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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4380
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I received a letter from the IRS for Late Form 5472. I asked

Resolved Question:

I received a letter from the IRS for Late Form 5472. I asked for an extension to file, but I sent regular mail 0.46 Now I am being charged $20,000 because the C-Corp has 2 foreign shareholders d according to IRS they never received. I asked for a penalty abatement and submitted copy of the enveloped stamped March 10, 2012 (by our stamp machine) their reply was information submitted does not establish reasonable cause or show due diligence. How can I appeal and have a better result? I would pay a reasonable amount, but $20K is crazy and out of the question why aren't they charging regular late filing which are $195 per shareholder per month.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

Hi, you should look into the appeals process ... In IRS publication 1660, they say...

Lane :

You may appeal many IRS collection actions to the IRS Offi ce of Appeals (Appeals). Appeals is separate from and independent of the
IRS Collection offi ce that initiated the collection action. Appeals ensures and protects its independence by adhering to a strict policy
of prohibiting certain ex parte communications with the IRS Collection offi ce or other IRS offi ces, such as discussions regarding the
strengths or weaknesses of your case.

Lane :

The two main procedures are Collection Due Process and Collection Appeals Program.

Lane :

Complete Form 12153, Request for a Collection Due Process or Equivalent Hearing

Lane :

Here's the form: Form 12153

Lane :

Doing it this way will "stop the locomotive," so to speak and let you talk with someone besides the front line folks (who are essentially collectors)

Lane :

They almost always push back, as a knee jerk reaction, going to the appeals division, will allow you to tell the complete story ... another option ...

Lane :

Call the IRS at(NNN) NNN-NNNN and after explaining (and the predictable push back) ask to speak with that person's manage (be sure to get the employee name and ID number first) they are supposed to do this any time it's requested ... if the manager will not allow for consideration, ten you have a VERY good case for appeals, because you will have "exhausted other available remedies" as they will say ... by doing it this way you pre-empt THAT eventuality

Lane :

You should see this (from the journal of Accountancy) ... I'll give you the link:

Lane :







 




  • The IRS’s first-time abatement penalty waiver (FTA), although introduced 12 years ago, is infrequently used by qualifying taxpayers. An FTA can be obtained for a failure-to-file, failure-to-pay, or failure-to-deposit penalty.

  • A taxpayer may claim an FTA for only a single tax period. To qualify, taxpayers must not have been assessed any other penalties of a “significant amount” on the same type of tax return within the past three years and must be in compliance with all filing and payment requirements.

  • IRS personnel use a decision-support software tool called the Reasonable Cause Assistant (RCA) to help determine whether a taxpayer is eligible for an FTA. However, the RCA has been criticized for yielding a high percentage of incorrect determinations of FTA eligibility that IRS personnel generally do not correct.

  • Through persistence, a practitioner can often persuade the IRS to reverse an initial incorrect determination that a taxpayer does not qualify for an FTA.


Lane :

I still don't see you coming into the chat here ... would be glad to discuss further ......

Lane :

I'm wondering if JustAnswer is having systems problems today ... you're the second person that has just never come into the chat here.

Lane :

Maybe moving us to the "Question and Answer" mode will help

Lane :

WHAT?

Lane :

That hurts my pay and my ratings here....

Lane :

Is there something else I can do here?

Lane :

ok Cya

Expert:  Robin D. replied 1 year ago.
Hello,
I am different expert. You asked "why aren't they charging regular late filing which are $195 per shareholder per month", unfortunately, the penalty for failure to file Form 5472 is $10,000 per year per person required to file. For those taxpayers that have been notified by the IRS that they have not filed Form 5472, a "Continuation Penalty" in the amount of $10,000 may be assessed for each 30 day period after the expiration of the 90 period from the day on the IRS notice the form is delinquent.

If the failure to file has occurred due to reasonable cause, and you can demonstrate you have taken the necessary steps to avoid having the problem reoccur, the IRS may grant relief by abating the penalty for failure to file.
You must provide a written statement containing a declaration that the statement is made under the penalties of perjury, make an affirmative showing of all the facts demonstrating that you had reasonable cause for failure to timely file Form 5472, and prove that you acted in good faith.
To show that reasonable cause exists, you must have filed for all open years.
If yours is a Small Corporation whose gross receipts for a taxable year are $20 million or less there are different steps to take to request abatement.
Please let me know if you are a Small Corporation and I can tell you the procedure.
Customer: replied 1 year ago.

Hello Robin,


I have already written 2 letters requesting relief under "Reasonable Cause" I also mailed copy of stamped envelope that was mailed to the IRS in which we submitted our form 7004. The actual tax return was mailed May 5, 2013 so it was late but not extremely late. Our previous tax returns, 941 & 940 are all current and up to date which I also included in our letter which I hoped that would demonstrate that we showed due diligence. The last letter the IRS sent which was yesterday they are saying that since we do not have a certified mail receipt but mailed several extensions, they can consider this as proof. I also submitted 3 additional extensions which they approve the extensions. Hopefully they will accept this as proof. So I mailed a 3rd letter yesterday giving them name of other corps and EIN.


 


With regards XXXXX XXXXX question yes we are a small C-Corporation sales of approx. 2 Million


 


PS. I also asked for first time abate waiver and they said it does not apply to form 5472.

Expert:  Lane replied 1 year ago.

I have a different answer....

As I really tried to tell you earlier, you need to be going through appeals here.

The form 5472 is not only available to be submitted with request for abatement (IF you've filed timely - with extensions - and have a clean compliance history)...

... but you also may request relief through the voluntary the penalty will be waived if you reference FAQ17 of the 2011 Voluntary Disclosure program (updated through 2013) See this:

http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

What they may have told you was that first time abatement doesn't apply to S-Corps (and there are a couple of other exceptions) but reasonable cause applies across the board.

But again, if you continue dealing with the the collectors on the front lines without either using appeals or the OVD reference, you'll keep getting conflicting information and going in circles.



See this from the IRS internal manual:

20.1.1.3 (11-25-2011)
Criteria for Relief From Penalties

Generally, relief from penalties falls into four separate categories:

Reasonable cause

Statutory exceptions

Administrative waivers

Correction of Service error

APPEALS may recommend the abatement or non-assertion of a penalty based on these four criteria as well as "hazards of litigation."




Also Don't limit your argument to reasonable cause ...

From: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2012/CPA/Nov/PenaltyAbatement.jsp

Appeals nonassertion or relief due to hazards of litigation.

The IRS Office of Appeals can waive penalties to settle a case based on “hazards of litigation,” which is the probability that the IRS determination will not be upheld in court. For example, an IRS Appeals officer may waive penalties in an appeals hearing to reach an agreement with the taxpayer. This is used primarily for accuracy-related penalties in Appeals proceedings involving audits.

Administrative waiver.The IRS may formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess. The IRS may address an administrative waiver in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions. For example, in 2012, the IRS provided relief for the failure-to-pay penalty for taxpayers with financial hardship (see IR-2012-31).



You really need to consider slowing this all down by going through appeals.

You keep dancing with the clerks on the front lines and you'll never get the benefit of the doubt.

Appeals with help you examine you options (reasonable cause,administrative waiver, financial hardship) after having a reasonable conversation with a manager, rather than continuing this disjointed game of mail and telephone tag with the clerks on the front lines.

And don't let them tell you that you have to have a levy or lien or threat thereof ... once you get to them, they'll work with on any reasonable request such as your . I've done it for clients

http://www.irs.gov/Individuals/Appeals...-Resolving-Tax-Disputes
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4380
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks,

Again, use form Form 12153 that will stop all of the other communications, and you'll be dealing with a different, more sophisticated, group of people.

Do of course use everything you've done to document your good faith efforts.

Lane

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Lane
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Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986