Substantial Tax Underpayment Panelty

[B. Jani]

Taxpayer has 7 1099-R. Missed one. Tax return was filed in 2013 and now got CP2000 for not including 1099R with additional tax of $5833 + $ 1167 Understatement Penalty + $292 interest Totals to $7292.

Taxpayer is happy to pay tax and interest but asked any way to request waiver of understatement penalty.

How do you request to waive  the penalty? (1) write a separate letter mailing full amount due or (2) send a letter with CP2000 with check of total less penalty and wait for answer from IRS?

Any guidance is appreciated.

 

[rfassett]

You might be able to get a penalty abatement based on first time offense if that is the case.

 http://www.journalofaccountancy.com/issues/2013/jul/20137885.html

You might get an abatement based on reasonable cause if you can formulate a plausible argument.

I always take the approach of sending the CP2000 back to the IRS with the request for abatement attached and without payment.  I request the IRS to send the client a corrected billing should the abatement request be approved and I tell the IRS that payment will be made post haste upon receipt of the corrected billing.

Don't know if I am batting 1.000 with this approach, but very, very close to it for sure.

Good luck!

 

 

[MsTabbyKats]

It was my understanding that penalties & interest had to be paid before they would look at a request for abatement....and then if it was approved, taxpayer would get a refund.

But....I haven't done one in a long time....things may have changed.

[joanmcq]

If it's a first time abatement, you can usually get it over the phone with a POA.  Pretty easy, actually. 

[B. Jani]

I have client with me and called IRS. They looked into the file and advised that Client should write letter and request waiver. They will not do over the phone. I asked them if I should send a check with letter. They said no need to send anything for now. Just fax or mail the request letter. Once they review and approve or disapprove the abatement of penalty, they will send final bill to pay.

I just faxed the letter to the fax number printed on the CP2000 and hoping for the best.