1120-S Late Filing

You say "in 2008"; do you not mean the 2008 return which was filed in

2009? This year? If you're talking about the 2007 return field IN 2008, the $89 penalty is way too small for such a late filing.

But since the extension was not filed by due date, you haven't a prayer for penalty abatement.

ChEAr$, Harlan Lunsford, EA n LA

Are there any circumstances that would have prevented the shareholder from obtaining an extension? Health issues seem to be the most commonly allowed excuse to get some penalties waived. There may be other valid reasons to get the penalty abated, but forgetting isn't one of them. Not communicating with the tax preparer (you) isn't one of them either.

Did the owner file on time (by the extended due date, if extended)? If so, then I usually have some luck writing a letter promising to not do it again, setup procedures to remind me, etc. and point out that the personal return was timely. Often IRS will abate the penalty. With the financial stress in Washington, IRS' attitude may have changed.

Drew Edmundson, CPA Cary, NC

Corporations don't have health issues, and that is the extension that really matters here.

ChEAr$, Harlan Lunsford, EA in LA

Good point there. Today it was announced that IRS reports collections are down 34%! that's a one third DOWN! Good God! Are we in trouble yet?

ChEAr$, Harlan Lunsford, EA

You also have to look at the statute to be sure there is a reasonable cause exception to the penalty. Some state penalties are "strict liability," i.e., if you didn't follow the rules you owe the penalty, regardless of the reasons why. California has fallen in love with this idea recently; the penalty for a tax deficiency over $1 million for a corporation or unitary group of corporations (20% of the deficiency, in addition to any other applicable penalties) has no reasonable cause exception. This was part of the budget trailer bills enacted earlier this year in the first effort to balance the 08/09 budget. Clearly intended to be a revenue raiser. It's retroactive to tax years beginning on or after January 1, 2003. That's not a typo: I mean 2003.

Katie in San Diego

Wow. I wonder what sort of contingency plan for litigation the state has. [Contingency plan? California? Be serious].

It would seem that this provision, should they try to enforce it, would draw an "ex post facto law" challenge. And since it seems that the minimum penalty would be at least $200,000 there would be sufficient incentive and funds available to make such a Constitutional challenge economically viable.

OK, lots of tax laws end up having some retroactive component, but those seem to be limited to the current tax year. Although I must confess I've never really completely understood the rationale that allows the law to apply to actions undertaken before the law was passed. It seems that would be the essence of the intent of the "ex post facto" prohibition. But I'm not a lawyer, so I'm guessing there is some fine point that I just don't see.

Oh, I think you're quite right that the retroactivity of this penalty is subject to challenge. I just don't think the current legislature cares a nickel whether the penalty is constitutional or not. All they cared about was getting the budget to balance on paper (at the time -- since then, as you probably have heard, we're about $26 billion in the hole again). Due to term limits, by the time this gets to be an issue in the courts they'll all be on to their next jobs (and maybe the next one after that and then some) anyway.

Katie in San Diego