S-Corp late filing penalty

[Ringers]

Does anyone have any experience with abatement of Code Section 6699 (a)(1) Failure to File S-Corp return penalty? The daughter and son-in-law of a client of mine are the two shareholders of a small Beauty Salon with net profit averaging about $2000 per year. For some reason, they had their preparer file their Corporate returns for 2011 and 2012 about a year past the deadline for each return. Then penalty is $195 per stockholder per month for each month that the return was late. The 2011 penalty is $4680 and the 2012 penalty is $3510. 2013 has not been filed yet.

The couple has two kids and other income of about $40000 per year with mortgage and RE tax of about $20000 per year, so these penalties will wipe them out. Is there any hope for an abatement or should I suggest they file for bankruptcy?

Any suggestions would be appreciated.

[Lion EA]

I have had luck using the procedure for partnerships that all was reported on personal returns even though S-Corp return was late.  You could also try for the one-time abatement.  I'd coach the clients in what to say/write and have them try, using the ratio of the penalties to their income, supporting a family, a few tears, etc.  It's worth a try before exploring bankruptcy.

[michaelmars]

Partnership penalty abatement letter

 

XYZ Partnership

Address

City, State

 

July 14, 20XX

 

 

Internal Revenue Service                  Re:    CP 162

Ogden, UT   84201-0039                       Tax Form 1065, for 12/31/XX

                                                            EIN # XX-XXXXXXX

 

To whom it may concern:

 

Based on our records, the Form 1065 was timely filed.  However, under Revenue Procedure 84-35 there is an automatic waiver for certain small partnerships.

 

This is a small partnership (2 LLC members) qualifying for late filing penalty waiver under the following:

 

1. The partnership has 10 or fewer partners, all of whom are natural persons;
2. Each partner’s share of each partnership item is the same as such partner’s share of every other item;
3. All partners timely filed their form 1040 for 2008 and fully reported their shares of income, deductions and credits on their timely filed returns.

 

Please waive the proposed penalty under Revenue Procedure 84-35 as the above requirements have been met.

 

Please advise of the abatement.

 

Sincerely,

[michaelmars]

They sometimes ask for each partner/shareholder to sign the letter, that they had the info to file their 1040's.  I usually add a paragraph [if true] that I prepare all the 1040's and have personal knowledge that they were timely filed.

[Jack from Ohio]

For two tax years, we have had ZERO luck getting late filing penalties abated.  The IRS has become stiff-necked about it.

 

Send the letter, charge your client and move forward.  You did not delay 2 years.  It has been caused by indifference or neglect on the part of the taxpayers.  Don't let them draw you into the problem by pretending to be the victims and playing on heart and sympathy.  Draw the line and sleep well.

[Ringers]

Thank yo all for your suggestions.  I am not sure yet which route I will suggest she take regarding the penalties, but now I can give her more options.

 

Ringers