Underpayment Penalties

[Jeff]

A client failed to advise me they made an estimated payment in April 2005. Without the estimated payment the client owed enough tax to generate an underpayment penalty of $22 which was included as part of the balance due on the return. My reason for including the penalty on the return was to avoid a call when the client was later billed for the $22. Big mistake!

The IRS subsequently adjusted the return via a CP24 letter to give the client credit for the estimated payment, which should have resulted in a refund of $97. The refund was reduced by the underpayment penalty of $22.

I called the practitioner hot line twice today and was told each time that if an underpayment penalty is self assessed (included on the original return) it will not be automatically abated even if it is clear the penalty was unjustified. The second individual I spoke to suggested I might want to file a written request for waiver that would ultimately be reviewed by the law department. Unfortunately, this seems like a lot of work for $22.

I researched the instructions for Form 2210 and Publication 505 and was unable to find anything indicating a self assessed penalty included on an original return cannot be automatically abated if it is later discovered the penalty was incorrectly assessed. That information would certainly be helpful to those of us preparing tax returns in the real world.

Maybe I give up too easily, but I will send my client a check for $22 ( I should have known better) and avoid including underpayment penalties on any returns I prepare in the future.

Thanks for listening

Jeff

[Mark Goldberg]

2210 penalty

Once you self assess a 2210 penalty it can't be removed. I learned this many years ago.

[Jeff]

Thanks

Once you self assess a 2210 penalty it can't be removed. I learned this many years ago.

Thanks for the reply Mark.

Given that fact, is there ever any reason for including the self assessed penalty on the return?

Jeff

[oceanlovin'ea]

Don't usually figure penalty

I don't usually figure the penalty, even if I know they should have one. I just tell them that IRS will assess the penalty and send them a letter. I advise them to let me see letter but they will have to pay the penalty then. Usually they don't get a penalty, or at least they haven't told me about it.

That is probably not the correct way to do it, but as in the above case, you won't get it back.

Linda F

[veritas]

Never, Ever send in estimated tax penalties or self assess a estimated penalty on a tax return unless you are trying to reduce the penalty by an exception. I see penalties all the time on tax returns that the IRS would never even try to collect as long as the tax is paid by the due date of the return.

There is a magic number that once you reach the IRS will bill you for.

[Unregistered]

It simply isn't true that if you self-assess an estimated tax penalty it can't be removed.
Where in the IRC or the IRM does it say that?
It may NOT be automatic but you can request it. Write a letter of request - if denied, write an appeal letter. The appeals office will abate it in a heartbeat.

[Bees Knees]

Unfortunately, even though a self-assessed penalty should be removed, the reality is, apparently IRS wants to be jerks about it.

Years ago I NEVER figured the 2210 penalty unless I was trying to reduce it. After years of having to answer client questions in the summer as to why they got a bill, I decided to start letting the computer figure the penalty.

Now I believe I will go back to my original policy and NEVER figure their stupid penalty again.

Two can play this game.

[j2kp0t]

I've amended to remove the penalty before, and simply stated the removal of the penalty as one of the reasons for the amendment. Had no problem.

[Gretel]

I wouldn't even want to risk having to go through all this trouble, an amended return takes time too. I explain to my clients that they will receive a letter for the penalty and then they are happy if they don't.

[OldJack]

Its not a game and the IRS (and me as a taxpayer) are not jerks about the method of penalties. Everyone knows a penalty for underpayment of tax is actually "interest" for not having the taxes paid timely. The penalty/interest is not refundable when you file the amended tax return as the taxpayer was still late paying the original tax. The IRS (and all taxpayers) deserves the penalty/interest because the taxpayer had the use of the money until the late tax was paid with the original tax return.

Interest that is owed by the IRS (and all taxpayers) on the refund starts with the filing of the amended tax return..not before. The IRS owed you (or the taxpayer) nothing until the time of the amended tax return. Its not the IRS's (and all taxpayers) fault that you or the taxpayer screwed up on the original tax return and now need an amended tax return.

[rosieea]

Its not a game and the IRS (and me as a taxpayer) are not jerks about the method of penalties. Everyone knows a penalty for underpayment of tax is actually "interest" for not having the taxes paid timely. The penalty/interest is not refundable when you file the amended tax return as the taxpayer was still late paying the original tax. The IRS (and all taxpayers) deserves the penalty/interest because the taxpayer had the use of the money until the late tax was paid with the original tax return.

Interest that is owed by the IRS (and all taxpayers) on the refund starts with the filing of the amended tax return..not before. The IRS owed you (or the taxpayer) nothing until the time of the amended tax return. Its not the IRS's (and all taxpayers) fault that you or the taxpayer screwed up on the original tax return and now need an amended tax return.

Did I misread the original post? It seems that there was an overpayment, not an underpayment. The tax was timely paid, and the only error was not claiming the payment on the original return.

[OldJack]

Did I misread the original post?

Rosie... you are correct regarding the facts of the original post. My comment was directed at the response of other posts talking in general about penalties and amended returns. I should have been more specific as to who's post I was responding. The original post case should be able to get the penalty refunded if they so request by letter responding to the IRS notice that corrected the overpayment. The original post case does not need an amended return.

[veritas]

Never, Ever send in estimated tax penalties or self assess a estimated penalty on a tax return unless you are trying to reduce the penalty by an exception. I see penalties all the time on tax returns that the IRS would never even try to collect as long as the tax is paid by the due date of the return.

There is a magic number that once you reach the IRS will bill you for.

No one wants to know what the magic number is?

[Mark Goldberg]

I think I know

It is around $75. It might be as high as $100.

[Bees Knees]

You missed the point.

Its not a game and the IRS (and me as a taxpayer) are not jerks about the method of penalties. Everyone knows a penalty for underpayment of tax is actually "interest" for not having the taxes paid timely. The penalty/interest is not refundable when you file the amended tax return as the taxpayer was still late paying the original tax.

The IRS most certainly are jerks, if they refuse to refund a self assessed penalty that later turns out to not be an underpayment penalty. Why should the tax preparer have to write a letter or make phone calls to have the penalty refunded? Shouldn't it be obvious that if you didn't under pay your tax, you should get your under payment tax penalty back?