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This question is a follow-up to What happens if IRS does not receive 1120-S for an S-Corp?

In June 2019, IRS sends Mr. X a letter with a fine of $7,200 for the missing 3 forms (each form cost maximum $2,400 = maximum 12 months * $200 late fee/month) and interest charges to be accrued.

Mr. X calls the IRS and complains that the business just paid off >$50k and is now slapped with ~$10k in fees and fines! The representative waives the fees for two of the three missing forms due to First Time Penalty Abatement but says the third needs written explanation.

Mr. X sends in the explanation letter, which is rejected, and Mr. X appeals, and in 2021 the IRS appeals office reaches out to Mr. X that there may be a call to help with remediation in an informal manner. Mr. X has the call coming up shortly and has never gone through this process and plans to tell them that it's not fair for the IRS to punish Mr. X has it was Mr. X who caught the issue in an informal self-audit and followed up to remedy the issue even though it did not fit the 30-day window and has never made that mistake again.

What options are available in case the Appeals officer denies the appeal?

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    I don't see why it would have been disrespectful to contact Mr. A regarding the previous business arrangement. Was there a personal falling out with Mr. A? Mr. X was notified that the missing forms needed to be filed in the next 30 days, and Mr. X failed to do so. What explanation did Mr. X have for failing to file the forms, aside from a personal desire not to interact with Mr. A? Catching the problem doesn't mean anything if no significant effort has been made to rectify the problem.
    – chepner
    Jun 17, 2021 at 12:43
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    "Mr. X... didn't think much of the suggestion by the representative." I mean, how did Mr. X think that was going to work out?
    – ceejayoz
    Jun 17, 2021 at 14:06
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    Given your (1) defensiveness, and (2) dismissive attitude towards the long and inexorable arm of the IRS, I bet that Mr. A tells a much different story about why you two don't work together anymore.
    – RonJohn
    Jun 17, 2021 at 14:38
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    I would very much advise Mr. X to stop complaining about his perceived unfair treatment when the prescribed penalties are a matter of public record, he has already had 2/3 of the penalty waived, and he has appeared to do little more than stick his head in the sand regarding his failure to know and live up to his responsibilities regarding his S-Corp. Tell him to go to the meeting, listen to the IRS's proposal, and stop looking for loopholes to get himself out of a situation of his own making.
    – chepner
    Jun 17, 2021 at 15:29
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    Option: Next time, when you call in for advice, follow the advice you receive. You've now received an expensive lesson in what happens when you don't. In your earlier question, you seem to think your old accountant should work for free ("he will not answer any questions during the tax season if he is not doing the taxes") - I'd suggest a substantial part of the problem here is your attitude towards the folks who are trying to assist you.
    – ceejayoz
    Jun 17, 2021 at 16:31

2 Answers 2

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Disclaimer: I am not a lawyer. I am not an accountant. I am not even a U.S. citizen. This is not advice.


Aside from doing nothing and having the IRS pursue further enforcement actions against you and your business, the options available to you should the IRS deny all your appeals appear to be simply:

  • settle up by paying the fines or penalties as demanded by the IRS, or by making an acceptable payment arrangement to do so,

    and / or

  • start a case vs. the IRS in the United States Tax Court to convince a judge that your appeal has merit.

The mission of the United States Tax Court is to provide a national forum for the expeditious resolution of disputes between taxpayers and the Internal Revenue Service; for careful consideration of the merits of each case; and to ensure a uniform interpretation of the Internal Revenue Code. The Court is committed to providing taxpayers, most of whom are self-represented, with a reasonable opportunity to appear before the Court, with as little inconvenience and expense as is practicable. The Court is also committed to providing an accessible judicial forum with simplified procedures for disputes involving $50,000 or less.

You may wish to seek professional advice.

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The right way to handle this situation is, "You can't charge me penalties because I acted on the advice of my CPA". That is Mr. X's "get out of jail free" card.

However, it sounds to me like Mr. X's corporate accounting is being done "on a wing and a prayer" and with far too little interactions with the tax professionals Mr. X does use, if they are even licensed. As you can see, that's an expensive blunder; far cheaper to have a competent accountant and nurture a good relationship there.

Many small business owners do this to themselves

The pride and grit that makes them successful at small business makes them a disaster at taxes.

The very fact that Mr. X is trying to field these IRS inquiries ONESELF shows Mr. X does not have a functional relationship with the accountant.

That's always been the case though; Mr. X had the same problem with the last accountant. But this is a very common problem with small business owners: and the cure is to have a very clearly defined relationship with ones accountant, that is in writing, and says exactly what services they will provide, what they won't provide, what their responsibilities are, and what ONES OWN responsibilities are. This must be agreeable to both of you, and IT MUST BE IN WRITING so you can refer back to it when there is a disagreement. Which there will be with Mr. X, count on that!

And if Mr. X has any sense at all, part of the accountant's responsibility will be filing Mr. X's tax forms and dealing with the IRS.

Remember the scene in Breaking Bad?

Where the boss is about to go to prison for tax fraud, until the accountant Skylar comes in dressed like a bimbo, fondles the boss like they're having an affair, and pretends to be arrogant and incompetent. "But it came up green in the Quicken". And the IRS eyerolls and says "we see how this happened, forget prison, just pay your back taxes."

It goes something like that.

*"Hello IRS, I'm a licensed accountant (CPA). On behalf of my client, I am cleaning up a mess made by the last accountant".

IRS hears it all the time and will give that exact same eye-roll. They don't punish you for getting a better accountant or for wising up and letting the CPA handle it.

Once Mr. X makes a commitment that the accountant will handle present and past 1120s and IRS relations, Mr. X just gives them everything they ask for, and then sits back and waits for the phone call. The new accountant is able to get Mr. X's past 1120s, either from the IRS directly or from Mr. X's past accountant (unlike Mr. X, they have an impartial and professional peer relationship.)

Trying to go it alone in tax court will be a disaster.

I've won easily in tax court. They care about precisely two things: facts and law.

All the tax court cares about is whether the auditor made a mistake when analyzing the facts and interpreting tax law.

What Mr. X has is an emotional/fairness argument, and that will take Mr. X precisely nowhere.

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