Interest and penalties on extended returns

[jklcpa]

Does anyone here not have the tax prep program calculate the interest and late payment penalties on the extended returns and let the IRS calculate and assess it instead? Those figures only show up on a worksheet that isn't sent with the return and isn't shown on the bottom of pg 2 of the 1040 like some of the programs did in the way back.

[jshtax]

I calculate the penalty and interest. For 1040 it shows full amount on 1040-v and the interest and penalty show on bottom of page 2.

[JohnH]

I regard calculting P&I as a waste of time. The only penalty I let any program clculate is the Estimated Tax Penalty. I tell the cleint approximately what the p&I will be and advise them to wait for the notice.

[Guest Taxed]

I let the software prepare the form 2210 and the state version. I do tell the client that they can pay it with the balance due and that will stop any more interest accrual or if they just pay the balance due tax, and wait for IRS or state to bill them it will be little higher because the additional days involved.

For large balance dues I do stress that they should pay it to stop the accrual.

[jshtax]

I regard calculting P&I as a waste of time. The only penalty I let any program clculate is the Estimated Tax Penalty. I tell the cleint approximately what the p&I will be and advise them to wait for the notice.

Waste of time? It takes about 10 seconds.

[JohnH]

Are you counting the time involved explaining the differences to the client when they get a notice adjusting the figures your software provided?

[Guest Taxed]

I agree explaining any difference between your calculation and IRS if it is more than a few bucks is a challenge with certain people who may doubt your skills. For simple folks, I try to give the example of impound fees that every day that goes by unpaid it gets added to the tab.

[michaelmars]

I agree explaining any difference between your calculation and IRS if it is more than a few bucks is a challenge with certain people who may doubt your skills. For simple folks, I try to give the example of impound fees that every day that goes by unpaid it gets added to the tab.

also the interest rates are constantly changing and I only enter the rate effective when I install the program.

[jklcpa]

For this last return I'm working on, I think I'm going to print out the interest and late payment penalty that is calc'd through 10/15 but then delete the calcs and go with the return and instruction letters showing only the tax and 2210 penalty. This client is smart and will understand it, and since he is still only able to make a partial payment of about 35% of the balance due and will be requesting an installment agreement, more interest and penalties will be added anyway.

Most of the time I include the penalties and interest even though I know that the client may get a notice adjusting it by a small amount for the difference in the # of days since I don't always use the exact day that the payment is posted to the government's system, but it's better than them getting a bigger notice if I don't include it at all.

[JohnH]

I've never given anyone a return with P&I calculated (other than Estimated Tax Penalty). I mentally run a rough estimate, keeping it slightly on the high side. I tell them to expect a bill for about $ xxx within 4-6 weeks and to send me a copy when it arrives if they want me to verify it for them. I've never had a client complain about that, and I've never had to explain any differences between my rough estimate and the final bill.

To some extent, this issue is about setting expectations. If we condition the client to expect IRS to get it right and then we will check their work, that is a good thing. If we condition the client to think we beleive we are getting it right and IRS will correct our work, then we are setting ourselves up for having to explain why we got it wrong if that happens to occur. Most of the time, when you are explaining your own actions you are backing up.

[TAG]

Will ATX calculate the P & I ? If so, please tell me where and how.

Thanks.

I think I found it. Thanks.

[Lee B]

JohnH,

I agree with you and have usually handled the penalties and interest like you do.

[jklcpa]

I think I'm going to adopt John's policies for almost all of my clients. My last client on extension picked up his return this afternoon, and I showed him the calcs of P & I that weren't included and told him to expect a bill. He's getting one anyway since he's not paying in full. State of DE has no way to add in the P & I to a return, so this method will be consistent with the state too. Now my only wish would be that DE would change the wording of their notice so that it doesn't say they've corrected errors in the return, when it's only a matter of assessing the additional interest that they don't allow the preparers to add in!