I get a critical diagnostic when trying to e-file AZ state returns in the individual module when there are late payment or late filing penalties.  The diagnostic (Ref. 45867) states that AZ does not allow e-file when preparer-calculated penalties and interest are included.  Therefore, the return either has to be paper filed, or the penalty and interest calculations must be suppressed in order to e-file.

It appears--from what I've read--that this is not actually an issue with AZ not allowing e-filing for returns with penalties, but some issue with Lacerte.  Has anyone received any explanation for this?

I only file a few AZ returns each year, so this is not a huge problem for me, but I can't imagine what a pain this would be for AZ-based preparers.  Paper filing is not preferred by me or most clients, so I just have to tell the affected clients that the AZ DOR will just mail them penalty notices.  I shouldn't have to do that, though.