Abatement of Payroll Tax Penalties

[djack1040]

New business with payroll commenced 07/01/05. 3rd & 4th Qtr 2005 monthly deposits and Form 941 were timely filed.

At the beginning of 2006, startup capital was depleted and client really suffered a cash flow crunch during the first six months. Made no tax deposits until August when he caught up both Quarters. Tax deposits for third quarter 2006 have been timely deposited and will file 3rd Qtr 941 tomorrow.

Client has paid over $2,200 in penalties.

Do we stand a chance getting the penalties abated by pleading "poverty"?

If so, do we use Form 843?

Recommendations or comments about your experience with penalty abatement welcomed!

[BOB W]

Eftps

If you switch the client to EFTPS (online) and all payments stay current for 4 qtrs the IRS will refund all penalties.

Review the 941 instructions for other possible excuses.

It would be a shame if the Officer(s) took payroll during a period of low cash flow. If they did, be sure to inform them not to as it only increases their liabilitiy and penalties. They can make up their payroll at a later date.

[jainen]

I hadn't heard

I hadn't heard about the incentives for switching to electronic filing. That sounds like a good deal. Generally, "poverty" is not reasonable cause for not paying over the employee portion of payroll taxes, because you had the money (having withheld it in trust from your employees), and chose to use it for an unauthorized purpose. It is considered ordinary business care to budget for and pay taxes.

[BOB W]

Yup.................

It happened to with one of my clients. There was a notice about a year ago explaining this option. I'll see if I can find it. It is not in the 941 instructions.

[sea-tax]

If you switch the client to EFTPS (online) and all payments stay current for 4 qtrs the IRS will refund all penalties.

Review the 941 instructions for other possible excuses.

It would be a shame if the Officer(s) took payroll during a period of low cash flow. If they did, be sure to inform them not to as it only increases their liabilitiy and penalties. They can make up their payroll at a later date.

I heard about this and used it for a couple of clients but I thought it was only for a short window while the IRS was trying to push eftps.

[BOB W]

Here it is

Look at page 5

http://www.irs.gov/pub/irs-schema/p4169.pdf

[OldJack]

Look at page 5

http://www.irs.gov/pub/irs-schema/p4169.pdf

EFTPS FTD Penalty Refund Program
As of January 2004, any business with an FTD penalty beginning in 2003 is eligible to
receive a one-time refund of their penalty if they enroll in and use EFTPS for all their
Form 941 Employer’s Quarterly Tax Return payments for 4 consecutive quarters.
IRS will automatically "look back" after the final Form 941 returns are filed at the end
of the tax year and begin issuing penalty refunds the following year.

I think it may be a little late to claim penalties incurred in 2003.

[BOB W]

Huh?????

"As of January 2004, any business with an FTD penalty BEGINNING in 2003"

I would like this to read> On January of 2004 any business that had a penalty in 2003........... This would mean that it is for 2003 only. But the way it is written I read it as, it all starts for 2003 penalties and you need to make all 2004 payments to qualify for the refund of 2003 penalties. I see nothing that it is only for 2003.

The word BEGINNING in 2003 indicates that it is an ongoing program. Very poor writing, if it is ONLY for 2003 penalties> but what's new.

[ecb34691]

I would think a call to the Ogden or Cincinati Sevice Center might answer the question. If I remember from this summer's IRS Fourms, this is still policy.

[BOB W]

Hopefully...

.... djack 1040 will do the call as he has a vested interest here and let us know.