For years I have filed abatement requests under Rev Proc 84-35 for partnership late filing penalties, and for the most part I have had a 100% success rate. It worked so well, I even wrote some blog posts about it; however, in the last month or so I have been receiving some interesting responses from the IRS. In both cases, the IRS had previously abated the same penalty for at least two years or more with no problems at all.
The first notice said that they could not consider our request for penalty waiver under Rev Proc 84-35 because their records indicated that the partnership elected to be subject to the consolidated audit procedures under IRC 6221 through IRC 6233. When I made several inquiries on eServices, they claimed that a TEFRA election (Form 8893) was filed clear back in 2002. I had the client send me copies of the 2002 return and there is no record of such an election. Now the IRS is going back to their file department to find proof of the election. I thought this was a random error until I received a notice for another client...
The second notice stated that the IRS was "unable to verify that they met the qualifications for penalty abatement under Revenue Procedure 84-35" and that the letter "did not establish that the partnership has not elected to be subject to the consolidated audit procedures under IRC 6221 through IRC 6233". Again, we had filed the same standard abatement letter for the two previous years without any problems. I find it odd that they reference the consolidated audit procedures in both responses - is the IRS trying to find ways around Rev-Proc 84-35?
Anyone else receiving similar responses to their abatement requests? Any success stories in dealing with the IRS on this type of issue? Any help would greatly appreciated.
My prior post on the issue: http://pdxcpa.wordpress.com/2009/01/05/partnership-late-filing-penalty-abatement/
asked 03 Feb '12, 21:12
I have also opened mail today for one of my clients with the exact same answers. So I started researching TEFRA. Please rever to Partnerhip-Audit Technique Guide-Chapter 13-TEFRA(Revised 10-2007) at http://www.irs.gov/businesses/partnerships/article/0,,id=134702,00.html.
Most likely the problem is in reference as follows (which is a real bummer):
A partnership containing fewer than 11 partners, commonly referred to as a small partnership, will qualify as a TEFRA partnership if it meets any of the following requisites:
It has as a partner any one of the following:
Partnership. Limited liability Company (LLC) which files a Form 1065 or is treated as a disregarded entity (see Revenue Ruling 2004-88) for federal tax purposes. Trust (any type, including Grantor Trusts and grantor type trusts, even if the Schedule K-1 contains the SSN of the grantor). Nominee. Nonresident alien individual. S corporation.
Lynn Osina CPA
answered 15 Mar '12, 18:55
Hi - I need some desperate advice, (and I will make a separate question for better response), but I see some hope in your post ("For years I have filed abatement requests under Rev Proc 84-35 for partnership late filing penalties, and for the most part I have had a 100% success rate ..."). Here is my situation:
I am a full time employee, with a burning desire of owning a business. In 2006, by reading some books, I got excited and registered an LLC (in NJ) in mine and my wife's name. However due to certain personal circumstances, I could not do anything. I thought since there is no activity, and it is pass through procedure, I do not have to file anything. Recently, I came to know that i should have filed returns even for zero dollars. So, I contacted a CPA, and we have filed for 2010 and 2011 returns. (for the previous ones, I have mailed as they could not be filed electronically). I just received an IRS letter that I have to pay $4,290 as late fee penalty (for $195 per month for each of the partner). I am afraid now that for the ones delayed for 5 years the penalty will be in thousands. I have not claimed any expenses even. Can I request abatement if I explain my situation (basically that I misinterpreted as there was no activity)? Please help what is the best way to handle this especially the responses you are getting now. (my CPA suggested that I write a letter explaining this, but after your post I am worried.) Thanks in advance,
answered 19 Mar '12, 15:26
We all used to have no problem getting such penalties abated. I think the real culprit here is the economy, here's why. I attended the IRS Nationwide Tax Forum at the Gaylord Hotel in National Harbour back in Aug/Sep. An IRS representative, whom I THINK was the Deputy Director of Collections, stood in front of 2,200 attendees, God and everybody and announced that they have come to the conclusion that it is NOT possible to close the Tax Gap with Tax Revenues, most especially in this economy. So instead they are going to focus on PENALTIES to close the gap. Scary, scary stuff!
I've seen a significant reduction in the granting of penalty abatements. I truly believe that it is NOT going to get better. Remember, we have two things working against us and our clients - a reduced income tax base and a commissioner with a significant background in collections.
answered 20 Mar '12, 11:03
Sorry I never followed up on this post. Tax season was really busy this year, and since then I have been working on my new book. Thank you to those of you that called me about this issue - I really appreciated the help!
I was actually able to get the penalties abated. Here is how it happen:
The IRS took forever to go through the "file department" to find a copy of the 2002 return, so I kept calling them and sending them messages via eServices. After much back and forth with several IRS agents, they finally agreed to accept my copy of the tax return that proved no election was filed. However, they also required the client to sign a letter stating that no election had been filed.
We had the client send a signed letter and a complete copy of the 2002 return and the agent abated the penalties. Case closed - finally.
I have not run into this issue since then, but the 9/15 deadline is approaching, so I assume I will have a whole new round of notices to respond to in the coming months. I just wish clients could get their data in on time...
answered 18 Aug '12, 03:35
We are getting these notices as well..
The letters start with: We need additional information for the Rev Proc 84-35. Is the partnership not subject to the consoliated (unified) audit procedures under IRC 6221 through IRC 6233? You need to know all the requirements are for the Rev Proc 84-35 to qualify.
How did you handle?
answered 14 Nov '12, 15:23