The IRS is imposing a penalty on us that seems to be unfair and against their own rules. The penalty is IRC Section 6662(a) and states that a 20% penalty is to be applied on the increased tax.
The issue stems from an inherited retirement account which was not reported as we thought it had already been reported and paid by the estate. Taxes were already paid on it at the time of the distribution, but it turns out it was not enough. Uncle Sam wanted more.
On the worksheet they provided in the audit it has two lines towards the bottom:
1. Amount of Tax Increase: $6000
2. Payment Increase: $3000
Since some of the taxes were already paid during the tax year (and also unclaimed on the return) the true actual new tax due was $3000 and not $6000. The IRS claims the penalty should still be imposed because the tax increase (not accounting for unreported payments previously made during the tax year) is what applies and since it exceeds $5000 the penalty is due, whereas we see it that the true tax increase is $3000 and that's what should be used to calculate the penalty. We already disputed this once; however, the IRS said "no way". It seems they are bullying us because clearly we cannot afford an attorney and they and we know the penalty is probably less than an attorney would cost, but it seems to me they are wrong and since the IRC section does not specifically define which value to use they are using the one that is to their advantage.
Anyone have any advice on how to fight this? Case law we can cite or otherwise in our 2nd reply?
Thank you to anyone who can help.
The issue stems from an inherited retirement account which was not reported as we thought it had already been reported and paid by the estate. Taxes were already paid on it at the time of the distribution, but it turns out it was not enough. Uncle Sam wanted more.
On the worksheet they provided in the audit it has two lines towards the bottom:
1. Amount of Tax Increase: $6000
2. Payment Increase: $3000
Since some of the taxes were already paid during the tax year (and also unclaimed on the return) the true actual new tax due was $3000 and not $6000. The IRS claims the penalty should still be imposed because the tax increase (not accounting for unreported payments previously made during the tax year) is what applies and since it exceeds $5000 the penalty is due, whereas we see it that the true tax increase is $3000 and that's what should be used to calculate the penalty. We already disputed this once; however, the IRS said "no way". It seems they are bullying us because clearly we cannot afford an attorney and they and we know the penalty is probably less than an attorney would cost, but it seems to me they are wrong and since the IRC section does not specifically define which value to use they are using the one that is to their advantage.
Anyone have any advice on how to fight this? Case law we can cite or otherwise in our 2nd reply?
Thank you to anyone who can help.
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