Received a Late Filing penalty for my Sub-S corp -- how do I appeal?

[rvhatcher]

I dissolved my Sub-S corporation on June 30, 2022.  Stupidly, I assumed my corporate tax return was due by March 15, 2023.  That was wrong.  According to the 1120-S instructions "A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved."

So, I was due to file on September 15 and for a one-man S-corp whose net income was $20,000, the IRS is penalizing me $2,520.  Seems outrageous to fine someone 12% of their income for filing late, especially since no money was owed and if I has just filed for dissoulution on December 31, I would have been fine.

My letter to the IRS includes these paragraphs.  Any thoughts, comments or advice would be appreciated.

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I knew early in 2022 that I’d be closing this business and did not expect any income or expenses in the second half of the year, so I filed for dissolution with the state of New Hampshire on June 30, 2022.  I now realize I should have filed those articles on December 31, 2022.

Given that all prior corporate tax returns were due by March 15 the following year, I mistakenly assumed that was the case.  Intuitively, it didn’t make sense to file a 2022 return with 2021 forms.  In addition, the instructions for Form 1120-S say, “A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.”  Note the word “generally”.  The instructions do not say “must”.

Lastly, a penalty of $2,520 for a corporation whose net income was just over $20,000 seems excessive and onerous.  Given that I didn’t owe any money to the IRS and my only mistake was to file on a date that seemed logical, I respectfully request you waive this fee.

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Two more questions:

1. Is a letter better than a phone call?  The letter includes a phone number and says to call.
2. The letter is written to me as President of the corporation.  Given the corporation no longer exists, has no assets and no bank account, am I required to pay this personally?

Thanks,

Bob in New Hampshire

[AliciaP1 · Accepted solution]

In my experience, a call is better than a letter when you are trying to negotiate a fee from the IRS.  It may be a long wait on the phone, but the IRS seems to be a little more willing to adjust if their officers have a conversation with you about your reasoning.

An S-Corp is a pass-through entity, meaning, all income and losses are passed through to the ownership.  Since you were the 100% owner of the business, you will be personally responsible for paying the fee whatever it turns out to be.

[rvhatcher]

You are right!  I called, wait time only five minutes and spoke with a representative.  She listened to my arguments and then "went to speak to her supervisor" and came back to say they were waiving the fee as a "one-time thing".  All in all, a 15-minute investment.

[bryce45]

Im having a similar issue.

TurboTax had me fill in the date the LLC ended and made this a partial year return.

It did not say anything about a penalty, nor does the IRS ending a business site or the instructions on the 1065

Now I get a $3700 IRS and $1200 state fine for a company that is gone and gross income was $4200.

Should I file an amended return with 12/31/22 as end date - we filed no ending business forms earlier and license was still good, or ask the IRS and state to waive the fees?

I am really upset TT business didnt show any fines or have any warnings when it had all the info!

[ErnieS0]

You can call the IRS and ask for first time penalty abate.

See Penalty Relief due to First Time Abate or Other Administrative Waiver

Check your state tax website for penalty relief procedures. You can find links to all the state tax websites at How do I track my state refund?

@bryce45 

[bryce45]

Thanks, IRS said no and wouldn't even cut it down so 4 times the annual business income.   

Will try and file appeal as unreasonable fine.   Still Working on Virginia

I am also Filing a complaint with TurboTax which should have caught and avoided all this.

bad logic that had us fill in the business end date but then didnt check or even look at late filing form and penalty calculations.  It actually said nothing due.. SURPRISE!

[rvhatcher]

When did you file with the state to shut your business down?  That's probably the most important date.  I'm surprised they didn't waive the fee.  When I called the rep said "wait a minute" and came back and asked if I've I've ever requested something like this and when I said no, she said, okay, we'll waive it but understand it's a one-time thing.

Instructions for partnerships are the same as for s-corp which was my situation.

Generally, a domestic partnership must file Form 1065 by the 15th day of the 3rd month following the date its tax year ended as shown at the top of Form 1065. For calendar year partnerships, the due date is March 15.

Late Filing of Return

A penalty is assessed against the partnership if it is required to file a partnership return and it (a) fails to file the return by the due date, including extensions; or (b) files a return that fails to show all the information required, unless such failure is due to reasonable cause. The penalty is $220 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year for which the return is due. If the partnership receives a notice about a penalty after it files the return, the partnership may send the IRS an explanation and the IRS will determine if the explanation meets reasonable-cause criteria. Do not attach an explanation when filing the return.