Where to report a check refund from IRS for penalty that was previously paid on form 1065?

[Alex700]

Hello,

We have paid a penalty that IRS has imposed on us but then through an appeal received a check back.

Where to report a check refund from IRS for penalty that was previously paid on form 1065?

[KrisD15]

If you did not deduct the payment, you would not need to report it.

If you did deduct it as an expense, report it as "other Income" into a contra account. 

So if it was a "tax penalty payment" expense,  make it a "Tax penalty refund" income account. 

[Alex700]

Thank you for your response. We did not deduct it initially but we did deposit the check. So now our Balance Sheet is off by the amount of the check.

[Rick19744]

A couple of follow-up questions:

• How did you record the initial payment of the penalty?
• Which tax year was the penalty paid?
  • If the payment of the penalty was the same year as the receipt of the refund you just make a reversal entry and everything will wash.
• Are you maintaining separate books and records?
• Something seems off here (pun intended)

[RobertB4444]

You need to create a matching balance sheet expense for 'tax penalties' to offset it.  Because it went out and now it's back.  But it still doesn't have any bearing on your tax return.

@Alex700