A new client of mine received a penalty under Section 6721 of the Internal Revenue Code for not submitting W-2's in 2014 (before he was my client). There is also a $155.00 discrepancy between the amount of wages paid as reported on his tax return and that on his 941's. The amount of the penalty is fairly small and he would rather pay it than try to reconstruct his payroll records (he's absolutely terrible with paperwork). My question is this: if he pays the fine, does the issue go away or will he continue to be haunted by it? Thank you.
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941 Penalty
Which wages was there a discrepancy on? The taxable wages or the FICA and Medicare wages?
Could the discrepancy be due to a misunderstanding of taxable/non-taxable benefits?Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Hard to say, client is unsure, but thinks the $155.00 may have been a nontaxable mileage reimbursement that he included on the wages for income tax reporting. BUT he also says the 941 could be wrong, so wth knows?Originally posted by Uncle Sam View PostComment
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Originally posted by mbigelow View Post
Your question of who knows?
As for the answer - That would be the organization charging the penaltyAlways cite your source for support to defend your opinionComment
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The IRS can only tell me that there is a $155.00 discrepancy between wages reported on the tax return and that showing on the 941's. Just talked to the client again a few minutes ago, and he now insists it was nontaxable reimbursement to an employee that was accidentally placed on his books as wages but not on the 941's.Originally posted by TAXNJ View Post
Core issue here remains: if he pays the penalty, will the issue go away? My preference, of course, would be to unwind the whole thing and submit the proper paperwork, but I can't force him into anything.Comment
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I would think it would go away. I can't think of any reason why anything would continue to be a problem.Comment
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OK, suppose you tell the client "yes, it will go away if you just pay the penalty". And then let's say it doesn't. Then what?
Why would you want to be on the hook for giving him any predictions? (it's not even advice, it's just a prediction). What's the benefit to you? You are only required to advise him of the consequences of not correcting his previously filed returns, which it sounds like you have done so.
I would be very careful, for ethical reasons, about telling him there would be "no consequences" for not correcting his returns (that is, fixing whatever it is that you think might "go away"). If you tell him that paying the penalty will make "it" go away, you are basically telling him not to bother fixing "it".Last edited by Rapid Robert; 08-25-2017, 06:20 PM."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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Solid response, Robert, thank you. I haven't told him there would be no consequences, or even that he should just pay it to make it go away; that's coming from his end and it made me wonder if that would indeed be the case. But you are 100% correct that my role in this is to advise him and not make predictions. Thank you for a very well-worded and reasoned reply. I will continue to insist to him that the best course is to fix the problem, once and for all.Originally posted by Rapid Robert View PostComment
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For $155 it would seem easier to pay and hope it will go away. As to other consequences he may later get an inquiry from the SSA when they do their matching. I recently helped a client with a 2014 inquiry. I didn't do the 941's and the SSA's records didn't agree with either the IRS or what my client had. It was a small amount, less than $100, so after one round of document submissions we just indicated we couldn't identify the difference. So far, so good.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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Don't even know the problem
I think paying the amount could end up being cheaper for the client, but how can you promise it will "go away" when no one really knows what the problem is?
If he pays you to find out the problem, this should be costly. I wouldn't do any free work for a situation like this, and you might not even be able to find the problem if he can't deliver documents or other information.
Regarding payroll, my clients have received notices over the years when information from SSA does not match IRS records. The government made the decision several years ago for W-2s and W-3s to be submitted directly to the SSA instead of the IRS. Thus, if clients receive notices of discrepancies, it is usually impossible for the client to know what happened in the exchange of data between SSA and IRS. I don't know whether this is the source of the OP problem or not, but a discrepancy per se should not be generating penalty notices.Comment
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From your OP, it appears there are two separate issues. You said he received a penalty for NOT SUBMITTING W-2's, stating the penalty was small but not indicating how much it was. I assumed it was for himself only, but then you mention an "employee" involved with a mileage reimbursement. Originally you stated the $155 discrepancy was between what he reported on HIS tax return and the 941's. I gather you are flying blind since obviously he has not provided you with the 941's. I am not sure I would want this new client if he is so cavalier about his recordkeeping.Comment
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shouldn't his books be corrected regardless?Believe nothing you have not personally researched and verified.Comment
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