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In case the IRS charges a penalty on the original returns of

the LLC, do the partners...
In case the IRS charges a penalty on the original returns of the LLC, do the partners have to split the charges? For eg if there's a $50K penalty for the LLC, would each have to bring in $25K (since there's no income for the LLC right now).?
In case my partner refuses to pay his share, what recourse do I have? Can I just pay my share to the IRS and ask IRS to collect the remaining 50% from my partner?
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Answered in 3 minutes by:
10/7/2013
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,246
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Stephen G. :

Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.

Customer:

Hi Steve

Stephen G. :

Hi

Customer:

Did you check my question?

Stephen G. :

First of all, I don't see any situation where the LLC could be subject to $50,000. in penalties.

Stephen G. :

Were either of the partnership returns filed late?

Customer:

$50 K is just an example. No. Both the year's partnership returns were filed ontime

Stephen G. :

Then what type of penalty are you talking about? The LLC doesn't pay taxes; penalties, except for the non-filing penalty for Partnership returns are based upon the tax due.

Stephen G. :

If there are penalties assessed, they would be at the individual tax return level where the tax is paid.

Customer:

Due to the large margin of error between the original and the amended partnership return, can IRS impose a penalty (negligence or fraudulent penalty)

Stephen G. :

Those penalties are based upon the tax due.

Customer:

There's no taxes paid by the LLC.

Customer:

At the individual level would the request for abatement of penalty trigger a penalty on the partnership returns?

Stephen G. :

Right, is there an echo in here? :]

Stephen G. :

What penalty?

Customer:

I am just speculating - negligence or fraudulent penalty

Stephen G. :

They can't invent penalties; they can only collect once where the tax is paid.

Customer:

If IRS accepts my request for abatement of penalty at the individual level, would the IRS have to conduct an investigation on the partnership returns before they accept or reject my request for abatement of penalties? As mentioned before, I wanted to play safe by prepaying the penalties (20% underpayment due to the increase of taxable income because of amending partnership returns).

Customer:

I paid penalties while amending my personal tax returns

Stephen G. :

I understand, but there has been no penalty assessment yet; including an additional payment with your return only serves to reduce the utlimate balance due and stop any further interest and penalty charges for tax underpayments.

Stephen G. :

The IRS doesn't have to look at the LLC's returns, but they may chose to do so. Why are you so concerned about the LLC returns when the change is disclosed on your personal returns also. Your adjustments didn't come out of this air, so it is obvious that the LLC's returns were materially misstated.

Stephen G. :

this air should be thin air

Customer:

If they chose to look at the original LLC returns and discover the large errors, would this trigger additional penalties?

Stephen G. :

The "large errors" on the LLC returns (original & amended) are disclosed on your Amended personal returns; they don't need to look at the LLC returns to determine that; I don't know what penalties you are talking about on the LLC; you filed the returns on time; the LLC doesn't pay taxes, so since any additional penalties (other than late filing) are based upon the tax due; there are no additional penalties at the LLC level.

Customer:

Ok. That makes me feel better. May be I am paranoid because the CPA who amended the partnership tax returns was almost threatening that this is a serious issue and IRS could come after the partners if they look at the original partnership returns.

Stephen G. :

I can't speak for someone else; "come after" as in take you both away in handcuffs while your partner is screaming that it is all your fault?

Customer:

Yes. That was my concern. I am not sure if the CPA who amended partnership returns was merely scaring me or protecting my partner.

Stephen G. :

I certainly have no idea about that, but that sounds like ground we have been over a few times already. Do yourself a giant favor and stop worrying about all this until and if you have something to worry about. If you had prepared and signed the returns yourself, without a CPA, then you might have something to worry about. Your partner has proven more than once that he's an expert fabricator with the principal purpose of cranking you up; stop playing into his hands & get on with what's important & that's resolving the operation of your business.

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Thanks again for using us for your tax and financial questions. You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer:

Thanks again

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,246
Experience: Extensive Experience with Tax, Financial & Estate Issues
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