IMRS Monthly Overview - December 2011
Policy, Practice & Procedures
IMRS Issue 11-0001482 – Problems processing tax returns of H2-A visa workers
Issue: A tax practitioner with a low income tax clinic repeatedly receives notices assessing self-employment tax on H2-A visa workers. H2-A visa workers are exempt under IRC 3121(b)(1). The practitioner requests guidance on how to prepare these returns to alert IRS of the exemption.
Response: Math error notices were issued because a Schedule SE was included with the return. A tax return for an H2-A visa worker should be filed in the following manner: exclude Schedule SE; enter "exempt, see attached statement" on the Self-Employment Tax line of Form 1040; and attach a statement of explanation.
IMRS Issue 11-0001522 – Failure to pay penalty assessed on returns on extension
Issue: Practitioners in Massachusetts, New York and Alabama reported that clients who had filed valid 1040 extensions received CP 14 notices assessing the failure to pay penalty. 90% of the balances due were paid with the extension request. The returns were e-filed and the remaining balance due was later paid by check prior to the extended due date of the returns.
Response: An extension of time to file is not an extension of time to pay. Any balance due on returns on extension must be fully paid at the time the return is filed in order to avoid the failure to pay penalty: taxpayers do not have until the extended due-date to pay if the return is filed prior to the extended due-date. The Treasury Regulations, Title 26, Part 301: 301.6651-1(c)(3) state that reasonable cause will be presumed IF the taxpayer pays at least 90% of the tax shown on the return on or before the original due date (without regard to extensions), and pays the remainder when the return is filed. Accordingly, the computer is programmed to check four things when a return is processed before assessing the failure to pay penalty:
- Did the taxpayer have an extension of time to file?
- Did the taxpayer file by the extended due date?
- Did the taxpayer pay at least 90% of the tax shown on the return on or before the original return due date?
- Has the remainder of the tax shown on the return been paid in full?
NOTE: Current and previous reports are also available on this site. The monthly overviews are posted for the prior two years through the current month. You can also access reports for issues closed in prior years on the same page.
We invite you to raise your issues/concerns with your local stakeholder liaison.