In Uncategorized on 02/22/2021 at 16:26

Or They’ll Do It Their Way

Friendship Creative Printers Inc., 2021 T. C. Memo. 19, filed 2/22/21, made the requisite 941 filings and paid more than IRS claimed was due for year at issue, but were late on both filing and paying. So the Section 6651(a)(2) late-files and Section 6656 late-pays followed, plus an NITL at no extra charge.

While the payments were made, the Friendships didn’t tell IRS what to apply where, so IRS applied first to the add-ons, and only then to the taxes.

So here’s Judge Nega.

“With respect to the [year at issue] quarters, petitioner failed to expressly challenge its liability for the section 6651(a) additions to tax and the section 6656 penalties. But because petitioner believes that it fully paid its employment tax liabilities for those quarters, its failure to mention the section 6651(a) additions to tax and the section 6656 penalties can be construed as an implied challenge to its underlying liability. See Patrick’s Payroll Servs., Inc. v. Commissioner, T.C. Memo. 2020-47, at *10-*11 (citing Katz v. Commissioner, 115 T.C. 329, 339 (2000)) (reiterating that the term “underlying tax liability” comprises “the tax deficiency, any penalties and additions to tax, and statutory interest”). Consequently, we review the underlying liability as it relates to [year at issue].” 2021 T. C. Memo. 19, at p. 10.

But the Friendships never showed any reason for the late filing and late paying, so the add-ons stay in.

True, the Friendships did late-pay what the late-filed returns showed. But no add-ons.

“A review of the record indicates further that respondent applied petitioner’s partial payments and deposits against not only the assessed employment taxes but also the assessed section 6651(a) additions to tax, section 6656 penalties, and interest, resulting in petitioner’s having an outstanding balance for each of the 2013 quarters. See Rev. Proc. 2002-26, sec. 3.02, 2002-1 C.B. 746, 746 (authorizing the IRS, in the absence of a specific written directive, to apply partial payments of a liability against additional taxes, penalties, and interest that have been assessed against a taxpayer).

“Moreover, while petitioner noted…that certain payments and deposits were to be applied for particular quarters, the record shows respondent applied those payments and deposits for different quarters. See id. (explaining that, where a taxpayer has tendered only partial payment, without providing ‘specific written directions as to the application of [the] payment,’ and has been assessed additional taxes, penalties, and interest, the IRS can apply the payment in the manner that ‘serve[s] its best interest’).” 2021 T. C. Memo. 19, at p. 16.

At the CDP, the Friendships didn’t establish currency with subsequent filings-and-payments due, and sent in unsigned returns for other periods.

Takeaway- If you’re filing and paying anything but immediately current items with nothing past due, tell ’em. Tell ’em specifically. Or it’s open season.



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