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Estimated Tax Penalty


Christian

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Much to my astonishment I received a large estimated tax penalty myself. I have not received one in more than ten years and am wondering if I qualify for that first time abatement I have read about. I sent in a Form 2210 which indicated a $19 penalty as in past years. It looks as if they simply brushed it aside stating I did not calculate my estimated tax correctly. Most of my income falls into December as a result of large and unknown capital gains and my 2210 fully reflected this but to no avail. I waited on the phone over two hours to speak with a rep who basically said they had ignored my 2210 and calculated my penalty as if my income came in evenly over the course of the year. His suggestion was to pay the penalty and then file a Form 843 along with resubmitting my Form 2210 with any accompanying statements I wished to add. Any input would be appreciated. This is new territory for me and anything you can pass along will be much appreciated.

 

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You can get the penalty waived by call the PPS.  They will look at your prior 3 years and ifthere were no penalties, they will normally abate the penalty.  A denial can be appealed after receiving the rejection letter.

If you use the paper route, print FTA (First Time Abate) at the top  of form 843.

https://www.irs.gov/newsroom/irs-waives-penalty-for-many-whose-tax-withholding-and-estimated-tax-payments-fell-short-in-2018                                                  The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding,quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.Jan 16, 2019

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As an "employee" who also has a late year heavy income, I have been randomly reviewed for the late year heavy withholding in the last 30 years.  Never had a penalty, as it seems there is nothing improper (albeit unusual) for an "employee" to make most or all of their withholding payments with their last paychecks of the year.  One instance was when the IRS did away with the W4 review process.  They sent me a lock in letter, which was revoked after a phone call and record review - that I had not had any under withholding issues in the past).  My income continues to flow in in a similar manner, and I still have no withholding in Q1-3, with no issues from the collection folks.

Anecdotally (I cannot remember the exact details),  I know of at least one business owner who is in a similar situation, and while there have been inquiries, any penalty has been abated each time, since the quarterly deposits matched the quarterly income.  In one case, the business owner "held" substantial checks from their clients until the new year, and in audit, as a cash based business, the check hold was not an issue to the particular auditor.

 

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Max you are referring to he Practitioner Priority Service right? 

I'll give them a call Monday and see what they can do. My 2018 tax is totally paid and according to my 2210 my three quarterly payments exceed the tax due. This is the first time I have had this problem.

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Yes amazingly so. I was unaware I might resolve a personal issue through the PPS. My initial contacts with the Service basically pointed me to PAYING the penalty and then going through a byzantine process to get my money back. I did not  have to use my FTA but was able to take advantage of the regs applying to TY 2018 because of the tax law changes placed into effect in December 2017. The person spoken to was unfailingly polite and saw to it I will get my $19 penalty which I myself computed fully refunded ! !  This pointedly  reminded me of how valuable this forum is and the collected wisdom of members such as yourself. I think I saw a donate toggle the last time I came in so I will kick in for that. I have a real jim dandy of a situation coming up which I plan to put into the forum in a couple of weeks. I look forward to reading what my fellow tax folks have to advise. Again my sincere thanks for your help. 

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The pay upfront and then apply to get it back has been described above as "byzantine."  I couldn't agree more.

Outside of it being administratively cumbersome and byzantine, should we succumb to this strategy?  Withholding payment is one way to draw attention to IRS mistakes, and if they get the money, it takes all the pressure off them to fix the problem.  They already take too much time and often send several 60-day letters.

I once received a 60-day letter over a $5.45 CP2000 liability.

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On ‎7‎/‎19‎/‎2019 at 9:23 AM, Christian said:

Much to my astonishment I received a large estimated tax penalty myself. I have not received one in more than ten years...

In the spring I had three clients call me shocked at receiving the penalty for not making estimated payments.  After I hound them for years to make payments, and nothing happens when they don't, as soon as I ease off, this is a priority for IRS.   "Oh well, I'll make the estimated payments; I didn't know."  Uh, yes.  Yes, you did know.   

Sorry, that's not helpful; I just wanted to say it.  😋

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I regularly make estimated payments. Because my income comes in irregularly I have for years attached a 2210 explaining this. No problem until this year. The PPS rep waived the entire thing explaining that the 2018 tax changes were largely the reason. The Service appeared to me to have completely ignored the 2210 I sent noting I had incorrectly computed the form and simply dividing my total income by four. Go figure.

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