Author Topic: Failure to File IRS 940/941 Tax Forms  (Read 386 times)

Laserjet3051

  • Bristles
  • ***
  • Posts: 351
  • Age: 49
  • Location: SoCal
Failure to File IRS 940/941 Tax Forms
« on: September 28, 2017, 09:27:40 AM »
Hi:

My business contracts a payroll company to manage payroll and filing of 940/941 tax forms. Apparantly, the IRS notified me that several of these for FY 2016 were never filed. I contacted my payroll company who apologized for the screwup and "apparently" corrected this by recently filing them.

However, I am now receiving IRS notifications on incurred penalties and interest regarding these failures to file. Since this was clearly an admitted screwup by my payroll company I have politely asked them how to handle these penalties but they seem to coyly be deferring any fiscal responsibility.

Do I have any recourse here or might you suggest language I can use to coax my payroll company to pony up for their mistakes?

Thanks in advance!

CareCPA

  • Bristles
  • ***
  • Posts: 258
  • Location: Northcentral PA
Re: Failure to File IRS 940/941 Tax Forms
« Reply #1 on: September 28, 2017, 07:58:49 PM »
I believe your strongest option is:
"What's the best way for my lawyer to contact you?"
Always happy to help with tax or accounting questions - feel free to private message me.

I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

Yes, in case it confuses you, I did change my forum name.

SeattleCPA

  • Pencil Stache
  • ****
  • Posts: 806
  • Age: 57
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Failure to File IRS 940/941 Tax Forms
« Reply #2 on: October 02, 2017, 08:26:26 AM »
Laserjet, I'm a little less sympathetic here...

You say the penalties are for forgetting to file the returns. But is that really true? Or are the penalties for failing to make the deposits?

If that's case, sure seems like you have some culpability here... seems like, for one thing, you should have noticed you weren't remitting payroll tax deposits.
My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan

Laserjet3051

  • Bristles
  • ***
  • Posts: 351
  • Age: 49
  • Location: SoCal
Re: Failure to File IRS 940/941 Tax Forms
« Reply #3 on: October 02, 2017, 11:59:18 AM »
Laserjet, I'm a little less sympathetic here...

You say the penalties are for forgetting to file the returns. But is that really true? Or are the penalties for failing to make the deposits?

If that's case, sure seems like you have some culpability here... seems like, for one thing, you should have noticed you weren't remitting payroll tax deposits.

From what I can tell, the payroll tax deposits were made in timely fashion over the year by the payroll company I pay to do exactly that. I even received a letter from the IRS stating that the deposits were made but not all of the quarterly/annual 940/941 filings were submitted. The IRS later states that the penalty is for failure to file, not make the deposits. Appreciate your input seattle.

SeattleCPA

  • Pencil Stache
  • ****
  • Posts: 806
  • Age: 57
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Failure to File IRS 940/941 Tax Forms
« Reply #4 on: October 02, 2017, 12:09:29 PM »
I am alert to the late deposit penalties. Those can be gigantic. But aren't the penalties way smaller if you deposited the taxes you owe and then just didn't get the 941s filed?

I tried to look for a primary source authority on this and though this is what IRS pointed me to (see below) all it indicates are penalties for late deposits and penalties for underpayments. But that would sort of seem to indicate you shouldn't owe penalties if you made the correct deposits:

The link: https://www.irs.gov/publications/p15#en_US_2017_publink1000202504

The relevant paragraph:

Penalties. For each whole or part month a return isn't filed when required (disregarding any extensions of the filing deadline), there is a failure-to-file (FTF) penalty of 5% of the unpaid tax due with that return. The maximum penalty is generally 25% of the tax due. Also, for each whole or part month the tax is paid late (disregarding any extensions of the payment deadline), there is a failure-to-pay (FTP) penalty of 0.5% per month of the amount of tax. For individual filers only, the FTP penalty is reduced from 0.5% per month to 0.25% per month if an installment agreement is in effect. You must have filed your return on or before the due date of the return to qualify for the reduced penalty. The maximum amount of the FTP penalty is also 25% of the tax due. If both penalties apply in any month, the FTF penalty is reduced by the amount of the FTP penalty. The penalties won't be charged if you have a reasonable cause for failing to file or pay. If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists.
My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1439
Re: Failure to File IRS 940/941 Tax Forms
« Reply #5 on: October 02, 2017, 12:14:20 PM »

My business contracts a payroll company to manage payroll and filing of 940/941 tax forms. Apparantly, the IRS notified me that several of these for FY 2016 were never filed. I contacted my payroll company who apologized for the screwup and "apparently" corrected this by recently filing them.

Do you have their apology in writing?

Generally, you can get penalties abated due to reasonable cause if the paid preparer admits they screwed it up in a statement you can provide to the IRS. That statement can be to you, via email or something similar, or directly from the preparer to the IRS. Despite the fact that the IRS rarely punishes preparers for making mistakes, most are extremely reticent to admit their errors, even directly to the IRS.

Here's the problem you face with 941s/940s:

If your payroll taxes are paid on time, then there is no penalty for late filing a 941 or 940. The fact that you hired a payroll company to prepare your payroll does not exempt you from your responsibility to pay your payroll taxes timely. You're supposed to notice if those payments didn't happen and immediately correct it.

Because of this, it can be very difficult to get the IRS to remove these types of penalties.

Some of the easier penalties to get removed due to reasonable cause is the failure to make proper tax deposits - either because you were unaware that you were a monthly payor or because you were unaware that you had an electronic payment requirement. In other words, if you made the payments, but didn't make them the correct way. Even then, you're screwed if you have a negative tax history or if you took a long time to fix it after receiving a notice from the IRS.

941/940 penalties are eligible for first time penalty relief - so you can get the earliest penalty removed without needing a cause - assuming a clean three year history prior to that.

You can't generally hold an accountant liable for the tax portion or the interest on the tax portion. But you can make a claim for penalties and the interest on the penalties. You could sue them, or request their E&O insurance info to make a claim.

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1439
Re: Failure to File IRS 940/941 Tax Forms
« Reply #6 on: October 02, 2017, 12:22:26 PM »
Laserjet, I'm a little less sympathetic here...

You say the penalties are for forgetting to file the returns. But is that really true? Or are the penalties for failing to make the deposits?

If that's case, sure seems like you have some culpability here... seems like, for one thing, you should have noticed you weren't remitting payroll tax deposits.

From what I can tell, the payroll tax deposits were made in timely fashion over the year by the payroll company I pay to do exactly that. I even received a letter from the IRS stating that the deposits were made but not all of the quarterly/annual 940/941 filings were submitted. The IRS later states that the penalty is for failure to file, not make the deposits. Appreciate your input seattle.

SeattleCPA is right. There is no failure to file if there's no problem with payments. Failure to file on a 941/940 is a percentage of tax due. If the tax due was 0, then a percentage of 0 is 0.

A call to the IRS can probably help shed some light on exactly what you're paying here and why.

In a situation like yours, I normally get a 2848 and pull the transcripts to see exactly what happened on the tax account - but the IRS can do the same thing over the phone.

SeattleCPA

  • Pencil Stache
  • ****
  • Posts: 806
  • Age: 57
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Failure to File IRS 940/941 Tax Forms
« Reply #7 on: October 02, 2017, 05:12:14 PM »
Laserjet, I'm a little less sympathetic here...

You say the penalties are for forgetting to file the returns. But is that really true? Or are the penalties for failing to make the deposits?

If that's case, sure seems like you have some culpability here... seems like, for one thing, you should have noticed you weren't remitting payroll tax deposits.

From what I can tell, the payroll tax deposits were made in timely fashion over the year by the payroll company I pay to do exactly that. I even received a letter from the IRS stating that the deposits were made but not all of the quarterly/annual 940/941 filings were submitted. The IRS later states that the penalty is for failure to file, not make the deposits. Appreciate your input seattle.

SeattleCPA is right. There is no failure to file if there's no problem with payments. Failure to file on a 941/940 is a percentage of tax due. If the tax due was 0, then a percentage of 0 is 0.

A call to the IRS can probably help shed some light on exactly what you're paying here and why.

In a situation like yours, I normally get a 2848 and pull the transcripts to see exactly what happened on the tax account - but the IRS can do the same thing over the phone.

That's what I thought... although I think there's some per form penalty for W-2s, isn't there?
My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1439
Re: Failure to File IRS 940/941 Tax Forms
« Reply #8 on: October 02, 2017, 07:47:05 PM »

That's what I thought... although I think there's some per form penalty for W-2s, isn't there?

Yes, but it comes through as a Civil Penalty for "Failure to File Information Returns."  The letter notice doesn't associate it with the 941/940.