Few things are more frightening than opening your mailbox and finding an 1120S Late Filing Penalty Notice from the IRS.
Especially one charging you hundreds of dollars in penalties for late-filing a return. The same 1120S return that you took great care to file on time!
That’s the story faced by thousands of Realtors and other small businesses who operate as S Corporations this year. They filed their Form 1120 S by the March 15 deadline, or filed a Form 7004 Automatic Extension Request. They even have a certified mail receipt to prove it.
But now they have an IRS letter with a substantial late filing S Corp penalty. Assessed at $200 per shareholder, per month. A family-owned corporation can easily rack up $800-$1200 in late filing fees in just to or three months
You… versus IRS Computers
What makes all of this even more frustrating is the realization that these assessment letters are being automatically generated by IRS computers.
You’re left to deal with an understaffed and under-funded government agency. One that has wound-up their high-speed printers and big-time computers to aggressively produce collection letters.
In the meantime, it’s hard to get someone on the phone to resolve the issue.
Who do you talk to? How do you get 1120 S late filing penalty relief?
Your First Option
The first option is to to write a reply letter to the IRS. Use the exact address from which the penalty letter was mailed. In most cases it’s not worth the time to try to make a phone call to IRS.gov to fix the problem. You’re likely to talk to an inbound telemarketing rep. They possess neither the knowledge of IRS rules nor the authority to fix your problem.
Write a letter stating that you filed your extension form or your tax return on time. Enclose a certified mail receipt, or electronic time stamp. Also enclose a copy of the Tax Form or Extension Form as verification.
But don’t just mail the reply letter one time. IRS Computers are busy re-sending these penalty notices every 2 to 4 weeks. You need to mail reply letters with the same frequency. Keep doing so until someone at the IRS finally reads your letter and responds.
Your Second Option
If you finally do get a response–one not in your favor–your next option is to apply for a First Time Penalty Abatement (FTA). The IRS set up the first time penalty abatement waiver more than 10 years ago. But few S Corp taxpayers take advantage of it.
It allows companies with a history of compliance to ask the IRS to reduce or remove a penalty. It’s only available the first time a company makes such an error. But often this FTA appeal amounts to several hundred dollars saved
Respect the IRS. Don’t Fear the IRS.
Sometimes the shock and awe of an IRS letter will cause a taxpayer to quickly write a check and pay the penalty. They just want to get it behind them. Then later they realize they shouldn’t have acted so quickly.
In this case, if you have already paid the penalty, you can still appeal for a first time abatement. Fill out Form 843, Claim for a Refund and Request for Abatement. It must be filed within 36 months of when the return was due or within 24 months of the penalty payment.
If you’d like help dealing with an S Corporation Late Filing Penalty, or any other IRS notice, feel free to contact me. I have represented Real Estate Agents and self employed taxpayers over the years before the IRS. I’ve resolved penalties, reduced tax debts, achieved affordable payment agreements, and more.
As always if you find this information helpful please do me a favor and share it with other Realtors and self-employed taxpayers who could benefit from it, by email, or on Facebook or Twitter. Thank you!