Late Filing Penalty

[DTS]

I have a client who informed me yesterday that he received a notice of penalty for filing late.

Can someone tell what are some of the acceptable reasons are they may be able to use to abate this penalty? I think there is a possibility one could be made due to a misunderstanding on whether an extension was filed for this partnership or his personal return, which is what happened. I asked if one had been filed (for the P'ship) and he said yes, thinking I meant for his personal return. Now, this letter.

As always, thanks for any help.

Dennis

[Black Bart]

ptr pen

Well, I got this out of a university tax school catalog. Maybe it'll do the trick.

RELIEF FOR LATE FILING. The penalty will not be imposed if the partnership can show reasonable cause for its failure to file a complete or timely return. Certain small partnerships (with 10 or fewer partners) meet this reasonable cause test if:

1. All partners are individuals (other than non-resident aliens), estates, or C corporations.
2. All partners have timely filed income tax returns fully reporting their shares of the partnership's income, deductions, and credits.
3. The partnership has not elected to be subject to the rules of consolidated audit procedures.

(Rev. Proc. 81-11, 1981-1 C.B. 651; Rev. Proc. 84-35, 1984-1 C.B. 509)

If a penalty is assessed, a request for relief under Rev. Proc. 84-35 should be sent in writing to the service center where the return is filed. All partners' names and tax identification numbers should be included.

I believe that Bees is knowledgeable vis a vis this subject and has expounded on it at length in the past. He'll probably be commenting further and giving you some good tips on how or what else you can do.

Best wishes.

[Black Bart]

P. S.

As I recall, Mark Goldberg had something to say about penalties a while back regarding a one-time abatement for all comers if addressed to a certain IRS department, but I don't know if his method covered partnerships or was just for individuals only. Perhaps if he's in the neighborhood...

[Bees Knees]

Black Bart is correct with the Partnership issue. Follow that and your partnership late filing penalty will be abated. But I think the question may have also dealt with the late filing of the individual 1040 return as well.

The language in the regs contrasts reasonable cause with willful neglect. If it was due to willful neglect, the exception to the penalty does not apply. There is not a list of examples in the regs as to which is which. You are at the mercy of the IRS to decide if your sob story will fly. Mix-ups in communication might be a shaky excuse as I can see them saying a mix-up is willful neglect. You were too careless to even bother to see to it that the extensions were filed.

Reasonable cause I believe is talking more like a house fire, or flood, or some other type of situation beyond your reasonable control.

But that doesn’t mean I’m saying you shouldn’t even try. Use whatever excuse you can to try to abate the penalty. It can’t hurt to try.

[Jesse]

As I recall, Mark Goldberg had something to say about penalties a while back regarding a one-time abatement for all comers if addressed to a certain IRS department, but I don't know if his method covered partnerships or was just for individuals only. Perhaps if he's in the neighborhood...

I saw an Ad on TV last night stating taxpayers are allowed a"one-time penalty relief". Mark or anyone else can you give any insight on this matter?

[Mark Goldberg]

Mark here

I can only speak about individual returns. The IRS has a program which is 2 to 3 years old. It is called the reasonable cause assistor. You can utilize this program via E-Services or the Priority Hotline. Basically anyone who has not been charged a late payment or filing penalty since 2001 is eligible. You just say the taxpayer filed late due to .... (this does not have to be a great reason) and then ask for the penalty waiver for a first time late filing. You need to know if someone had a $5 late payment penalty in 2002, this and only this penalty is waivable under the reasonable cause assistor. So you can't save it for a big penalty, it is only good for the first penalty.
So if someone were to be late filing due to a medical emergency or death you might want to try to get the penalty waived due to true reasonable cause if you can, thus preserving the "get out of jail card" for another time. I think to do this you actually have to write to the penalty department. Acheiving a positive outcome using the writing method was always dificult. I assume it is even more so now that the assistor is in place. Obviously I have not written a letter in years so take this paragraph with a grain of salt.
Let me emphasize, the assistor is a slam dunk as long as the client has a clean record.

[DTS]

Penalty

Thank you, again for all the help.

I made a couple of phone calls today to find out some information from this fellow and I will get on this tomorrow and hopefully, get this resolved.

Dennis

[DTS]

No penalty!

Black Bart,

Today, I called the IRS Hotline and spoke with a gentleman who told me to fax the info to him for the partnership and to include on the letter, IRC 6231, Small Partnership w/10 or fewer members on it and he would handle the abatement personally.

He said he could see this was a new p'ship that probably did not know what to do the first year. I assured him, they do now.

So, it seems OK at this stage. I just wanted to update you on this.

Dennis

[Black Bart]

Taxman - abatement of penalties

I can only speak about individual returns. The IRS has a program which is 2 to 3 years old. It is called the reasonable cause assistor. You can utilize this program via E-Services or the Priority Hotline. Basically anyone who has not been charged a late payment or filing penalty since 2001 is eligible. You just say the taxpayer filed late due to .... (this does not have to be a great reason) and then ask for the penalty waiver for a first time late filing. You need to know if someone had a $5 late payment penalty in 2002, this and only this penalty is waivable under the reasonable cause assistor. So you can't save it for a big penalty, it is only good for the first penalty.
So if someone were to be late filing due to a medical emergency or death you might want to try to get the penalty waived due to true reasonable cause if you can, thus preserving the "get out of jail card" for another time. I think to do this you actually have to write to the penalty department. Acheiving a positive outcome using the writing method was always dificult. I assume it is even more so now that the assistor is in place. Obviously I have not written a letter in years so take this paragraph with a grain of salt.
Let me emphasize, the assistor is a slam dunk as long as the client has a clean record.

This is from an old thread (DTS/ Late Filing Penalty/10-5-05), but seems apt for the situation.

I don't know if an 843 applies here or not, but I don't believe you'll need it anyway since Alzheimer's (or "Old-timer's" as some of my clients put it) is involved. Any kind of serious medical problem is pretty much a sure thing.

The others had good advice:
JCH -- being "contrite" (plus sending doctor's papers) and jainen's "how it happened and why it will not happen again" seems to help.
George's use of "under penalty of perjury" (the jurat) -- I don't usually include that, but it seems logical that it would help in "big-money" cases -- I've done it with and without and it worked both ways. Too, sending the interest demonstrates good faith.
Veritas (yes, a successful penalty abatement does make you look just wonderful and I voted for the chimp's associate too) and TaxBird' -- I was wondering where that penalty book was.

As to who sends the request, jainen's right -- they don't seem to care (our arguments here are purely academic -- odds are at least 60% the IRS clerk handling it hasn't a clue about the subtle aspects of the rules). Still, if it's serious money, I do like George does -- write it out and have him/her sign it

[jainen]

a lot of sarcasm

>>As to who sends the request -- they don't seem to care<<

There is a lot of sarcasm about the "kinder and gentler IRS," but I find it to be true. It is obvious that they have revised their policies and attitudes. Now they are much more tolerant and even sympathetic to taxpayer failings, AS LONG AS they can see a genuine effort to get into compliance.

They aren't as nice to repeat offenders, and long time non-filers and tax protesters are getting slammed like never before. But average people are only being held to average standards. Where there used to be this impossible concept of "ordinary business care," the IRS now recognizes that we aren't all big corporations with a full bookkeeping staff.

[newbie]

I can only speak about individual returns. The IRS has a program which is 2 to 3 years old. It is called the reasonable cause assistor. You can utilize this program via E-Services or the Priority Hotline. Basically anyone who has not been charged a late payment or filing penalty since 2001 is eligible. You just say the taxpayer filed late due to .... (this does not have to be a great reason) and then ask for the penalty waiver for a first time late filing. You need to know if someone had a $5 late payment penalty in 2002, this and only this penalty is waivable under the reasonable cause assistor. So you can't save it for a big penalty, it is only good for the first penalty.
So if someone were to be late filing due to a medical emergency or death you might want to try to get the penalty waived due to true reasonable cause if you can, thus preserving the "get out of jail card" for another time. I think to do this you actually have to write to the penalty department. Acheiving a positive outcome using the writing method was always dificult. I assume it is even more so now that the assistor is in place. Obviously I have not written a letter in years so take this paragraph with a grain of salt.
Let me emphasize, the assistor is a slam dunk as long as the client has a clean record.

Does anyone know if this would apply to a partnership return?

[DTS]

Newbie

My original post was in regards to a partnership. In this situation, this was the first year the partnership filed and they gave them a pass after I called. Also, this fellow had two partnerships and they took care of both of them.

Dennis

[Black Bart]

Give it a shot.

Does anyone know if this would apply to a partnership return?

I assume your 1065 clients couldn't qualify for the "10 or fewer partners, etc." rules detailed above and you're wondering if Goldberg's "reasonable cause assistor" excuse for individuals would work for partnerships too.

It's anybody's guess whether or not it would. On the one hand, it doesn't seem logical that it would, but, on the other, whoever said that IRS is logical?

After first reading Goldberg's post, I called about an individual who already had reasonable cause and tried to explain to the clerk that I wanted to, as Goldberg suggested, save that "get-out-of-jail-free card" for later. But...the problem with trying to get this sort of "structured, one-two-three steps" done is simply this: Many agents haven't the faintest idea what you're talking about (they don't debate tax protocol in their spare time).

Mine's first reaction was something like "Say what?" All she knew was that people got off the first time, period. I tried to talk to her about saving the "one-time" excuse for later, the 2002 cut-off point, etc. She'd never heard of any of that -- she just knew that she was supposed to let me off once and did I want that or not? So I took it; and don't know what will happen on that person's next penalty. Not ideal, but a bird in the hand....

Anyway, as to using it on partnership returns; it's worth a try. If it doesn't work, your partnership will owe a penalty -- which is exactly where you are right now.