Tax Penalty Abatement

[sedelstein]

What is the name of your state (only U.S. law)? California
The IRS charged our small business a $10,000 penalty for late filing of Form 5472. We filed this form along with our 2014 tax return because one of our partners (>25%) is a foreigner, and he was related party in a $2,133 transaction. We submitted the filing 10 days late. Upon receipt of the penalty, we filed an abatement request, arguing that: the 10-day delay was the unintended result of the fact that this was the first time we filed this form; the Form 5472 instructions mention the penalty for failing to file, or filing a substantially incomplete form, but does not mention late filing; this is our company’s first offense, and this is the first abatement request we filed. The IRS denied the abatement request. Along with the usual arguments, the letter stated that we were subject to similar penalties in the past, even though that is absolutely not the case. I am interested in advise from anyone with experience in this matter, and, in particular, advise to strengthen our legal arguments.

 

[Trustholder]

You are "requesting". You are not making an argument at law. Anyone who deals in a situation where the foreign ownership percentage issue is implicated, best know the government is serious. People go to jail over things like this. (Not in your situation with it being 10 days late.)

It is too bad you seemed to have answered on your own. A good attorney might have finessed the request for abatement better. It is possible your tax preparer may have some liability if he did not timely inform you of your requirements under the law.

You don't really have a legal position as abatement is discretionary for the Service. Your real path is to convince.

 

[davew128]

You are "requesting". You are not making an argument at law. Anyone who deals in a situation where the foreign ownership percentage issue is implicated, best know the government is serious. People go to jail over things like this. (Not in your situation with it being 10 days late.)

It is too bad you seemed to have answered on your own. A good attorney might have finessed the request for abatement better. It is possible your tax preparer may have some liability if he did not timely inform you of your requirements under the law.

You don't really have a legal position as abatement is discretionary for the Service. Your real path is to convince.

And now an answer from someone who actually works in the field.

This penalty is now being automatically assessed by corporations that file the form late. Your prior history has no real relevance to abatement of the penalty if you have reasonable cause. Quite honestly if you read the instructions and didn't come to the rather obvious conclusion that a late filing is the same as not filing, you had your head in the sand. The instructions ACTUALLY say "A penalty of $10,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed." So you read it the way you wanted to, not how it was.

Personally you should ask your preparer to make a better argument although first time abatement it seems is not applicable here and I'm betting its because your company has had late filings in the past.

 

[Trustholder]

I'm not sure how the "answer from someone who actually works in the field" really differs from what I wrote. I'm sure there are some technical issues or paths to go down making it more helpful than mine.

Even though not an expert, a moment on the internet gives the IRS decision tree for abatement.

https://www.irs.gov/pub/foia/ig/spder/WI-21-0115-0207_Redacted%5B1%5D.pdf