"let IRS figure penalty" questions


S

Steve Pope

Suppose taxpayer had a large amount of W2 income in the
fourth quarter, and made correspndingly larger estimated tax
payments for that quarter.

First question: If TP files 1040 with the option of letting
the IRS compute the penalty, will the IRS take this timing
ot W2 income and estimated payments into account? Or will
figure a larger penalty as if income were equally spread
through the year?

Second question: is it viable to file 1040 with IRS
computing the penalty, and then upon receiving the penalty
notice file form 2210 with Schedule A1 at that point? (The
instructions to form 2210 do not suggest this, but I seem to
recall doing it in the past.)

Thanks,
Steve
 
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P

Phil Marti

Steve Pope said:
Suppose taxpayer had a large amount of W2 income in the
fourth quarter, and made correspndingly larger estimated tax
payments for that quarter.

First question: If TP files 1040 with the option of letting
the IRS compute the penalty, will the IRS take this timing
ot W2 income and estimated payments into account? Or will
figure a larger penalty as if income were equally spread
through the year?

Second question: is it viable to file 1040 with IRS
computing the penalty, and then upon receiving the penalty
notice file form 2210 with Schedule A1 at that point? (The
instructions to form 2210 do not suggest this, but I seem to
recall doing it in the past.)
It sounds like you need to do the annualized income
calculations. I see no point in waiting until the IRS has
assessed the wrong amount. Why create opportunities for
foulups?
 
T

Thomas Healy

Steve Pope said:
Suppose taxpayer had a large amount of W2 income in the
fourth quarter, and made correspndingly larger estimated tax
payments for that quarter.

First question: If TP files 1040 with the option of letting
the IRS compute the penalty, will the IRS take this timing
ot W2 income and estimated payments into account? Or will
figure a larger penalty as if income were equally spread
through the year?

Second question: is it viable to file 1040 with IRS
computing the penalty, and then upon receiving the penalty
notice file form 2210 with Schedule A1 at that point? (The
instructions to form 2210 do not suggest this, but I seem to
recall doing it in the past.)
Withholding is always assumed spread evenly through the
year. This is always in your best interest, not IRS. A good
tax-planning technique is to load up on withholding in
December to help cover an estimated tax shortfall earlier in
the year.

It's always in your best interest to compute the penalty
yourself rather than take the IRS' calculation.
 
H

Harlan Lunsford

Steve said:
Suppose taxpayer had a large amount of W2 income in the
fourth quarter, and made correspndingly larger estimated tax
payments for that quarter.

First question: If TP files 1040 with the option of letting
the IRS compute the penalty, will the IRS take this timing
ot W2 income and estimated payments into account? Or will
figure a larger penalty as if income were equally spread
through the year?
No. IRS has no way to determine any increase in W2 income
during, say, December (like a bonus) Therefore it's up to
you to go ahead and use form 2210 correctly when filling the
return.
Second question: is it viable to file 1040 with IRS
computing the penalty, and then upon receiving the penalty
notice file form 2210 with Schedule A1 at that point? (The
instructions to form 2210 do not suggest this, but I seem to
recall doing it in the past.)
You can do that of course, but see above, and do it right
the first time.

ChEAr$,
Harlan Lunsford, EA n LA
1 Apr 2005
 
S

Steve Pope

Phil Marti said:
It sounds like you need to do the annualized income
calculations. I see no point in waiting until the IRS has
assessed the wrong amount. Why create opportunities for
foulups?
Thanks for the advice.

My faint hope was that since the IRS knows which tax periods
both the W2 income and the witholding / estimated payments
were made in, their computer will spit out some sort of
annualized calculation.

S.
 
T

TaxmanHog

"Steve Pope" wrote ....
Thanks for the advice.

My faint hope was that since the IRS knows which tax periods
both the W2 income and the witholding / estimated payments
were made in, their computer will spit out some sort of
annualized calculation.
This is not the case at the IRS, your earnings payperiod by
payperiod or even quarter by quarter are unknown, all they
get is the annual W-2 data in late summer of the most recent
closed year.

State tax authorities, (Income & Unemployment) receive
quarterly updates of your earned wages, but that specific
data is not shared with the IRS in bulk.
 
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I

Ira Smilovitz

Steve Pope said:
Phil Marti <[email protected]> replies to my post,
Thanks for the advice.

My faint hope was that since the IRS knows which tax periods
both the W2 income and the witholding / estimated payments
were made in, their computer will spit out some sort of
annualized calculation.
The IRS computers know nothing of the sort. The IRS does not
get quarterly breakouts of individual withholdings, just the
composite withholding from the payor. The IRS doesn't even
get your annual W-2 withholding until well after the initial
processing of your return is completed.

Ira Smilovitz
 
B

brew_one

Although not in this case, there are times when you are
better off letting the IRS figure the penalty.

Most computer software automatically figures a penalty with
a late quarterly payment or when any of the criteria for
avoiding a penalty are not met. My experience is that the
IRS has shown leniency on minor encroachments, although I
have not gotten any current year feedback if that still
holds true.
 
H

Harlan Lunsford

Steve said:
Phil Marti <[email protected]> replies to my post,
Thanks for the advice.

My faint hope was that since the IRS knows which tax periods
both the W2 income and the witholding / estimated payments
were made in, their computer will spit out some sort of
annualized calculation.
Ah, but IRS does not know these two facts. All they know is
what they are told by Social Security administration sometime
after February 28th when W2 forms are due at the latter agency.

ChEAr$$,
Harlan Lunsford, EA n LA
2 Apr 2005
13 days and counting
 
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E

ed

No. The IRS does NOT compute the AI. You shoud do so with
your return, not after they assess a penalty.

ed
 

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