File the 1120 with a properly completed Form 5471 as quickly as you can. Attach a brief statement claiming reasonable cause for the late filing.
The IRS will, in most cases, send a computer generated notice that imposing the $10,000 penalty for late filing of the Form 5471.
Once the notice arrives, determine whether it is a computer generated generic notice or from a field office. If you are notified of the penalty by the field office use the normal procedures to respond and seek to have the penalty removed. If you receive a computer-generated notice there is a different, special place to file your appeal. Check the Internal Revenue Manual (available on-line) for details.
Dont file your appeal in the wrong place, the IRS will refer the appeal to the right office and you will lose 3 to 6 months in turn around time in the process. If you lose the appeals you will have to pay interest on the delayed payment.
Penalty relief may be available for you for any of the following reasons: (find a reason that each applies)
1. First time abatement
If the taxpayer has not previously been required to file a return or has no prior penalties (except the estimated tax penalty, ) for the preceding 3 years on the same return and has filed, or filed a valid extension for, all currently required returns and paid, or arranged to pay, any tax due.
2. Reasonable Cause
The taxpayer exercised ordinary business care and prudence, but nevertheless was unable to comply with a prescribed duty within the prescribed time.
The IRS will consider a history of prior compliance as a positive factor.
Length of time before compliance was achieved is a negative factor, the reason for failure to file may have prevented timely filing, but unless it continued the reason may not justify continued non compliance.
If the circumstances were beyond the taxpayers control, could the taxpayer have planned so that such a foreseeable interruption would not have resulted in failure to comply?
3. Administrative Waiver
4. Hazards of Litigation
Make sure to do the usual things. Have proof of mailing. File the appeal in a timely manner. Send the IRS copies and keep the originals in your files. Make sure that you include authorization as the taxpayers representative, make sure that all required signatures are included.
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