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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
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What is the best way to resolve 6699(a)(1) penalties This

Resolved Question:

What is the best way to resolve 6699(a)(1) penalties? This penalty although it existed for many years is now being enforced by IRS. Since S corporations rarely have a tax due themself, IRS previously did not charge penalties. Did IRS send any type of notice to the entity's explaining the new enforcement of this penalty?
Submitted: 6 years ago via Cornell Legal Info Institute.
Category: Tax
Expert:  BK-CPA replied 6 years ago.

Here's the tax code:

 

Sec. 6699. Failure to file S corporation return

(a) General Rule.--In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or pay tax), if any S corporation required to file a return under section 6037 for any taxable year--

 

(1) fails to file such return at the time prescribed
therefor (determined with regard to any extension of time for
filing), or


(2) files a return which fails to show the information
required under section 6037, such S corporation shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such
failure continues (but not to exceed 12 months), unless it is shown that such failure is due to reasonable cause.


(b) Amount Per Month.--For purposes of subsection (a), the amount determined under this subsection for any month is the product of--
(1) $85, multiplied by
(2) the number of persons who were shareholders in the S corporation during

any part of the taxable year.
(c) Assessment of Penalty.--The penalty imposed by subsection (a)
shall be assessed against the S corporation.
(d) Deficiency Procedures Not To Apply.--Subchapter B of chapter
63 (relating to deficiency procedures for income, estate, gift, and
certain excise taxes) shall not apply in respect of the assessment or
collection of any penalty imposed by subsection (a).

 

 

......

 

 

 

It says right in the code, that if you have reasonable cause for failing to file, the penalties can be abated. Most people do not have reasonable cause, and you'll be stuck trying to prove it if the IRS calls you out on it.

 

At the IRS's discretion, the IRS can forgive penalties and interest (I've found it's much easier to get interest forgiven than penalties)... so "smile pretty" as they say.

 

The IRS does not issue warnings necessarily that such a penalty will start to be enforced, but this is a new thing anyways... it was called The Mortgage Forgiveness Debt Relief Act of 2007:

 

http://www.taxpolicycenter.org/legislation/upload/Mortgage-Forgiveness-Debt-Relief-Act-2007.pdf

 

"

SEC. 9. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.

(a) IN GENERAL.-Part I of subchapter B of chapter 68 of

the Internal Revenue Code of 1986 (relating to assessable penalties)

is amended by adding at the end the following new section:

‘‘SEC. 6699. FAILURE TO FILE S CORPORATION RETURN.

‘‘(a) GENERAL RULE.-In addition to the penalty imposed by

section 7203 (relating to willful failure to file return, supply

information, or pay tax), if any S corporation required to file a

return under section 6037 for any taxable year-

‘‘(1) fails to file such return at the time prescribed therefor

(determined with regard to any extension of time for filing),

or

‘‘(2) files a return which fails to show the information

required under section 6037,

such S corporation shall be liable for a penalty determined under

subsection (b) for each month (or fraction thereof) during which

such failure continues (but not to exceed 12 months), unless it

is shown that such failure is due to reasonable cause.

‘‘(b) AMOUNT PER MONTH.-For purposes of subsection (a), the

amount determined under this subsection for any month is the

product of-

‘‘(1) $85, multiplied by

‘‘(2) the number of persons who were shareholders in the

S corporation during any part of the taxable year.

‘‘(c) ASSESSMENT OF PENALTY.-The penalty imposed by subsection

(a) shall be assessed against the S corporation.

‘‘(d) DEFICIENCY PROCEDURES NOT TO APPLY.-Subchapter B

of chapter 63 (relating to deficiency procedures for income, estate,

gift, and certain excise taxes) shall not apply in respect of the

assessment or collection of any penalty imposed by subsection (a).''.

 

 

 

 

 

 

 

 

 

 

Now you know where Section 6699(a)(1) comes from, and you know you have to file or face a penalty (save reasonable cause... ie... my accountant got hit by a bus, etc.).

 

 

I wish you the best of luck here!!

 

Thank you for your question.

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