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Penalty Abatement

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#1
CP Hay  
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Curious to know if you all charge clients for penalty abatement? If you do is it commonplace to bill flat fee or on a percentage of saved amount?
 

#2
CathysTaxes  
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Yes. IME, penalties are owed because clients don't pay attention to my warnings.

Hourly rate.
Cathy
CathysTaxes
 

#3
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845-NY
Also hourly rate.
If i can prepare a POA, get the client to sign it, call the IRS and request first time abatement on a $2000 penalty, and get it waived, and all done in an hour - I have no hesitation in billing for an hour of my time.
 

#4
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Usually a flat fee for a la carte clients - like $350 depending on the situation.

I have "inclusive" clients for which abatement is included. But if they are the "always late type" I raise their prices anyway.

Also, for non-first timers, I usually just have them eat it or offer a referral to an attorney.
 

#5
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Depends on the relationship. Once in a blue moon and for a good client, I might do it for free.

Most clients I will bill for time used.
 

#6
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What about when it is an IRS screw up that is generating the penalty notice? Then it gets harder to bill.

We have a number of fiscal S Corp clients that are being hit with a 10% late payment penalty for paying the Form 8752 after May 15, 2020 but before the July 15 , 2020 extended due date. I have had to call the practitioner priority line a number of time and none of the agents even know what the form is and can not resolve the issue.

So it has been kicked upstairs for a supervisor/expert to deal with which they still have not. The agent on the phone can place a hold on the account for 9 weeks but guess what happens when that ends. Clients start receiving demand notices.

This has been going on for 6 months. One client got hit with a $40,000 + penalty which we know is incorrect but am I going to be able to send them a bill specifically for penalty abatement? No but I will include that time with another bill down the road
 

#7
ATSMAN  
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What about when it is an IRS screw up that is generating the penalty notice? Then it gets harder to bill.


I agree with you in principle. But then we are spending our time and resources to solve the problem that is not our making. We need to get compensated for that too. Do you think lawyers will not bill if they have to talk to someone or write a letter to solve an issue that is not their making :twisted:
 

#8
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You are correct we should get paid but I’d go with the indirect method.

I would never send a separate bill with the only services listed as a penalty abatement if it was an IRS screwup. Instead I would reference the item on the next bill that goes out even if it 9 months down the road.

For clients that are well off I would certainly add a little extra to the bill. For clients that are struggling I might reference it but not add an amount.

Strong believer in value billing so the mindset is always bill as much as possible and always increase fees 3-5% per year.

I try to mention at least 4-10 items on each bill. But I just put one amount at bottom of bill
 

#9
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Berkshire CPA, I was not aware that there was an extended due date for the form 8752. What has to be done in order to be extended?
 

#10
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Seaside

The extended due date was only for the Form 8752 that were due May 15, 2020 . There was no extended due date this year. It was an automatic extension, no action required by taxpayer

It was part of IRS Notice 2020-23 where every return due between 4/1/20 and 7/15/20 was extended until 7/15

Honestly in reading 2020-23 it is not clear but there are dozens of articles by top firms saying the May 15, 2020 deadline for Form 8752 was extended until 7/15. Here is one of them.

https://uhy-us.com/insights/2020/april/ ... f-from-irs

But I have been on the phone with several IRS agents and because it does not specifically say Form 8752 they are not willing to make a change. 100% of them never heard of the form
 

#11
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Oh, that extension. I was under the impression that the filing deadline for the Form 8752 was not extended, as it is not considered an income tax return. Doesn't surprise me that the agents have never heard of the form before.

Good luck getting the penalties abated. Those really can be huge amounts. Just FYI, I was successful in getting one abated once for late filing.
 

#12
Tax_Man  
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Iowa
You can charge for the service of getting a penalty abatement several ways. Hourly fee, fixed fee, or percentage of the abatement. I have chosen to do flat fee billing.

My research shows average fixed fee is $250.00 to $1,500.00. I know it is a wide range. IRS problem resolution is my main business and I would need to know what the penalty is for and how much it is. It could be as simple as calling and, if appropriate, asking for first time abatement or requesting several years due to a reasonable cause.
Enrolled Agent
16 years with IRS (retired in 2019 with 32 years Government service). 15 years business consulting.
If you are not having fun in your career, change your career...
 

#13
novacpa  
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Arlington, Virginia
If I know I can get the Penalty abated or reduced, I ask for 35% of what I save.
If I know the Penalty is correctly assessed and most likely nothing can be done,
I them that and don't charge them.
Why charge an hourly fee - take a payment - only to fail and then ignominiously
have to discuss with them your failure, and by then the penalty is bigger.
 

#14
Beagle  
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Tax_Man wrote:IRS problem resolution is my main business and I would need to know what the penalty is for and how much it is.


Which organization would you suggest for certification / training in tax resolution?
 

#15
novacpa  
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I learned from working with 2-Tax Attorneys
 

#16
TaxCut  
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California
Has anyone had luck with getting penalties abated on a partnership return for 2 years of non-filing.

Got a client who didn't know how important it was to file and now has huge penalties for 2 years. A 1065 and 4 k1's, ouch.

Don't know if I can get it abated but I can try.
 

#17
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It's usually pretty easy. I just write a letter explaining that it was the first time and since then everything has been filed and the K1s have been sent to everyone and all the taxes as a result have been paid (unless untrue - then I leave it out).

Note that there are a few things to know about what not to say/write. Like don't blame bad professional advice form a prior preparer.

The problem is that it takes so long and they get several scary balance due letters in the meantime.

I had a client that didn't want to pay me to write the letter, so they called the business line. It was for a massive penalty and the IRS was just like, OK, we removed it". Took 15 minutes.

I wonder if it would be best to just do a quick POA and call on the clients' behalf instead of writing a letter.

What is the consensus on this? Do you all "write" or "POA/call"?
 

#18
TaxCut  
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Right. I requested one over the phone for a client a couple of weeks ago. I was on hold longer than it took to get it abated.

I'm just wondering if they'll abate two years since the client didn't file for 2018 or 2019.
 

#19
CathysTaxes  
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Since Covid, i don't call. I have faxed responses for clients which were successful. I'm not about to spend my life on the phone. My clients think this is a free service and will complain if I charge for the phone call. There's only so much i can do while waiting on hold that is, tasks that are easily interrupted when I get through.
Cathy
CathysTaxes
 


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