NYS Estimated Tax Penalty

Client has been hit with an ES penalty in NYS for 2014. We tried for reasonable cause, which was rejected, but we were invited to annualize, which we will do. However, they want full books & records and bank statements, on the grounds that most of his income was from an S Corp. Is this normal? I've done a few annualizations for federal involving flow-through income and never been asked for that.

Any takers?

How much is the penalty?

After annualization it will be about $3,500. If he’d done the same sort of business in Q4 as in Q1 he wouldn’t even have had a penalty, but income shot up in Q4.

Sorry for my delay. Had a busy week. All I can say is nys will take any chance it can to look at records. You have to prove a ton with them that you would not with the irs. They have been ramping up on this type of thing over the last few years. To the point where itemized deductions that are significant need to be proven before a refund is even released. If you don’t comply, then they back you down to standard deduction. Up to your client if he wants to expose his business by providing them what they are asking for. I mean this is a 2014 return.....doesn’t sound like he runs a tight ship.

Wish I could be of help, but i think he may be stuck.

Just curious, what reasonable cause did you provide?

Well, he moved his business from NC to NY in 2014 for personal reasons. He is in the habit of overpaying on his withholding to avoid having to make estimated payments. It would have worked, but, in the fourth quarter of 2014, he got a chance to make a lot of money and took it. Because it was his first year in NY, he had no prior year liability to fall back on. Now, ordinarily, I would accept that, but it was the spike at the end of the year that caused all his problems. We decided it was worth a letter.

TYVM for your responses.