MN return question related to penalty

[mblatour]

I have a return that I am working on for MN client. Here's the situation:

The MN income tax owed is $2,195. Witholdings from 1099R income was $324.

Client made 3 estimated tax payments:
5/14/07 for $750
7/1/07 for $729
11/3/07 for $400
Totaling: $1,879

Grand Total of all payments: $2,203

The difference would be a refund of $8. But it's not.

I have ProSeries software and I'm coming up with a refund amount on Line 35 as $5 because it's assessing a $3 penalty amount on line 37.

The Form M15 (underpayment of tax) is saying there's a penalty of amount of $3 and that I must paper file the return. The exact error coming up (upon final review) states "Schedule M15, Line 22 (Penalty) the columns on Line 21 should not be blank or zero if there is an amount on line 22. In this situation, the return must be mailed".

The Tax Payments Worksheet is giving me 2 errors (upon check of the final review). It says I must enter the the 4th payment date and amount on Line 4. The client didn't make a 4th payment. What should I enter there? I thought about putting in a date like 12/31/07 and the amount of ZERO, just to get the pink boxes to un-highlight/remove error.

I guess I need to know how to explain to my client that they have a $5 refund due them, but that they owe a $3 penalty. Is it because they didn't make their quarterly tax payments on time and therefore they owe the interest? But they did overpay, so I'm just confused as to why the penalty.

Why can't I E-File? I hate the idea of having to print out a MN and Federal return for them to paper file to MN, for only a mere $2 total refund (after paying the $3 penalty); it's a lot of paper and ink.

Any thoughts would be greatly appreciated. Thanks in advance.

[Davc]

If estimates are late then penalties are assessed even if the final result is an overpayment. Otherwise, you could always pay on the return due date as long as you didn't underpay.

[Mike Mac]

This should fix your problem mblatour

When I first read your message I knew that I have run across the situation before but could not remember which client it was. Today I did prepared the MN return for the same client with that situation and looked back to see how I solved it last year.

In the MN return pull up the Annualization Worksheet. Put an "X" in the selection box in the upper right hand corner of the form. The error (and the penalty) should vanish. I should have remembered this from last year because I bet I spent over an hour dinging around over a $9 or $10 penalty. The penalty didn't bother me that much but the software telling me I couldn't efile it bugged the heck out of me.

Mike

[mblatour]

Thanks Mike...........

for looking into it and giving me a solution. I had spoken with "Larry M" and he had me go in and actually delete the penalty amount (not override) and it cleared up the error. He had done that before and said that a bill for the $3 penalty may/or may not show up in the mail later on and to just notify the client of that (plus maybe a few cents interest?).

If I run into this again, I will try out your suggestion. It's logged in my notes. Funny how easily we can forget from year to year what we've done and not done, isn't it?? (smile).