Refund of Underpayment Penalty

[hcliston]

Hi --

Two of my clients have recently told me that the IRS sent them refund checks in the exact amount of their underpayment penalty for 2019. In both cases, the clients had significantly underpaid their taxes throughout the year, so I was not surprised that ProSeries calculated penalties for them. 

This was for the 2019 tax year, and we filed on time, in early 2020. In both cases, the clients had paid in around 65% of what they owed for 2019, and the software calculated penalties of a few hundred dollars (around 2.5%).  That all seemed reasonable to me.

So why is the IRS giving it back to them?  Was there a general amnesty for 2019 on underpayment penalties that I don't know about?

Thank you!

Heather

[BobKamman]

Why had they paid in only 65% of their 2019 tax?  Maybe they were estimating it based on 2018?  Maybe they qualified for the exception to the penalty, based on 2018 tax.  

[Just-Lisa-Now-]

The penalty calculated up to April 15th but they paid sooner?

[TaxGuyBill]

I seem to recall the 2018 had some changes/waivers to the penalty.  Maybe the IRS forgot to change the programming back to the penalties???

[hcliston]

Thank you, Bob. That's a good start. In both cases, the amounts the clients paid in during 2019 was more than their total tax liability for 2018.  So they qualify for that exception to the penalty.

But why did Intuit ProSeries Basic calculate a penalty for them?  In future years, do I have to manually recalculate the penalty?

[BobKamman · Accepted solution]

Did you prepare the 2018 returns?  Did the filing status stay the same?  When you rolled over the 2018 return to 2019, it should have kept the 2018 tax data needed to populate the Form 2210.  At least, that's how it works in ProSeries Pro.  Otherwise, you have to enter the 2018 tax on the 2210.  

And remember, if the penalty is less than $100, check the box to let IRS calculate it.  Because they won't. 

[Just-Lisa-Now-]

Is that a good rule of thumb for penalties? under $100 let IRS figure it and chances are they wont bother?

[hcliston]

Thanks, Bob. That's great information. 

(I did not prepare the 2018 returns for these people. I did enter their 2018 data, to produce the two-year comparison, but I guess that wasn't enough to affect the penalty calculation.)

I love your tip about low penalties too.

You earned yourself a great day today!

Heather

[BobKamman]

@Just-Lisa-Now- 

Well, it's worked for me for the last 30 years or so.  Do you know LEM?  That's the Law Enforcement Manual where IRS hides all the good stuff, including the tolerance for ES penalty assessed by computer.  At least I think it's in there; they won't let us see it.  They might have raised it from $100, but it hasn't been too long since I saw one for $103.  

Sadly, a lot of practitioners are part-time revenue officers, helping IRS collect $43 here and $67 there from clients who would never have to pay the penalty if they did their own return.  

Then there are those who don't know about the first-time free-pass abatement on late filing penalties.  And the "supervisory approval" requirement on the 20% Section 6662 negligence penalty.