Penalty Removal

[geekgirldany]

Some of you may remember my post of a customer getting mail audited for sales tax. The number came back yesterday and he owes $5,000.

I was doing a search on the board about penalty removal and noticed a few said there was a "once in a lifetime" penalty removal. Is this correct? I thought I may call the auditor and see if the penalties can be removed because he has never had a problem before.

Thanks for any feedback

[erchess]

Sales Tax is a state issue so

what state are you in? In NC I think you can get the penalty waived if you have not had to pay a penalty in the last six years BUT if I am not mistaken it will come back on you if you owe another penalty in the next six years. (Someone in NC pls correct me if I am wrong.) But Danny if I remember correctly you are in CA so we need to hear from people in CA.

[joanmcq]

CA is broke. good luck. The IRS used to have a once in a lifetime deal (the 'kinder, gentler, IRS) but that's gone since they decided the deficits were due to undercollections.

[geekgirldany]

I'm in Georgia

Joan I noticed you said that in my posting about the sales tax. I wasn't sure though when I did a search.

Erch... I didn't know that either about the six years.

I guess it wouldn't hurt to call but I am not sure a reasonable cause can be established other than it was a mistake.

[erchess]

I also think

that NC treats not filing at all much worse than simply making an error and paying too little. Again I could be wrong because I have had only one client who had to do sales tax and they did their own with only minimal assistance from me. I do recall now that I think about it that they stopped filing for several months and I was able to set it up so that they resumed filing while making payments on the missed months. NC was very easy to get along with, or so it seemed to me. There was no penalty but there was a minimal rate of interest.

[geekgirldany]

I apologize Erch... I didn't explain very well in my first post.
My customer was mailed audited by the IRS. So there are Accuracy Related penalties and late pay penalties.

[joanmcq]

You've really got to have a good reason for penalty abatement. You can try, but its really unlikely. 'I had no clue what I was doing' won't make it, but 'my preparer had no clue what they were doing' might work. In other words, reliance on a professional might work.

[ChEAr$]

Most defiitely

You've really got to have a good reason for penalty abatement. You can try, but its really unlikely. 'I had no clue what I was doing' won't make it, but 'my preparer had no clue what they were doing' might work. In other words, reliance on a professional might work.

that will work. Reliance on a tax professional is reasonable for the ordinary taxpayer,
and I've had several instances in penalty removal since this is reasonable cause.

Somewhere at the office I have the regulation in writing. email me, danny, and I'll send it
to you. But hurry, tomorrow's last day in office for the month.

[geekgirldany]

Thanks Harlan, Sending you email.

[S T]

Preparer Penalties

Dany,

If you use the "professional had no clue" as a reason for penalty abatement for the client, aren't you putting yourself at risk for preparer penalties?

Probably what you advised the client and what the client provided are more than likely different, but none the less you prepared the return.

Are there other options to reduce the client penalty and not put yourself in harms way of preparer penalties?

Sandy

[geekgirldany]

Yeah Sandy that is why I mentioned I prepared the return. If I felt I was to blame I would pay the penalties myself. I feel like it was a mistake. He as already told me several times I am not to blame. He seems to be a good person and has never had trouble before with the IRS. I thought since there were no prior instances with the IRS they might take atleast one of the penalties off.

[JohnH]

There's no rule they must reduce the penalty, but you have nothing to lose by asking. If they refuse, just write another letter making the reuqest with slightly different info (as long as it's true). I've seen it work on the 2nd or 3rd try in the past, although things may be different now with the new emphasis on penalties as a revenue source.

One thing you said causes me to pause, however. The client seems very complacent in this matter - is it possible there are other issues on the return that he is concerned about and just wants to take the path of least resistance in hopes the whole thing will go away?

[geekgirldany]

Thanks for posting John. I think it is worth a try.

[erchess]

Penalties

When I was growing up my Dad prepared his and mother's tax returns. At least every other year he got a letter from the IRS to the effect that he couldn't do something he had done so there was additional tax, interest, and penalties. I think once or twice he thought they were wrong in saying he had done wrong and eventually got them to agree, but usually he was more than willing to agree that what he had done was questionable at best. He would always write back, enclosing a check for the tax and the interest but protesting the penalties on the grounds that he had reasonable basis from the standpoint of an honest taxpayer with no legal training and besides he had disclosed what he was doing and why in a note that went in along with the return. Most of my childhood this worked splendidly although once when I was in high school they pointed out that reading the 1040 Book would have told him not to do what he did so they only cut the penalty in half. My first year in the business was the last year he did his own return and he did it only because he was working for the same firm I was. After that year I have done most of his returns although there was a year or two where he thought he knew more than I did and I have to say that the IRS did not bug him about anything those years. One year when I did do the return there was a penalty because his first quarterly estimate was not mailed in until June and he wrote in asking them to abate that penalty!

[travis bickle]

Not sure if this will help

in your situation, since you did the return.

When I had these type of situations, I prepared a letter that the client signed, BUT that I did not sign. The letter basically said, "please remove the penalties on grounds of reasonable cause because I went to a paid preparer and they made the mistake, etc., etc."

The service already knows who prepared the return, but this way you do not send in a letter saying "I, the professional, made a mistake.

This way, MAYBE, you will not get a letter about preparer penalties, etc.

Last, but not least, in the letter I prepared for the clients, I always asked that "all penalties and interest be abated because . . . " And, even though the IRS cannot legally abate interest, more often than not, everything was removed. If you ask this for your client, the worst they can say is, "No."

Good luck