Still miss you buddy

Don't screw around with taxes. When the issue with my daughter became critical in late March of 2011, I had taxes in the pipe and almost ready to hand in. The issues of her care quickly ballooned into a horrific crisis, so we filed and extension. Same in 2012 when she was transferred to another hospital. Same in 2013 when DSS took over and brought her back in state. Note that we filed extensions each year. I thought I was covered. WRONG!

Income Tax extensions are only good for 6 months from the date of filing.

The end of 2013, I got the business and personal taxes done in one feld swoop.... 3 years of accounting in a little less than 5 weeks. Everything was filed by the middle of January of this year, and we got the return receipts about a week after mailing. In the course of the last 7 days, I got a letter from the IRS for each of the filing years, stating: "We charged a penalty on Your S Corporation Tax Return", and citing Internal Revenue Code Section 6699 (a) (1). The penalty is $195 per share holder per month for up to 12 months. Note that this is regardless of the profitability of the business, whether you filed monthly or quarterly estimated income returns or whether at the end of the year the stockholder or the company was showing any taxable income. A stunning penalty of $4680 per year for 3 years for a grand total of..... $14,040. Graciously, the IRS allows you 4 weeks to get the money to them!

The accountant tells me that you can send the IRS a letter requesting an abatement of the penalties. He says their firm has had a good record of success, especially when the stockholders are on the same joint return and there was no taxable income for any of the years. Supposedly, the IRS isn't trying to bankrupt good, law abiding citizens. The penalty is generally used to "encourage" small corporations to file on time, and is part of the "Pile On" that happens when you late file and owed income tax but didn't pay in estimated income through the year. So I guess it could be worse?

Safe to say that most people don't have that kind of money hanging around. We don't especially given the circumstances of my medical condition and the issues associated with our daughter. I was already prepared to sell off some "stuff" to cover the support and accounting bills of around $13k. I don't know how to get though this one though if the abatement process doesn't work for us. I should have known better, at least known to look into the extension part of it. I inherited some money in the mid 80's and in my depression and loss decided to not put it on the 1040. Two years later they told me to pay not only the tax but interest and penalty that ended up being 2/3 of what I inherited.

Lesson learned? Don't mess around when it comes to filing income taxes.