Anyone familiar with IRS process for receiving a penalty refund?
4In March, 2020 IRS incorrectly billed my business for a late filing penalty and interest (a bit over $1,900) for my 2018 form 1120 return. Knowing that the wheels grind slowly in the IRS, I immediately paid the penalty and interest, then wrote a response which included my proof that the penalty was not justified. In December IRS wrote back indicating they had received my response, but would need more time to investigate.
Finally, today I received a letter from IRS that my “request to be granted penalty relief” was approved.
I already paid the penalty. So how do I get that money back? The letter from IRS has no instruction on how to proceed, and makes no statement about where my payment went.
I tried a search of the interwebs, but once you type in those three letters (IRS) all hell breaks loose and you get buried with tens of millions of results.
Anyone here have any experience with this?
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I do not have experience but you may want form 843.
https://www.irs.gov/instructions/i843#idm140181851322656
A refund or abatement of interest, penalties, or additions to tax, caused by certain IRS errors or delays, or certain erroneous written advice from the IRS.
A refund or abatement of a penalty or addition to tax due to reasonable cause or other reason (other than erroneous written advice provided by the IRS) allowed under the law.
Line 6 has form 1120 as one of the options.
I’d obviously confirm that with someone though
@unksol Excellent find! I’ll download this form in the morning and look it over. Sure would be nice to get that $1,900 back sooner rather than later.
I thank you for your reply. Much appreciated.
You probably don’t get the money back as you think you do. You get it back in the form if a credit on your next filing.
Essentially, you “prepaid” this next filing. The net result is you have $1900 in your pocket that you would have otherwise had to pay for thus quarter’s taxes. So, you already have your refund.
Ta Da!
@mike808 The penalty was in regards to form 1120, an annual return, not form 941 quarterly employer return. Like most small, privately held corporations, I don’t usually have an annual income tax liability, choosing instead to pay out revenues in the form of employees wages, equipment improvements and capital expenditures, etc. So if that were the case it would take decades to recoup the value of the $1,900 payment.
@ruouttaurmind Then you take the credit of the refund next year. The feds know it takes them longer to send you a check, so you taking the credit is actually faster.
@ruouttaurmind
I would defer to @Felton10 post below. Call the IRS and ask about your refund of the penalty you were improperly assessed as determined by the letter you received.
You may want to get yourself the services of an “enrolled agent” (I think that’s the term). This is an accountant who has jumped certain hoops in certification, in order to be able to work more directly with the IRS.
These services are normally far cheaper than those if s lawyer, who could gobble up the entire amount in fees.
Or, I presume, you or your company has some relationship w an accountant.
That person will know, if they are any good.
My experience with clients who have experienced the same thing where they paid a penalty that was subsequently abated (I am a CPA) is that the money would automatically be refunded to the them although how soon is uncertain especially now a days. Would not take a credit on any other form you owes taxes-that will make things worse.
Suggest you call up the IRS-they should be able to tell you if a refund of what you paid is in process and if not why not.
Happy to answer any other questions you might have.
@Felton10
I couldn’t agree more. As much as we would all love to believe IRS knows what they are doing, and the various divisions communicate and work well together, sadly my experiences do not reflect that. It is an enormous organization with antiquated infrastructure and multiple automated systems which are not well integrated to exchange data and processes.
I have been attempting to avoid the dreaded phone call. The last time I called I spent a bit over two hours trying to get to the bottom of my inquiry and eventually just gave up in frustration.
Perhaps my best first move is to wait a couple weeks and see if a follow-up communication from IRS arrives with any information about this particular situation. Though, as you mention, that could potentially take a long time (ie. IRS taking many months to acknowledge my initial communication about their error, then another few months to actually address it).
I very much appreciate your expertise and willingness to share your experience. Thank you so much.
@Felton10 Quick question if you don’t mind sharing just a bit more of your expertise?
I chatted briefly with the CPA who rents space in our building. His advice is to simply file an 1120X and claim the previously paid penalty as an overpayment, then specify it be refunded. He says there are a couple ways to handle it, but he believes filing an amended return will bring the money back to me in the swiftest manner.
Your thoughts?
@ruouttaurmind I never heard of that as a way of getting a previously paid penalty faster. If hes had experience doing that with good results then you might want to consider doing it. But before doing it, I would give the IRS a call. I promise they won’t bite.
You might find your check is being processed or on its way. And the other issue is that a 1120X might short circuit the automatic processing of your refund. But like I said, a call could point you in the right direction re sitting tight or filing an 1120X.
@Felton10 @ruouttaurmind The only trouble with calling the IRS is that answers sometimes/often don’t match. I generally call at least twice asking the same thing and if the answers don’t match (which has happened to me on occasion) I call again figuring if I am lucky majority rules will the be right answer.
@Kidsandliz @ruouttaurmind That’s always been an issue when calling the IRS to get tax advice, but here there is only one answer-is my check in process to be paid, when should I receive it and maybe do I have to do anything else to make this happen. Anyone you talk to will be getting the same info off the computer screen.
A lot of times all the agent on the phone does is look up your question in an IRS pub and point to that for your answer. For a technical question and a good answer, you really want to be transferred to the specific area at the IRS that handles that type of issue.
One time I was trying to convince a client of mine that what I had told him was definitely the correct answer even after showing him the rev ruling that was applicable. I was able to track down the author of the rev ruling even though she no longer worked at the IRS and reviewed the exact situation with her and then told him I went right to the horses mouth and there was no way he could then refute my interpretation of the ruling and how it applied to him.
@Felton10 @ruouttaurmind the instructions for form 843 do say
Use Form 1120-X, Amended U.S. Corporation Income Tax Return, to correct Form 1120 or 1120-A as originally filed, or as later adjusted by an amended return, a claim for refund, or an examination.
Wonder if that’s where he got it from?
But I would not think it’s a correction if it was paid because of an IRS instruction/penalty that was wrong? Since you didn’t file it wrong? That’s just like filing a normal correction x form I would think?
And clearly @Felton10 would know better. Does the IRS still have enough staff to answer phones the same day?
@ruouttaurmind @unksol When calling the IRS-make sure you have gone to the bathroom, have a comfortable chair, a speaker phone and have plenty to drink and patience.
BTW-all these may not apply to you but since I am calling on a two line corded land line phone-they apply to me.
PS-calling first thing in the morning will shorten the wait.
@Felton10 @ruouttaurmind I’m picturing that giant endlessly extending coiled cord from the landline In The kitchen for some reason. Just at the word landline. Lol. And I’m not old enough for that but I do remember having them. AnD AOL and wiring them. Ffs I still only get DSL
@Felton10 @ruouttaurmind @unksol
Where the fuck is an acoustic coupler when you need one? At 1200 baud (Quad speed!) this baby will be uploaded in just a couple of hours.
@ruouttaurmind @unksol My parents had that long cord in the kitchen which went to many rooms in the house, but mine doesn’t stretch that far. And yes-I still have an aol e-mail address. And I will try to avoid using the word “landline” (I have 2 BTW) in the future because it only shows my age.
If I have computer problems, I just call my son (the one I gave the x box to) who is an in-house computer tech person for a defense contractor.
@Felton10 @ruouttaurmind eh. I still have a “landline” sort of. Ooma voip box that powers all the phone jacks. Also handy for those weird times you still need to send a fax
@ruouttaurmind @unksol My second line is hooked up to my fax machine (a multi function printer actually) which I only use for faxes and to make out going calls when my wife is on our 1st line. Only costs $10 extra month as it is VOI.
So any incoming calls on it are usually spam as we don’t give it out as a regular phone number, but it is first in numerical sequence so anyone looking us up might get and call that number.
Know a lot of spam phone calls we get start out as prerecorded messages for car warranties and back braces, but would love to have some porn playing on the computer and get one of the calls and put the receiver up to the speaker to totally embarrass whomever is calling.
BTW-if you ever experience something like that again, I would call them, explain the situation and ask for a freeze (usually will grant 90 days) on the collection process for you to respond. Sometimes depending on the situation, you can even resolve the situation with the agent on the phone. Sometimes if this is your company’s first penalty they will abate it as a goodwill gester.
@Felton10 I suspect this is how they handled this situation. Rather than correcting the error, it was probably the swiftest solution to simply call it an abatement. Not really a problem unless, in the future, I screw up and need to request an abatement, at which time my “one time” will have already been used.
@ruouttaurmind The letter should say if the penalty was valid, but they chose to forgive it due to it being your first penalty.
Taxpayer Advocates are also very helpful. I had to escalate my normal taxes, because 2018 was misfiled as 2019 (by the IRS!) The lady who helped was very nice and followed up often. I will say, it has taken almost a year to resolve, but covid was a large part of that delay.
@mikibell That is kind of the court of last resort for issues you can’t resolve any other way.
Its too bad the Senate has blocked efforts to secure the funding necessary for the IRS to hire the forensic accountants to go after folks that owe millions and a former administration that prioritized applying the full force of the IRS towards the folks like you that are dealing with $1,900 amounts.
The federal government has spent more than $2,000 of our tax dollars on your case. Multiply that by tens of thousands. Imagine the funding for poverty, job creation, climate and energy research, a healthcare system that actually delivers healthcare instead of profits to shareholders, and more.
Imagine if all those IRS agents were instead, going after shady real estate deals that are likely money laundering by organized criminal enterpises (ahem, RICO) and hedge fund market manipulation and insider trading (I’m looking at you - former Repiblican Senators from Georgia), foreign funding of interference in our political system (ahem, NRA, Manafort, Flynn, Sessions, the list goes on…), and the biggest tax scafflaws of all, big corporations suckling at the teats of government corporate welfare with unnecessary tax break subsidies.
I know people get freaked out when they get a letter from the IRS especially one that says they owe money, but the best course of action is to call before you put a ck in the mail. Even though the wait may be long, there is a good chance it can be resolved over the phone with no further action on your part.
We have it a little easier than a normal taxpayer-we have a special line called the “Practioners Priority Service” where we can talk to an agent about a client’s issue as long as we have a POA from that client which we fax over while still on the phone with the IRS.
@Felton10 lol special lines.
I’m not sure how you start the process, but I’m pretty sure the end game goes something like this:
One of my clients sent me a cartoon a couple of years ago where in the first frame two people were in a car driving and one said to the other “My accountant lives near here in a gated community”. The next frame shows them driving by a prison.