California 5805 Underpayment Penalty Incorrect for 2020

[EdCPA99]

Looking to see if anyone else has run into this error.  I have a client with a large income and liability for California.  The taxpayer made limited estimated tax payments and had California state withholdings.  Upon reviewing the CA Form 5805, page 5, part II (Figure the Penalty), lines 10 and 11 column B for the second quarter are blank!  If I remove all California state withholdings and move the proportionate amount to the first, second, and fourth quarters, so that the cumulative amounts paid in are exactly the same for each quarter.  Suddenly lines 10 and 11 column B are now completed and the computed underpayment penalty increases by $1,300.  I have been speaking with Lacrete literally all day and they have been unable to explain what is going on.  I'm concerned that I have stumbled across a glitch in the program.

As a test, I created a new test client and the only input was $3,000,000 in wages and a very small amount of estimated tax payments for first, second, and fourth quarter.  The CA underpayment penalty is approximately $8,000.  If I then add $10 of CA withholdings, the penalty drops to $4,900.  There has to be something wrong here or am I totally missing something simple?

[George4Tacks]

Some rounded figures would help to look at a parallel review. 

[EdCPA99]

On the client file, all prior year information was carried over from the prior year return.  On the test client that I set up, I did not post any prior year information.  Due to the large income and tax liability, the underpayment penalty is required to be calculated based on 90% of the current year CA tax liability, so the prior year information has no effect.

[EdCPA99]

On the test client that I set up, I used very minimal entries.  No prior year information, single, date of birth 01/01/1960, California resident.  Wages of $3,000,000 with zero fed or state withholdings.  Lastly, no federal estimates, for California Q1 is $3,000, Q2 is $4,000, and Q4 is $3,000.  Just for completeness, I also didn't bother indicating that the taxpayer had the required health insurance.  

So, based on the information above, CA total tax liability is $372,937, estimated taxes of $10,000, ISR penalty of $3,468, and a CA underpayment penalty of $7,953 for a CA total balance due of $374,358.  Note that on page 5 of Form 5805, part II, lines 10 and 11 for column B are filled in.  Line 10, column B shows 169 days and line 11 shows $3,099.65.  This looks correct.  I can manually replicate all of the calculated numbers.

Now, here is the issue, if I simply add $10 of CA income tax withholdings, the CA underpayment penalty drops to $4,853!  If you look at page 5 of 5805, part II, lines 10 and 11 for column B are now blank.  There is no way this can be correct?

What worries me, is it is not as simple as Lacerte just didn't calculate the penalty at all, which would be easy to catch.  This is simply, understating the penalty due to a program error, which could have easily been missed.

[George4Tacks]

There is definitely something wrong here. Maybe @IntuitBettyJo can get a programmer to look at it. Adding the $10 withholding increases the 2nd Qtr penalty by $3099.65. 

[EdCPA99]

It has supposedly been forwarded to a programmer, but I haven't received any feedback from Lacerte.

[EdCPA99]

WOW!  So unbelievably disappointed with Lacerte!  The issue that we identified with California Form 5805 not properly calculating the underpayment penalty for 2020 appears to have been corrected by Lacerte.  Unfortunately, the multiple Lacerte tech support representatives that assisted with the case did not post any notes what so ever under the case number.  Now that Lacerte has corrected the issue, it's as if it never existed in the first place.  I would expect that Lacerte would have issued a Critical Alert since this was a program issue and would have potentially affected any California return with an underpayment penalty.  So now there is zero record of the correction and there is no way to search our clients for anyone else that has this same issue other than manually reviewing each and every client one at a time.  This firm has used Lacerte going all the way back to the days of out sourced batch entry and really starting to wonder if it is time to evaluate other tax software providers.

[George4Tacks]

Curiosity question - Do you LOCK the return after it is processed? Did that LOCK not preserve the 5805 as filed?
Do you keep a PDF of the return as filed? Did that PDF not preserve the 5805 as filed?

[sjrcpa]

That's the way they operate. At least they fixed it.