Tax Preparer Forgot to e-file my 1040 - what now?

[RT_Shore]

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If there was a 5% per month late filing penalty (which maxes out at 25%) on the unpaid balance, then the problem is either that you didn't pay all the tax when due or the extension itself was invalid.

I don't see any verbiage in the notices mentioning anything about the extension being invalid. However, we only paid 1/6th of our total 2006 tax before 4/15/07 - which was all we could afford at the time (self-employed with vertical product business on shaky ground). The other outstanding amount (5/6ths of our total tax bill) was paid just before the 10/15/07 deadline.So it makes sense that the amount of penalty just for filing late, as per IRS notice, computes to roughly 25% of this outstanding amount since our 2006 1040 was ultimately filed more than 5 months after 10/15/07.

I appreciate all of the comments and suggestions. I am leaning heavily towards requesting an abatement. More opinions are welcomed!

[erchess]

Perhaps you did not know

that your extension of time to file your return was NOT an extension of time to pay the tax. If you needed to make estimated tax payments during the year then there was interest and I think penalty starting when those payments were due. There was certainly interest and penalty piling up from 4/15 of the year after the taxable year until you finally paid it all.

When a client asks me to do an extension for them I always ask whether they have a problem getting me information so I can fill out forms or paying what they expect me to tell them they owe. If it is only the latter I do the return and then an installment agreement to minimize the additional monies they must pay due to the fact that they cannot pay in full and on time.

[JohnH]

RT Shore: I must not be making my point very well. Aside from the estimated tax penalty, interest, and failure to pay penalty, you WOULD NOT INCUR ANY PENALTY FOR LATE FILING, provided the extension was valid and the balance was paid prior to 10/15. Even if you paid after 10/15, the failure to file penalty would run at 5% per month, but only on the unpaid balance, from 10/15 until the payment was made, REGARDLESS of when the return was filed. If you are sure the penalty for failure to file is approx 25%, then I believe your extension request was invalid. That's the only way this could happen. If you are going to request a penalty abatement, you need to be sure of which penalty you are trying to get abated and how it came to be. (Darn, there I go speculating when I said I wasn't going to do that...)

erchess: I believe if you run the numbers, you'll find that the FTP penalty, interest, and estimated tax penalty are exactly the same if the total tax is not paid by Apr 15, no matter whether the return is filed or an extension is filed. Either way, avoidance of the FTF penalty is the only goal. Regardless of whether the extension is filed or whether the return is filed and an installment agreement is requested, there is no difference in the balance due or accrual of P&I. There is one difference - if the taxpayer thinks they can pay the balance due by Oct 15, then filing the extension is much better because they save the $143 installment agreement fee (slightly lower fee if they choose bank draft, but that isn't always such a good idea). This is actualy true even if they need until mid-December to pay the balance due, because they can drag it oiut a few weeks and then call & ask for more time.. Filing the extension also stalls the beginning of when the collections clock actually begins to run, which can sometimes aid the taxpayer who is unable to pay on Apr 15.

[erchess]

Ummmmmm John

Please say again what the installment agreement fee is. You typed $143 and it was $43 the last time I did one. While that was in 05 if memory serves, I can't believe even the bloodsuckers who make up our taxing system would charge $143 to people who are by definition in financial distress to begin with. There was a time when it was $25 and before that it was free.

The rest of what you said to me appears to be correct and I thank you.

[JohnH]

Yes, I need to be corrected on the amount. It's $105 for a regular installment agreement, $52 if done via direct debit, and $43 if the taxpayer qualifies as low income. If it's a long-term agreement, the direct debit can be a bad idea in some cases..