Payroll Penalties - Non-Profit

[KBTS]

Client is a non-profit that has a camp program for disabled kids and adults. I just took over the bookkeeping and payroll for them in January; but prior to this, they had a part-time bookkeeper on staff. Unfortunately, this person did a poor job with payroll and now the organization has to deal with the consequences. Here is the problem….

The bookkeeper never filed the 2006 2nd quarter 941 until December. This was only after the CPA auditing the client found the 941 in the file and asked if it had been filed or not. The return had a balance due, so now the IRS has issued a failure to file and pay penalty, along with interest, of over $1,700. Also, the 3rd quarter deposits were not made on time so there is a penalty notice of almost $1,000 on that as well.

As if this was not bad enough, the bookkeeper never filed Schedule B with the 2nd quarter 941 and now the IRS needs that too. Well - you guessed it - there were a number of deposits not made on time for that period. I did a quick estimate of the penalty and it comes up to an additional $900 or so.

I got a POA signed and talked to the IRS. When I asked if they could abate the penalties, it was denied due to several other penalties in the past – although none as large as what is due now.

Does anyone have any suggestions on what to put in the appeals letter to try to get some of the penalties removed? I know the organization should have done a better job of checking that the bookkeeper was doing their job, but I feel I have to try to help them out with this. The amount of penalties here is about what it costs to sponsor 10 campers – so this is a considerable problem for them. Would pleading something like that in the letter and describing the work they do with disabled individuals help at all? I would appreciate any help you can give me. Thanks.

[Uncle Sam]

Payroll Penalties-Non-Profit

I suggest what you include in the appeal letter is a summary of what you described in your post - the sequence of events that actually took place - changes in parties taking care of the bookkeeping, the prior bookkeeper's apparent poor performance and not being acquainted with the filing/payment requirements.
You could mention the type of entity the non-profit organization is - but not use that as an excuse for not paying taxes or filing on time. It IS POSSIBLE - that the bookkeeper was not familiar with the Schedule B semi-weekly payment requirement.
Another consideration would be to contact the Taxpayer Advocate to discuss the merits of the case. But I would make sure that as of this moment, your client starts making the required semi-weekly payments consistently.

[jainen]

pleading something

>>Would pleading something like that in the letter and describing the work they do with disabled individuals help at all?<<

Maybe the appeals officer has a disabled child. I once took a client to audit on the issue of being an unlicensed day care provider. The code is very specific on that, so I wasn't optimistic until we got to the cubicle, which had photos of the examiner's three children all over the walls. I knew like all working moms she had a terrible time finding child care, so I excused myself to get a drink of water and it was all settled by the time I got back.

IRS appeals is not the place for subtleties, so lay it on thick -- how these excessive penalties negate the entire purpose of the organization, discourage charitable donations, and make the government look cold-hearted and cheap. Don't be kind to the former bookkeeper, either. Blame that professional profusely -- don't say, for example, that the part time schedule contributed to the misunderstanding. Say she took advantage of their trust. But do point out the great changes the organization has now made to ensure compliance--not only hiring YOU, but improving oversight and reporting requirements with the board and so on (make sure these are really in place first).

[KBTS]

Thanks

Thanks for the responses and the good suggestions. Anyone else out there have idea on this?