Attention S Corporation and LLC Procrastinators

There is less than a month until the final extended deadline for 2011 S corporation and LLC tax returns, and it is crucial you file on time to avoid late filing penalties.  If you have not sent in your 2011 data to your CPA or tax preparer, you might want to work on it this weekend instead of enjoying the summer weather (or lack thereof if you are in Portland this morning).

I have written numerous posts about the S corporation late filing penalty that can only be abated if you have no prior late filing history, and the partnership penalty that the IRS has recently been making more difficult to abate.  If you have never read up on this topic or had to deal with this issue, please take a few minutes and click on the links above to read about the penalties, as they can amount to thousands of dollars in unnecessary, non-deductible costs for your business.

Even though there are automatic abatement procedures in place for entities taxed as partnerships, you should not assume that if it has worked for you in prior years that it will work in the future.  Last year, the IRS made changes to their internal procedures with regard to how they dealt with late filed partnership returns, and I had many abatements challenged or denied that had been approved in prior years.  You can read about some specific problems on my TaxQueries.com post, but I believe the IRS will continue making it more and more difficult for partnership filers that continue to file late each year.

Make finishing your 2011 accounting work a priority this weekend!  Not only will your tax preparer appreciate it, but not having potential penalties hanging over you is even better.

 

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About Brian Germer, CPA

CPA with Parsons and Germer CPAs, LLP in Portland, OR

7 thoughts on “Attention S Corporation and LLC Procrastinators

  1. Hi, i have a quick question….I was levied a failure to file penalty and a late tax payment penalty (by 30 days). My s-corp will be filing to close the company this year. Do the penalties follow me personally or does it “go away” when the company closes its doors.

    again these are penalties. All taxes due were paid. Thanks in advance.

    • My experience has been the IRS is not going to let them “go away” easily. While it is technically a penalty that was assessed to the corporation (unlike trust fund penalties that are assessed to the shareholders), they will keep sending notices and you will have to make a lot of calls to try and get it to go away.

      Was this your first failure to file penalty? Do you have a good history of filing timely before the year of the penalty? If so, I would recommended asking for one-time abatement based on a good history of timely filing. They will likely abate the penalty in these circumstances.

      See my posts about the S corporation failure to file penalty, as it has more information on this.

      • That is an interesting one, as it seems like they had a weak case for abatement.

        Although the case is a positive step forward, I am not sure how much help this will be with the IRS, who have dug in their heels on this issue. Even with taxpayers who qualify for one-time abatement based on good history, the IRS is still very hesitant to abate the penalty.

        Most of our S corp clients now understand the importance of filing by Sept 15th, and so fortunately we are seeing less and less of this issue.

      • If you want I will let you know how this goes for my client, who has a $4,680 penalty from 2010 to deal with. Our fact pattern fits squarely within the court case. An out-of-state accounting firm sent the completed, extended, 2010 S Corp returns to client in July 2011, but client failed to mail the return to the IRS.

        The married shareholders filed their extended 2010 Form 1040 timely (same tax preparer), with the K-1 data included and paid the tax liability.

        Unfortunately, the same preparer had neglected to extend the 2009 Form 1120S so the 2009 return was hit with a penalty. This penalty was abated under the IRS’ FTA policy.

        I spent about a half-hour on the phone with the IRS trying to convince the IRS to abate the 2011 penalty based upon the logic of the “small partnership” and basically presenting the logic discussed in the above case. I was put on hold twice while the IRS considered my argument, but was told eventually that I needed to send in a written request for abatement. I had the call with the IRS before finding the above case.

      • Update:

        I was able to get Appeals to abate 60% of the $4,680 IRC §6699, or $2,808. Essentially, I was able to successfully argue “substantial compliance” since the related 1040 was timely filed.

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