E-filing can speed up the tax filing process, and that is really nice…sometimes. When they process your return before they process your extension, that can cause some headaches in the form of IRS Notices. Already we are starting to see late filing notices go out for corporate returns that we filed in the last half of last month after filing an extension for that return before March 15th. What makes it worse is that in lieu of raising taxes, the administration has increased fees for things like late filing.
If you filed a corporate return in March after the deadline, the penalty is now $195 per shareholder per month. A five person company that filed on March 16th without an extension will owe $975 in penalties. If they mailed in an extension on March 14th and e-filed on March 16th, the IRS will send them that notice anyway. Let’s face it, with the current budget deficits they need all the revenue they can get.
If you have a good accountant, they have proof of the extension they filed and can easily handle the notice. Unfortunately, this takes your time, your accountant’s time, and some businesses would rather pay smaller penalties than take the time to fight them. Basically, the IRS is hoping to make out like a bandit with an itchy trigger finger on the Send Notice button.
In addition to firing off pre-mature late filing notices for returns they process before processing the extension, the IRS is also fishing for additional payroll tax revenue. If you started a company an subsequently started paying payroll taxes in a future quarter, you might get a notice from the IRS asking why they never got the previous quarter’s payroll tax returns. We have had to respond to several of these recently going back even as far as 2008. It is a time consumer, and an added bureaucratic step, but the IRS is hoping that this fishing expedition will yield some additional revenues from taxpayers who might go back through their records and find that they missed a return. Since we are careful to tie out payroll costs at the end of the year, so far this has been a waste of time for the IRS as far as our clients are concerned.
Don’t get frustrated. Keep sending us the notices and we will keep the IRS straight. Eventually they will measure the cost of paper and postage against the effectiveness of their Notice-happy revenue raising ideas. Just another sign that the kinder, friendlier IRS of the late 90’s is gone for good!