IRS Penalties: Avoidance and abatement

31 Pages·2017·0.15 MB·English

IRS PENALTIES
Avoidance and abatement
June 2017
©©22001177 RRSSMM UUSS LLLLPP.. AAllll RRiigghhttss RReesseerrvveedd..
Today’s presenters
Patti Burquest David Click
Principal Director
Washington National Tax Risk Management
Patti leads the firm’s tax David teaches graduate courses on
controversy team, with a focus on corporate tax, taxation of intellectual
IRS examination and appeals. property and tax dispute resolution.
2
©2017 RSM US LLP. All Rights Reserved.
Agenda
Topic
Introduction to delinquency penalties
Delinquency penalty avoidance
Delinquency penalty abatement
International information return penalties
Late or incorrect information return penalties
3
©2017 RSM US LLP. All Rights Reserved.
INTRODUCTION TO
DELINQUENCY
PENALTIES
©©22001177 RRSSMM UUSS LLLLPP.. AAllll RRiigghhttss RReesseerrvveedd..
Delinquency penalties
Type of penalty Applies to
Failure to file or late filing o Income tax
o Excise tax
o Payroll tax
o Information returns
Failure to pay or late payment o With return
o IRS notice
Late deposit of tax o Income tax
o Payroll tax
o Withholding tax
©2017 RSM US LLP. All Rights Reserved.
Failure to file or late filing of income, withholding and
excise tax returns*
Rate
• Penalty rate is 5 percent per month (or
Penalty computation
fraction) up to a 25 percent maximum
• Computed on “net amount due with • Based on amount of tax due as of RDD
the return” as of the return due date
• Rate reduced to 4.5 percent per month
without extension (RDD) (22.5 percent maximum) if late payment
penalty applies at the same time
• Begins to accrue on the due date of
the return (including extension)
• Payments after the RDD do not
Avoidance and abatement
reduce the base on which the penalty
• Avoid by filing a timely income tax return
is computed (including extensions of time)
• Reasonable cause for late filing is a
Section 6651(a)(1)
defense
• First time abatement
*Forms 1120, 1040, 1041, 1042, 720
6
©2017 RSM US LLP. All Rights Reserved.
Failure to file or late filing of partnership or S
corporation returns
Rate
Penalty computation • $195 per partner or shareholder per
month for up to 12 months
• Applies a per partner or per
shareholder monthly penalty
Sections 6698 and 6699
Avoidance and abatement
• Reasonable cause
• Small partnership exception (Rev. Proc.
84-35)
• First time abatement (FTA)
*Forms 1065 or 1120S
7
©2017 RSM US LLP. All Rights Reserved.
Late payment or failure to pay penalties
Rate
General rules
• 0.5 percent per month, increases to one
• Applies to income tax, estate tax, gift percent per month if receive a levy notice,
maximum 25 percent
tax, excise tax, payroll tax, and
withholding tax returns and certain
• (a)(2) penalty runs from the return due date
information returns (without extension) until the date the tax is paid
• Unpaid tax from return due date • (a)(3) penalty runs from the 11th or 22nd day
without extension from the notice (whichever applies) until the
balance is paid
• Unpaid tax pursuant to IRS notice
and demand for payment
• Within 21 calendar days of IRS notice Avoidance and abatement
• Within 10 business days of IRS notice if
the amount due is $100K or more • Reasonable cause
• First time abatement
Sections 6651(a)(2) and (a)(3)
8
©2017 RSM US LLP. All Rights Reserved.
Late deposit penalties
Rate
Penalty computation
• Applies to any taxpayer or return for • Sliding scale of penalties for late
which a tax deposit is required deposit based on days late
• Applies to “underpayments” of any • 5 or less: 2 percent
type of tax including employment,
• More than 5, less than 15: 5 percent
income, withholding.
• More than 15: 10 percent
• “Underpayment” means the excess
• 10 or more days after delinquency
of the amount of tax required to be
notice: 15 percent
deposited over the amount, if any,
deposited on or before the due date
of the deposit.
Avoidance and abatement
• Failure to use Electronic Federal
Tax Payment System® (EFTPS) (if o First time abatement
required) is 10 percent of the
o Exceptions for first time deposit (payroll tax)
required deposit
o Penalty recomputation
Section 6656
9
©2017 RSM US LLP. All Rights Reserved.
DELINQUENCY
PENALTY AVOIDANCE
©©22001177 RRSSMM UUSS LLLLPP.. AAllll RRiigghhttss RReesseerrvveedd..