Federal Underpayment Penalty Computation - IRS adjusting - Spidell

Federal Underpayment Penalty Computation – IRS adjusting

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Message Board Federal Underpayment Penalty Computation – IRS adjusting

This topic contains 3 replies, has 2 voices, and was last updated by Robert Johanson 2 months, 1 week ago.

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  • #158368
    Robert Johanson

    Just received an IRS notice from a client regarding a re-computation of their computed underpayment penalty as shown on the return we recently filed on 4/7/19. The detailed IRS computation shown on page 2 of their notice does not appear to make any sense in that the computation is computed on a different outstanding principal amount and also stops and is only computed through the date of 11/8/18. Did the IRS make a further change to their waiver of underpayment penalty beyond the 80% threshold ? Their computation in this case did not include any time period in Q1 of 2019 when the rate changed from 5% to 6%. Checked with my software provider who had not heard anything in this regard.

  • #158578
    Mark Bole

    You imply you filed a Form 2210 with the return (or maybe the form wasn’t required but the underpayment charge was still added into the liability?)  Did you use short method or long method on the form?  Were estimates paid during the year, in addition to withholding?  I don’t think we can help you understand the IRS calculation without a lot more detail.

    You also didn’t say, but does the IRS calc yield a smaller underpayment charge than what you filed?  If so, no point fighting it.  But as you state, no I have not heard of any changes to the 80% waiver.  If the waiver threshold was not met, the existing rules are supposed to be followed.

  • #158672
    Robert Johanson

    Yes, we included the 2210 and worksheet with the full quarter by quarter computation.  Client made only Q3 & Q4 estimated payments totaling $2,000 with no other withholding against a $13,000 liability and so clearly did not meet the 80% rule.  The IRS computation clearly foreshortened the computation, not even taking it through the 4/15/19 filing date which included a rate increase from 5% to 6%.  Agreed, we’ll take their reduced penalty computation in lieu of ours, I was just wondering if there was something else going on on the IRS’s part to mitigate underpayment penalties due to the implementation of the new law.

  • #160371
    Robert Johanson

    Had another client receive a partial underpayment penalty abatement, once again  the penalty was computed only through 11/8/18 and not beyond.  Reason being is that taxpayers who are victims of wildfires and residing in certain counties, qualify for various forms of tax relief one of which says that taxpayers who had an estimated tax payment originally due on or after 11/8/18 and before 4/30/19 will not be subject to penalties for failure to pay such estimates as long as such payments are made by 4/30/19.  This would appear to explain the revised and truncated IRS penalty computation.