In the last two days we have received from clients several IRS notices with a common theme. They all are assessing an S Corporation late filing penalty.
The records we maintain for our extensions show we calculated and submitted on paper our S Corp extensions.
The letters have just started arriving, but show dates ranging from April to June. The letters’ dates seem to reflect a relationship to when the returns were efiled. Of course, the penalties escalate as the letter dates move from a client’s April dated letter to another client’s June dated letter.
Any recommendations for what we should include in our reply to the penalty assessment? For example, has there been any information about an IRS mail backlog due to COVID-19 staffing reductions? Has issuing the penalty letters gotten ahead of the paper extension processing?
The IRS temporarily limited or suspended certain functions such as processing paper returns and responding to correspondence. The IRS website has a section discussing the impact of COVID-19. You can search for “IRS Operations During COVID-19”. My suggestion is to draft a letter, with a copy of the original extension (marked copy) and proof of mailing the extension, to request an abatement of any penalties due to the IRS’ limited functions. The penalty letters are automatically generated so they most likely went out prior to processing the extensions.