers in an example)

If he uses the "prior year liability" for the method of calculating estimated tax penalty for 2014, he will have to use $12,000 and not $10,077.
For this reason, when filing his amended return, I would let the IRS keep the $1,923 refund and apply it to 2014. There is an added benefit that such a refund from 2013 would also be credited to the first quarter payments, rather than spread out over the course of the year.

The original return determines the liability for estimated taxes even if an amended return is filed with a greater tax liability.

[DaveinTexas]

I don't think they are the same animal

There is simply no statutory provision authorizing the filing of amended tax returns, and while the IRS has, as a matter of internal administration, recognized and accepted such returns for limited purposes, their treatment has not been elevated beyond a matter of internal agency discretion.  Kearney v. A'Hearn, 210 F.Supp. 10 (S.D.N.Y.1961)

I have seen a few rejected Amended Returns, one was rejected (in my opinion) just so the IRS could procedurally delay the claim of a refund, that eventually expired.

[buzzardbreath]

Taxpayer's Clock

I have seen a few rejected Amended Returns, one was rejected (in my opinion) just so the IRS could procedurally delay the claim of a refund, that eventually expired.

Dave if the taxpayer could prove mailing the amended return in a timely fashion, and had chosen to pursue it, do you think he(she) could have prevailed? I don't believe they can shut down the clock if there is a timely filed claim...

If you are correct in your opinion, and there is no proof of a timely claim, then you could very well be correct.

[DaveinTexas]

I do believe so indeed

I understand Roland's point about the superseding return and amended return being one in the same; I was just playing the devil's advocate a bit.

I really think it is worth a shot to call the IRS regarding this issue mentioning what I posted to get the penalty abated. It's a small penalty but the point is to get some experience trying different techniques, managing the IRS so to speak.