IRS hit me with $20,000 penalties for not filing taxes for our LLC - help needed!
Title: IRS hit me with $20,000 penalties for not filing taxes for our LLC - help needed! 1 I'm in a complete panic right now! Just got slammed with penalties from the IRS - approximately $25,000 for not filing the proper tax forms for our LLC over the past five years. Our accountant had been filing everything under Schedule C the entire time, and we just discovered that was completely wrong for our situation. Apparently, since we're a partnership LLC (my husband and I are the only two members), we should have been filing a completely different form. I feel sick to my stomach about this whole mess. Is there any way to get these penalties waived or reduced? We honestly had no idea we were filing incorrectly - we trusted our accountant to handle everything properly. Any advice would be incredibly helpful because this amount would absolutely wreck us financially.
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Dananyl Lear
15 This is definitely a stressful situation, but there might be some options to help reduce or eliminate these penalties. The IRS does have provisions for "reasonable cause" penalty abatement, especially in cases where you relied on professional advice. Since you hired an accountant who incorrectly filed Schedule C forms instead of Form 1065 (Partnership Return) for your LLC, you have a solid case for requesting penalty abatement. You reasonably relied on a tax professional and didn't knowingly violate any filing requirements. The key is demonstrating that you acted in good faith and that the failure to file correctly wasn't due to willful neglect. You should immediately: 1) Gather all documentation showing your relationship with the accountant and that they were responsible for determining how to file, 2) Draft a penalty abatement letter clearly explaining the circumstances, 3) File Form 843 (Claim for Refund and Request for Abatement), and 4) Consider having the accountant provide a letter acknowledging their error.
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Dananyl Lear
•7 Thanks for the detailed response. Do you think we should get a new accountant to handle this or try to work with our current one to fix the situation? Also, what's the timeline like for the IRS to respond to a penalty abatement request?
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Dananyl Lear
•15 I would definitely recommend finding a new accountant who specializes in tax resolution or has experience with IRS penalty abatement cases. Your current accountant made a fundamental error about entity classification and filing requirements, which raises concerns about their expertise with business tax matters. The IRS typically takes 2-3 months to respond to penalty abatement requests, but it can sometimes take longer depending on their workload and the complexity of your case. While waiting, you might want to consider setting up an installment agreement to avoid additional penalties and interest, though you can always discontinue it if your abatement is approved.
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Dananyl Lear
12 After dealing with a somewhat similar mess last year (though not nearly as expensive), I found this AI tool that really helped me navigate the penalty abatement process. It's called taxr.ai (https://taxr.ai) and it analyzed all my documentation and helped me draft the perfect abatement letter. The system identified exactly which IRS guidelines applied to my situation and helped me organize everything in the most effective way. In your case, since you relied on professional advice that turned out to be incorrect, you have what's called "reasonable cause" which is one of the strongest arguments for penalty abatement. This tool could help you organize your case properly and make sure you're citing the right IRS policies and procedures.
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Dananyl Lear
•18 How exactly does this work? Do you just upload your documents and it tells you what to do? I'm curious because I've been getting notices from the IRS about some retirement account withdrawals and I'm completely lost.
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Dananyl Lear
•3 Sounds interesting but I'm skeptical. Does it actually have attorneys reviewing anything or is it just spitting out generic templates? Because with $25k on the line, I'd be nervous about trusting an AI over a real tax resolution specialist.
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Dananyl Lear
•12 The process is straightforward - you upload your IRS notices and any relevant documentation, and the system analyzes everything to identify the specific IRS codes and procedures that apply to your situation. It then helps you draft customized letters and forms based on successful abatement cases with similar circumstances. It's not just generic templates - it's tailored to your specific situation based on the documentation you provide. While it doesn't have attorneys reviewing each case, it was built by tax attorneys and IRS experts who programmed their expertise into the system. That said, for very complex cases or if you're uncomfortable handling it yourself, you can always take the analysis and documentation it provides to a tax professional to review.
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Dananyl Lear
3 I wanted to follow up on my skeptical comment earlier. I decided to give taxr.ai a try with my own penalty situation (had about $8,000 in failure-to-file penalties) and I'm genuinely impressed. The system actually identified that I qualified for First Time Penalty Abatement since I had a clean compliance history, which my previous accountant never mentioned. The letter it helped me create was incredibly detailed and cited specific IRM (Internal Revenue Manual) sections. I submitted everything about 6 weeks ago and just got notification that the IRS approved my abatement request! Saved me thousands and the whole process was way easier than I expected. Definitely worth checking out if you're dealing with these LLC penalties.
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Dananyl Lear
9 After seeing this post, I have to recommend Claimyr (https://claimyr.com). When I had a similar penalty situation last year, I spent WEEKS trying to reach someone at the IRS to discuss my options. Always got the "due to high call volume" message and disconnects. Claimyr got me connected to an actual IRS agent in about 20 minutes. The IRS agent I spoke with explained that for partnership filing errors, there's a specific first-time abatement process and walked me through exactly what documentation I needed to submit. You can see how their service works in this video: https://youtu.be/_kiP6q8DX5c. Honestly, just being able to speak directly with someone at the IRS who could answer my specific questions made a huge difference.
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Dananyl Lear
•16 How does this actually work? I thought it was impossible to get through to the IRS these days. Is this some kind of priority line or something?
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Dananyl Lear
•22 This sounds like complete BS. No way you're getting through to the IRS in 20 minutes when millions of people can't get through at all. If this were real, everyone would be using it. Sounds like a scam to me.
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Dananyl Lear
•9 It's not a priority line - they use a combination of technology and human agents to navigate the IRS phone system for you. Basically, their system constantly redials and works through the IRS phone tree until it gets through to a representative, then calls you to connect. It saves you from having to sit on hold or repeatedly call back. It's definitely real - I was extremely skeptical too, but when you're facing thousands in penalties, you get desperate enough to try anything. The way it works is pretty straightforward - you provide your phone number, they call you when they get an IRS agent on the line, and then connect you. I think they're able to get through because they have systems constantly dialing instead of individual people making occasional calls.
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Dananyl Lear
22 I need to eat my words from my previous comment. After posting that skeptical reply, I was still desperate to talk to someone at the IRS about my own tax notice, so I tried Claimyr anyway. I seriously cannot believe it actually worked. I got connected to an IRS representative in about 45 minutes (not quite 20 minutes, but still AMAZING compared to my previous attempts). The agent was able to pull up my case immediately and explained that I qualified for something called "reasonable cause abatement" since I had relied on professional advice. She even emailed me the specific forms I needed while we were on the call. Saved me hours of research and probably thousands in penalties. Sometimes being proven wrong feels pretty good!
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Dananyl Lear
19 Former tax preparer here. Make sure that when you're submitting your abatement request, you specifically cite Treasury Regulation 1.6664-4, which covers reasonable cause due to reliance on a tax professional. You need to demonstrate three things: 1) The adviser was a competent professional with sufficient expertise 2) You disclosed all relevant facts to the adviser 3) You actually relied in good faith on the adviser's judgment Also, get a statement from your accountant acknowledging they made the filing determination. This significantly strengthens your case.
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Dananyl Lear
•5 Would the accountant be liable for any of the penalties since they're the ones who made the mistake? I'm dealing with something similar where my accountant completely missed reporting my crypto transactions.
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Dananyl Lear
•19 The accountant generally wouldn't be directly liable to the IRS for the penalties, as the ultimate responsibility for tax compliance falls on the taxpayer. However, you may have a potential claim against the accountant for professional negligence or malpractice. For your crypto situation, that's a bit different. Cryptocurrency reporting requirements have evolved rapidly, and there's been some confusion among tax professionals. Still, if your accountant knew about your crypto transactions and failed to report them properly, you should document this thoroughly when requesting abatement, and consider whether their error rises to the level of professional negligence.
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Dananyl Lear
8 I feel your pain! My husband and I had a similar issue with our LLC last year. Our saving grace was IRS Revenue Procedure 84-35, which provides special penalty relief for small partnerships (10 or fewer partners). Since you mentioned it's just you and your husband, you might qualify. This is IN ADDITION to the reasonable cause argument others have mentioned. The key requirements are that all partners are individuals (not corporations), all income was timely reported on your personal returns, and each partner's share of each partnership item is the same as their share of every other item. Might be worth mentioning specifically in your abatement request!
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Dananyl Lear
•1 That's really helpful! I'll definitely look into Revenue Procedure 84-35. Does this apply even if we technically filed Schedule C forms instead of partnership returns? All of our income was definitely reported on our personal returns - we paid all the taxes we owed, just on the wrong forms apparently.
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