Accuracy Penalty due to negligence

[Vic Ferrari]

Fact Pattern:

A 1099R for $8,000 was omitted on the tax return for 2003. The additional tax was $2175.00 which was paid.

What reasons does the IRS use to approve waiver of accuracy related penalty due to negligence?

The language seems rather harsh. The taxpayer is wondering if the service has left the IRS because of rather extensive hold time and multiple transfers to get to the correct department. Negligence seems an inaccurate description. Thanks in advance.

[TMI Moderator]

The accuracy-related penalty is imposed under IRC section 6662. Indeed, "negligence" is one of the triggers for the penalty.

Regulation section 1.6664-4 is entitled "Reasonable cause and good faith exception to section 6662 penalties."

Section 1.6664-4(b) states, in part: "...Generally, the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability..."

Reading through the code and regs, it looks like there might be an exception if there was an honest effort to properly report an item. However, I didn't find anything that looked favorable for simply forgetting to include an item on the return.

I'd start with the regs and go from there. If you formulate your request for exception in the context of the regs it will have a greater chance of success.

[Bees Knees]

Penalties

I don’t think you are going to find any reg abating the penalty for “I forgot.” That’s the purpose of the penalty.

But then, it doesn’t hurt to try. Make it sound like a sob story. Say the cat jumped up on your papers and scattered everything just as you were about to enter that 1099R. Get them to feel sorry for you. Maybe someone will abate it anyway.

Can’t hurt to try.

[Snaggletooth]

1099 Not Received

All of us have had this happen to our clients in some form or fashion, most likely in the form of the penalty for underreporting of a gross amount of revenue.

The most obvious reason I've given for abatement comes from the client himself -- "I never received the 1099." In most cases, I'm quite suspicious that the client is not being straight with me, but the excuse seems to work anyway.

What a horrible crisis our government faces - not being able to penalize these dishonest taxpayers.

Of course, the excuse works fine for them -- how many of you have filed 1045s or 1040Xs with refunds, and when you call to expedite, the IRS tells you they've never received the returns? I find this to be almost universally true! except when you tell them it was sent by registered mail and you have the receipt. If you have the receipt, the return suddenly "turns up" for some reason.

Yes, we all deal with a good percentage of our clientele who we suspect may not be reporting the truth. Overall, however, my clientele is more honest with the govt than the govt is honest with its taxpayers.

[Gretel]

Forgot

Maybe I am stupid but what does a non-received 1099-Misc has to do with the income actually received? The income needs to be reported and not the 1099's. Sure, it's convenient to not keep track of income and then blame someone else.

OK.OK. Don't jump at me. I know a lot of clients do exactly what they think they get away with. Anyway, a forgotten 1099 pretty much indicates either a dishonest client or one with Alzheimers.

[TMI Moderator]

No, you're not stupid, and we won't jump on you, not now anyways.

Actually it was a 1099R. Your Alzheimer's comment might not be too far off. I have lots of elderly clients, and sometimes it's really hard to tell if they miss income like that, or if they get that sense of "I'm too old, what are they going to do to me?"

[DTS]

Happened to my Mom

This happened to my Mother the year she had to file MFJ after my stepfather passed. She never had done a return before, had WAY too many papers in front of her, did not understand any of this. Complicated with the grief issue.

She rec'd a notice, with the penalty and I just explained the situation to IRS and amended CA. No penalty, nice end to this story.

Dennis

[jainen]

Confession

Admitting your own fault is morally uplifting but usually doesn't cut much with IRS. Best excuses blame someone else. Dead spouse is good because of the poignant grief. Tax preparer is good because the government workers are secretly jealous of us. Employer or bank is better than nothing. Only thing worse than confession is claiming the IRS told you to do it that way.