I have a partnership return (5 partners) and it was filed late.
As a result, the IRS charged a $90 per person penalty.
What kind of reason I can use when I reply to the IRS notice in hopes of getting rid of the penalty?
The late filing penalty can be "removed" for "reasonable cause", however, the Internal Revenue Code, Treasury Regulations, and other related "guidance" does not indicate, or define, "reasonable cause".
Revenue Procedure 84-35 provides for abatement of the penalty for partnerships having ten or fewer partners if the conditions in Section 3 are met, as follows:
".01 A domestic partnership composed of 10 or fewer partners and coming within the exceptions outlined in section 6231(a)(1)(B) of the Code will be considered to have met the reasonable cause test and will not be subject to the penalty imposed by section 6698 for the failure to file a complete or timely partnership return, provided that the partnership, or any of the partners, establishes, if so requested by the Internal Revenue Service, that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.
.02 Partnerships having a trust or corporation as a partner, tier partnerships, and partnerships where each partner's interest in the capital and profits are not owned in the same proportion, or where all items of income, deductions, and credits are not allocated in proportion to the prorata interests, do not come within the exception provisions of section 6231(a)(1)(B) of the Code and, are subject to the penalty imposed by section 6698.
.03 Although a partnership of 10 or fewer partners may not be automatically excepted from the penalty imposed by section 6698 of the Code under section 3.01, the partnership may show other reasonable cause for failure to file a complete or timely partnership return.
.04 In determining whether a partner has fully reported the partner's share of the income, deductions, and credits of the partnership, for purposes of section 3.01, all the relevant facts and circumstances will be taken into account. In making this determination, the nature and materiality of any error or omission will be considered. For example, although an isolated clerical error normally reflects no more than mere inadvertence, such an error may be of such magnitude that the partner will not be considered to have fully reported. If the error or omission results in a de minimis understatement of the net amount payable with respect to any income tax, the penalty will not be asserted. However, if the error or omission results in a material understatement of the net amount payable with respect to any income tax, the partner generally will not be considered to have fully reported and the penalty will be applied."
answered 16 Nov '09, 07:09
I have always been successful at abating penalties IF the individual partner's returns were timely filed and paid. Cheryl Noland EA
answered 18 Nov '09, 13:31
You've got the law nailed! And this will help anyone who has to fight to get the penalties removed.
For the simple answer?
Just write IRS a letter explaining why the returns were filed late. Generally, unless you are flip, frivolous or rude, IRS will waive late filing penalties the first time they happen.
I've never seen it fail.
Eva Rosenberg, EA Your TaxMama®
answered 16 Nov '09, 14:23