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Video instructions and help with filling out and completing How Form 843 Basics

Instructions and Help about How Form 843 Basics

Thank you for joining today of the penalty abatement basics and techniques course just a little quick bit about me I've been doing this more than 25 years at this point and I get to share with you some of the knowledge I've gained over the years so you're certainly welcome to read this if you like I am an enrolled agent I get to teach and speak quite often and I'm really thrilled that you decided to go ahead and choose this as the course that you would like to sit in with so today what we're going to be covering is this is all overview course a basics course so we're gonna be touching high-level on things to do with penalties we're gonna go through a quick overview to discuss how penalties are calculated we're gonna be going through the Internal Revenue manual part 20 which deals just in penalties and interest give you an introduction on what the RCA is so at the end of this you should know what those abbreviations mean and then we'll talk about remedies such as the first time a bateman program and reasonable cost considerations so we're going to go ahead and dive right into this so quick overview of penalties first if we look back and say you know what's the whole purpose of this why do we have all these these penalties to begin with the reason is it's designed to encourage compliance from taxpayers we have a voluntary tax system but the bottom line is unfortunately it causes liability to increase it's substantial rates if we go back in time and look back in history we had very few penalties that existed you know 14 but now with every new bill and every new tax law that comes out we have hundreds of new provisions so even though the intent is great the bottom line is it really increases the liability at a very substantial rate so if we look at all the different types of penalties that it can exist in practice we may see commonly estimated tax penalties which we'll talk about in a moment how they behave a little differently we have collection related penalties and accuracy related penalties we may have other types of ones that hopefully you don't ever encounter a preparer penalty and there's also civil penalties which an example of that might be a failure to file an information return like a 1099 or w-2 so there are lots of different types of penalties as well if we look at an estimated tax penalty I told you they are a little bit different in how they behave and that's because they resemble and they behave a lot more like interest in fact the rate of estimated tax penalty is the same rate as the current going interest rate so right now we're looking at about a 4% rate now they don't deal in cents or percentages or fractions of it it's just a plain old 4% rate so as an example back in 2022 our short-term federal rate was 1.0 4% and then they add 3% or whatever the federal rate is so the whole year 2022 was trucking along at 4% now in 2022 4% we don't see that changing much over the you know the recent a few years but if the short-term federal rate substantially goes up just be aware of that and know that your estimated tax penalty rate will change accordingly as the next thing we talk about a penalty that behaves a lot more like a penalty is the failure to file penalty so the failure to file penalty is just kind of like it sounds somebody did not file a return by the required due date including an extension so our individuals that are supposed to file by April 15th if they do an extension and they get it in by October there's still a long time they don't get this failure to file penalty if they fail to do an extension and they file by October then they do get a failure to file penalty it's calculated at 5% of the unpaid tax for each month or a partial month so that continues along up to five months and they reach the maximum so they can max that penalty out in just five months time at 25% penalty now you may say well but they don't really know all that much they you know oh just a couple hundred dollars well there is still a minimum penalty of two hundred and five dollars so if they owe to two hundred and five dollars the penalty equals the tax well that sounds unfortunate because it sounds like a hundred percent penalty me penalty to me but they are substituting inflation adjustment so what that means is every single year that little 205 minimum penalty is going to keep changing year by year so there is at minimum penalty of two hundred five dollars or whatever the tax is owing so feo a hundred dollars their penalty is $100 so that we may have that if they don't file on time in addition to that there could be one for companies companies have a little different type of a failure to file penalty so they don't file their corporation form their partnership form any of these forms by the due date or complete information so let's say they file a return but they're missing information will be considered to be not filed on time unfortunately that one is based on a rate per month that's a hundred and ninety five dollars per month per number of partners so let's say you have a partnership with three partners one hundred ninety five dollars a month times the three partners times the whole year that they're late it can be charged for up to twelve months now if you are working with a non filer or.

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