5500EZ Penalties

[cientax]

Does anyone have a typical letter that can be used or a format for requesting abatement of penalties on a 5500EZ. They are being penalized $25 per day and it is up to about $15,000 as of today. The 5500EZ has been filed but the penalties still remain. There is no tax to pay on the form, it is informational only.

[kcjenkins]

My advice is to let the 'owner' write the letter, making it as simple as possible, citing whatever reasons he has, including simple ignorance. And promising never to make the same mistake again. The odds are good that he will get an abatement. If he does not, he should try again, at least once, although I know of one person who got the abatement on the third try.

[cientax]

Does anyone have a typical letter that can be used or a format for requesting abatement of penalties on a 5500EZ. They are being penalized $25 per day and it is up to about $15,000 as of today. The 5500EZ has been filed but the penalties still remain. There is no tax to pay on the form, it is informational only.

It may have been partly ignorance but he was going thorugh divorce at the same time he was closing and selling his business. He had no employees and this was the only time he was ever late filing the form and the plan was ternimated after selling the business and he no longer has a filing requirement. He was also having to travel out of state and over seas to visit his sick mother.

He is the one writing the letter and the form has been filed even though late. I did tell him to explain his situation during the period the form was due to be filed. Hope he does get it abated, he's really a nice person even though he's very greedy he does not have bad intentions. He's not a client of mine but a former employer of my wife but still keeps in tough.

[jainen]

>>citing whatever reasons he has, including simple ignorance<<

I advise a bit more focused appeal. I do concur, however, that he is likely to succeed. The IRS treats this kind of penalty as an incentive, not a punishment. What they most want to see is a modest admission of past problems, with a robust explanation of how the taxpayer has resolved them and ensured future compliance. It is nice to point out that there was never any question of tax avoidance or late payment.

Reasonable cause for late filing is best expressed in terms of outside circumstances over which the taxpayer had no control. It's kind of weak to say you are managing a pension fund (or whatever this is) but don't even understand basic tax issues like having to file something. Much better to blame it on the bookkeeper who suddenly got deported, um, I mean married leaving the records in a mess. Don't use 9-11 though--that one's worn out.

Do some research first because there are some people who monitor ERISA and the IRS will waive penalties if you work it out with them instead.