Successful Push for Penalty Relief on Delayed Forms

March 27, 2013

The so-called “fiscal cliff” ended with the January 1 passage of the American Taxpayer Relief Act.  The enactment came after a nail-biting period of uncertainty as to whether rates and certain provisions would be extended, making it difficult for practitioners to advise clients and begin standard preliminary preparations, as rates and numerous provisions could expire. The season became even more compressed when the Internal Revenue Service (IRS) announced that tax season would start January 30 and that several forms, including those for depreciation and education credits, would not be available until February or March.

In a letter to the IRS, the American Institute of CPAs (AICPA) asked the IRS to provide taxpayers with potential reasonable cause relief from failure to file, failure to pay, and estimated tax penalties. On March 20, the IRS granted relief from the .5 percent monthly penalty (up to 25 percent) for taxpayers who file one of the delayed forms and request an extension.  The relief is subject to certain restrictions and taxpayers will still face interest payments on the amount of any underpayment in tax.

The AICPA also raised concerns in the letter about the impact in the delay in releasing certain tax forms on taxpayers and CPAs, particularly in the timely filing of business returns that were due March 15.

“The release of forms at such a late date compresses the time that a tax preparer has for tax return preparation and review,” Jeffrey A. Porter, AICPA Tax Executive Committee Chair, stated. “It will also cause taxpayers to file more extensions for tax returns; however, extensions do not completely solve the problem,” he said, noting that the work needed to discern the amount of the tax payment due was still time consuming and disruptive to firms’ procedures. 

The IRS released the remaining forms a few days later.
The AICPA requested more clarity about the timing of form releases, adding, “In the future, we believe the IRS would benefit from closer consultation with the AICPA and other stakeholders about the government’s plans with respect to the timing of form releases.”