There is always a plausible chance. And there is the certainty that you won**'t receive an abatement **if you don't request one.

So always request an abatement.

I try to put myself in the position of the IRS agents on the other end. They are looking at regs that allow them to abate a penalty for reasonable cause. So you are asking for an abatement "based on reasonable cause."

I just tell the story the best way I can, convey the taxpayers promise to perform as required in the future, and 'respectfully request an abatement of penalties based on reasonable causes."

I've got ask, WHY was the pension plan disallowed?

Defined Benefit Plans are unique. They are true pension plans, when set up right. The work BACKWARDS from the way most of are used to thinking - instead of limiting the amount that can be contributed, you DEFINE the benefit you want to withdraw on the back end, then calculate the amounts necessary to contribute annually to reach that goal.

These plans are VERY strictly controlled and are subject to lots and lots of testing. In almost 30-years in this business I've seen less than a handful of them. Most of the advisors who hawk these things do NOT understand the rules sufficiently. What the DO understand is that there are BIG fees to the investment advisor - consider that a 412(i) Defined Benefit Plan lets you put in a MAX of around $165,000 per year per participant away annually. With a 5% commission to the advisor that works out to about $8K a year in fees to the advisor. The costs to the client are much higher because of the compliance requirements.

The biggest hoop that is missed most often is the Top Heavy prohibition. Employees with wages in the TOP 5% and/or the TOP 5 highly compensated employees are limited to what they can contribute. If this is why the plan was disallowed you may not be able to get it reinstated.

Being an S Corp should, by itself, should NOT have disallowed the plan. Though over the years I've seen some really WRONG stuff done. I've picked up clients who were told they could base the plan contributions on their W-2 income PLUS their distributions (essentially treated as GPs in a 1065), I've even seen returns where there were retirement plan contributions when there was NO WAGES reported - the extent of the attempts used to amaze me, now. . . I'm just amused (and well paid to fix such junk).

But I digress - IF your client has written documentation to support that he sought and used professional assistance to set up the plan, then you stand a very good chance of getting the penalties abated. Remember, interest is calculated on Tax + Penalties, so getting the penalties abated will also reduce the interest.

If the written advice paid for shows that he exercised reasonable care, JUMP up on your soap box and POINT your finger at whomever gave him the advice. IMNHO, one of obligations, to the public and the industry, is to do what we can to put a STOP to abuse propagated by charlatans.

And if the agent won't abate the penalties, push the issue ALL THE WAY TO TAX COURT IF NECESSARY. On several occasions, after disagreeing with everyone at the admin level at the IRS, I've filed a tax court petition, gotten the case kicked back to appeals and had the penalties removed there. If the penalties are big enough and your case is strong enough, it could be worth the extra cost to the client (especially if you base THAT part of your representation fee on contingent basis AND you're willing to take the risk of not getting paid if you lose).

You should also read IRC 7430 and the related support. This section allows for the taxpayer to RECOVER representation costs from the IRS if certain conditions are met. If you win, didn't delay the case, took advantage of ALL administrative appeal options, notified the IRS of your intention and the IRS was substantially unjustified in their position, you can recover costs.