Penalty Abatement

[lbones]

My client received CP2000 stating that there was some dividends and securities that were not reported on the 2022 taxes filed.  Once reviewed, the IRS was correct but the proposed tax increase did not reflect the basis of the securities.  Therefore, I believe that the interest and the understatement penalty should be reduced from what they assessed.

The client sent in payment for the taxes due, along with an amendment and backup documentation.

My question is should the assessed interest and penalties shown on the CP2000 have been remitted as well or hold off and ask for abatement of the penalties and figure what the interest should be and send in that payment. 

[sjrcpa]

Tis easier to ask for forgiveness/abatement than a refund.

[lbones]

Agreed but I did not believe they would forgive the interest and I also thought that that the interest and penalties would continue to accumulate while the the IRS is making the determination on the amendment.  Am I wrong?

[BobKamman · Accepted solution]

"Therefore, I believe that the interest and the understatement penalty should be reduced from what they assessed."

They did not assess anything with a CP-2000.  They proposed an assessment, to which you should have responded "not quite."  If they proposed $5,000 and $1,200 penalty and interest, it would have included the 20% "substantial understatement" Section 6662 penalty that doesn't apply if the assessment is less than $5,000.  If you agreed that the actual tax owed was $1,000, then you should have sent that amount, plus interest on that amount.  Section 6662 would not have applied.  Or you could have waited for a revised CP-2000, and paid a little more interest that would have accrued while they shuffled the paperwork.