IRS question...failure to file/pay

any tax pro's around?

i filed an extension in April and accidentally underpaid my federal taxes. i started a business in 2010 and the tax side of things has been challenging. 2011 books weren't ready by 4/15 so i took a mostly educated guess at making a payment. came up almost $4k shy on what i was going to owe.

accountant had everything caught up by 11/15 so i sent in the money i owed. a few weeks later i get the IRS notice of failure to file, failure to pay, and interest. it's about 25% of what i failed to pay by 4/15. this was my first extension so it's all new to me. i tried reading online but tax codes are like valium. i'd ask the CPA but they're like lawyers now and will bill for any time spent doing anything.

is the failure to file and failure to pay a standard 1-2 punch? the failure to pay penalty and interest are manageable. the failure to file part is the biggest chunk, about 80% of the total i now need to pay. is there any point in contesting?

thanks for any insight.

Re: IRS question...failure to file/pay

Yes,

You need to pay a lawyer or a lawyer/cpa that knows the laws and how to negotiate with the IRS, you do not want to do this on your own.

Bite the bullet and hire someone that very well versed in Tax law, cause the IRS will and will make a strong effort to bully you into paying more than you owe..

Get professional help NOW!

Re: IRS question...failure to file/pay

Non-tax pro. But as a sole proprieter, I use one.

As long as they have your money, (best guess) you can delay completing and submitting the return by filing for an automatic extension. 1/3 of a page long. What do you owe/send it in type of thing. But the automatic extension deadline is 10/15, not 11/15. That's your failure to file.

If you weren't close with your "guess", then there is interest and a 10% penalty on the amount you were short. So, it has to be a pretty accurate guess.

My guess is that now you have an accurate gauge of the true value of a good CPA. Pay the money, and follow their advice.

If you start an SEP, you can fund it up until the extension deadline, 10/15, to "adjust" your tax owed. And the SEP contribution limit is pretty high. Either pay you, or pay them. But you still gotta hand over a bag of money on 4/15.

(This non-tax-advice is worth every cent you paid for it... and may be different for LLC, Inc., etc.)

Chip

Re: IRS question...failure to file/pay

One thing you can absolutely count on - the IRS will not just go away. They don't forget and they remember if you're trying to hide from them or pull the wool over their eyes. It's up to you about using a tax attorney. I've found that you're likely to pay everything they are asking for unless you can find a legitimate reason not to pay the fines and fees AND be able to successfully argue your case. You may be able to make payments for the amounts that you don't have on hand but you need to ask the IRS for those arrangements. When I was in "tax hell", I ended up working directly with the IRS after throwing away money on tax attorneys.

Re: IRS question...failure to file/pay

If it was me, I would get with an Enrolled Agent before I went to a lawyer. They will be better versed in tax law than many CPAs or lawyers. They specialize in taxes and IRS problems. Briefly:

An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.

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First thing, you should be looking to the CPA to pay the interest and penalties since he has already dropped the ball by letting you get past the late payment due date without filing for another extension. If he knows anything about taxes at all, he knows this requirement.

You didn't say whether you were keeping your own books or if the CPA was keeping them. If you're doing your own books I would definitely use the EA.

{edit) I need to correct myself on one thing. The interest is yours to pay since you underpaid in April and would have owed the interest even if you had met the deadline.