Tax Penalties for late filing of 2019 return

[peauff]

I have a client that owes approximately $536 in Federal tax liability, and has not yet filed their return.  With respect to the failure to file and failure to pay penalties, they should qualify for a first time penalty abatement, as they have a clean record.  In addition, I know that there are letter templates out there (AICPA) for claiming COVID-19 as reasonable cause for failure to file timely.  Rather than wait until receipt of the IRS penalty notice, the client would like to attach their reasonable cause for penalty abatement statement to their return for paper filing.  Would this create undue confusion for the IRS, or is it an acceptable action?

[George4Tacks · Accepted solution]

I do not believe attaching anything to the tax return is really read. If it makes everybody feel better, fine. Reality is that you need to wait for the notice (and tell the client they will get one.) "undue confusion for the IRS" - They already got that, so I think you would just add to it. 

They will definitely owe the interest on the money, but I think a good sob story will get them out of the penalties. 

P.S. I would just wait for e-file to open and efile the return. The client could go ahead and make a payment for the return NOW at https://www.irs.gov/payments/direct-pay

[CatDskiCPA]

For late filed 2019 (and possibly 2020) tax returns, you should type "COVID PENALTY WAIVER RELIEF REQUESTED" at the top of the tax return (using Lacerte Screen 3, Code Field 76) where it says "1040 TEXT".      This worked on several of my clients late filed 2019 tax returns.     But in general you need to pay the tax portion, and then apply for Penalty Waiver (which will incentivize the IRS to waive the penalties) with the IRS using Covid 1st so you don't waste the taxpayers first time penalty waiver option.