FOR LIVE PROGRAM ONLY Navigating Complex IRS Penalty Abatement Procedures for Failure-to-File, Failure-to-Pay, and Accuracy Related Penalties WEDNESDAY , MAY 3, 2017, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . • Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code . You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. • To earn full credit, you must remain connected for the entire program. WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
Tips for Optimal Quality FOR LIVE PROGRAM ONLY Sound Quality When listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, please e-mail sound@straffordpub.com immediately so we can address the problem.
Navigating Complex IRS Penalty Abatement Procedures May 3, 2017 Joel N. Crouch, Managing Partner Meadows Collier Reed Cousins Crouch & Ungerman, Dallas jcrouch@meadowscollier.com Benjamin Peeler, J.D., CPA, LL.M., Partner Judi Smith Eide Bailly, Salt Lake City The Law Office of Judi Smith, Peoria, Ariz. bpeeler@eidebailly.com jsmith@judismithlaw.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Tax Controversy May 2017 Benjamin J. Peeler, J.D., C.P.A., LL.M www.eidebailly.com www.eidebailly.com
Navigating Complex IRS Penalty Abatement Procedures for Failure-to-File, Failure-to- Pay, and Accuracy Related Penalties Mastering Procedural and Practical Ways to Obtain Penalty Abatement; Mitigating Harsh IRS Penalties 6 www.eidebailly.com www.eidebailly.com
Learning Objectives • Discern the abatement process and documentation requirements for various types of IRS penalty abatements • Decide whether clients have sufficient grounds to abate tax penalties for failure-to-file, failure-to-pay and accuracy-related penalties • Identify very subjective reasonable cause criteria • Recognize benefits of using “Office of Appeals” effectively 7 www.eidebailly.com www.eidebailly.com
Civil Penalties Assessed and Abated, Fiscal Year 2016 • The IRS assessed $27.3 billion in civil penalties. Approximately $12.1 billion was assessed in civil penalties on individual and estate and trust income tax returns • The IRS abated $8.9 billion in civil penalties. Approximately $3.8 billion was abated for civil penalties on individual and estate and trust income tax returns. 8 www.eidebailly.com www.eidebailly.com
Recent IRS pronouncements regarding penalties • Effective with returns due after January 1, 2016, penalties for not filing correct information returns and/or not furnishing correct payee statements have increased and are now subject to inflationary adjustments. • Examples of affected forms include: Forms 1098, 1099, W-2G and W-2. 9 www.eidebailly.com www.eidebailly.com
Penalty Handbook • Penalties exist to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code. • Voluntary compliance consists of preparing an accurate return, filing it timely, and paying any tax due. • To be fair and effective, penalties should be severe enough to deter noncompliance, encourage noncompliant taxpayers to comply, be objectively proportioned to the offense, and be used as an opportunity to educate taxpayers and encourage their future compliance. • Penalty administration should ensure consistency, accuracy, impartiality, and representation. 10 www.eidebailly.com www.eidebailly.com
Delinquency Penalties • Failure To File – § 6651(a)(1) • 5% per month up to 25% • Failure To Pay – § 6651(a)(2) • 0.5% per month up to 25% • Failure To Deposit – § 6656 • 2% if the failure is less than 5 days • 5% if the failure is 5-15 days • 10% if the failure is more than 15 days • Fraudulent failure to file – § 6651(f) • 15% per month up to 75% • Failure to File Information Returns - § 6721 • $50 per failure if corrected before 30 days, up to $500,000 • $100 per failure if corrected after day 31 but before August 1, up to $1,500,000 • The greater of $250 per failure if corrected after August 1, up to $3,000,000 • Intentional disregard of the filing requirements are penalized the greater of $500.00 per failure or 10 percent of the aggregate amount of the items required to be reported correctly 11 www.eidebailly.com www.eidebailly.com
Penalties – abatement options • FTF – 6651(a)(1) – First Time Penalty Abatement • FTP – 6651(a)(2) – First Time Penalty Abatement • FTD – 6656 – Reasonable Cause only • FTF Information Returns – 6721 – Reasonable Cause 12 www.eidebailly.com www.eidebailly.com
Failure to File & Failure to Pay Penalties (Sec. 6651) • The IRS will automatically send your client a notice if they detect any filing and/or payment delinquencies. • Requesting penalty non-assertion is simply a proactive approach to preventing the notice. It is recommended that you attach a penalty non-assertion request to the late-filed return/payment with a reasonable cause defense. • Attach a reasonable cause explanation for filing/paying late to the Form 1040 return when filed. • If the IRS accepts the reasonable cause explanation, it will not assess failure to file/failure to pay penalties. • A taxpayer may instead wait until the IRS sends a penalty notice to then explain his or her reasonable cause. 13 www.eidebailly.com www.eidebailly.com
Failure to File Correct Information Returns § 6721 • No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect. (§6724 Waiver; definitions and special rules) Filing responsibility can not be delegated but deceitful acts by employees • and/or processing vendors may constitute reasonable cause. Substantial Compliance: • • Overall the essence of the IRC section 6721 information return filing statute is to provide the information needed for the IRS to ensure payees are properly reporting their income. A strict compliance to the filing of the form does not more or less inform the recipients of W-2 • Forms of the amount of income they are to report and the reporting of the income to the IRS on their tax returns completes all the purposes of the statute. The IRS received the appropriate information and tax payments as the statute seeks to support. • FTA does not apply but the Service will look at compliance history in their determination of intentional disregard and abatement. What corrective action took place to ensure timely filing in the future? • Remember, filing responsibility can not be delegated so include any steps responsible person • takes to ensure timely filing in your abatement request. 14 www.eidebailly.com www.eidebailly.com
Penalties • Do they apply? • First time penalty abatement!! • Internal Revenue Manual 20.1.1.3.6.1, FTF, FTP, Part • Reasonable Cause Arguments – Various Statutes • If the taxpayer exercised ordinary business care and prudence and was nevertheless unable to comply or pay the tax, it will be considered due to reasonable cause. Treas. Reg. § 301.6651-1(c)(1). 15 www.eidebailly.com www.eidebailly.com
Penalties, cont’d. • Must be written statement under penalty of perjury showing all facts supporting reasonable cause. Treas. Reg. § 301.6651-1(c)(1). – RCA • Always Appeal!! 16 www.eidebailly.com www.eidebailly.com
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