This is incredibly helpful! I'm in almost the exact same boat as you were. Quick question about the account transcripts and penalty computation worksheets - did you find errors in how they calculated the penalties themselves, or was it more about timing/dates being wrong? Also, when you say you had to work with both the IRS and collection agency for the penalties already in collections, what was the process like? Did you have to get the collection agency to agree to pause collection efforts while the IRS reviewed your abatement request, or did they continue pursuing collection during the review? Thanks for sharing your success story - it's giving me hope that this nightmare might actually be resolvable!

@StarStrider This gives me so much hope! I'm facing a similar nightmare with $10k across four years. Can you share more details about the documentation you provided for the employee leaving and health issues? I'm trying to figure out what level of proof the IRS actually expects. Also, roughly how long did the whole process take from when you first submitted your abatement requests to getting the final resolution? I'm trying to set realistic expectations for myself since the collections agencies are breathing down my neck. Your 70% success rate is amazing - that would be life-changing for me right now!

This is really valuable information about the IRM 20.1.5.16 memo! I had no idea there were specific internal guidelines for S Corp penalties. That's exactly the kind of insider knowledge that could make the difference in how you frame your abatement request. Your point about installment agreements during the abatement process is really smart too. I'm wondering if setting up a payment plan might actually show good faith to the IRS while you're fighting the penalties? Like it demonstrates you're not just trying to avoid payment entirely, but genuinely working to resolve the situation. The TAS route sounds promising - how long did it take to get assigned an advocate after you submitted your case? I'm dealing with collection pressure too and having someone knowledgeable on my side sounds like it would be a huge relief right now.

1 That's a good point about RMDs. I'm worried about tax implications when I have to start taking those distributions. Would doing Roth conversions earlier help reduce the RMD tax hit later?

Yes, doing Roth conversions earlier can definitely help reduce your future RMD tax burden! When you convert money from a traditional IRA/401k to a Roth, you're essentially reducing the balance that will be subject to RMDs later. Since Roth IRAs don't have RMD requirements during the owner's lifetime, that converted money won't be forced out as taxable income after age 72/73. The key is to do conversions strategically during your early retirement years when you might be in a lower tax bracket. For example, if you retire at 60 and have little other income before Social Security kicks in, you could convert amounts that keep you in the 12% or 22% tax bracket rather than potentially being pushed into higher brackets by large RMDs later. Just make sure to plan for the taxes on conversions - you'll want to have cash available to pay the tax bill without having to withdraw from retirement accounts.

This is really helpful! I hadn't thought about the spousal IRA option. My wife will probably keep working part-time even after I retire, so that could be a good backup plan. One question though - if I do some consulting work to generate earned income, do I need to worry about self-employment taxes on top of regular income taxes? I'm trying to figure out if the tax burden would eat up too much of the benefit of being able to contribute to the Roth.

Yes, you'll need to pay self-employment taxes on consulting income, which adds about 15.3% (Social Security and Medicare taxes) on top of regular income taxes. However, there are ways to minimize this impact: 1. **Keep it small**: If you only need to earn enough for Roth contributions ($7,000-$8,000), the SE tax hit isn't huge and the long-term Roth benefits often outweigh it. 2. **Business deductions**: As a consultant, you can deduct business expenses (home office, equipment, travel) which reduces your net self-employment income. 3. **Compare to alternatives**: Run the numbers against doing Roth conversions instead. Conversions avoid SE taxes but you'll pay regular income tax on the converted amount. The spousal IRA route with your wife's earned income might actually be the cleanest solution tax-wise if she's working part-time anyway. You could contribute to a spousal Roth IRA based on her earnings without dealing with SE taxes at all.

facts 💯

Thanks for the reassurance! Been stressing about this all week. Definitely gonna check out taxr.ai - seems like everyone here is recommending it. $1 is way better than losing sleep over these codes 😅

Thanks, this is super helpful. So even though we never really operated, just the fact that we registered the business means I need to file? Is there any threshold for "minimal expenses" - we spent maybe £200 total on samples before abandoning the project.

Yes, the registration itself created a legal entity that you partially own, which triggers the Form 5471 filing requirement regardless of the minimal activity. The IRS is primarily concerned with disclosure of foreign entities, even dormant ones. There's no specific threshold for "minimal expenses" that exempts you from filing. However, the £200 you spent would simply be reported as expenses on the form. The good news is that with such minimal activity, your form would be quite straightforward - many sections would be zeros or not applicable. This is exactly the type of situation where the simplified reporting under Revenue Procedure 92-70 might be applicable, as others have mentioned.

@Asher Levin Wait, that statute of limitations thing sounds terrifying! So you re'saying if I don t'file the Form 5471 for my UK business, the IRS could potentially audit me years down the road even if I file everything else correctly? That s'exactly the kind of nightmare scenario I was worried about. How did you find out about this - did a tax professional tell you or did you discover it through research? I m'starting to think I really can t'afford NOT to file this form, even if the business never did anything substantial.

@Asher Levin This is exactly what happened to me! I had a dormant business in Canada that I forgot about for 3 years. When I finally consulted a tax attorney, they explained that the statute of limitations on my entire tax return stays open until I file all required international forms. It s'called the incomplete "return doctrine -" basically the IRS considers your return incomplete if you re'missing required schedules or forms. I ended up qualifying for the reasonable "cause exception" since I genuinely didn t'know about Form 5471 requirements. Had to write a detailed letter explaining the circumstances and provide documentation showing the business was truly inactive. The IRS waived the penalties, but it was a stressful 8-month process. Definitely file the form even if it s'mostly zeros - the peace of mind is worth it and it starts your statute of limitations clock ticking.

This is exactly the kind of detail-oriented thinking that prevents bigger problems down the road! I wish more people would double-check their documents like this. When I first started filing taxes, I just assumed everything was correct and didn't catch a mistake on my W-2 until it caused issues with my refund. Now I always review everything carefully like you're doing.