We didn’t cover anything with penalty abatement today (not that I was expecting it according to the agenda) and I wanted to see if you offered any suggestions on penalty abatement for late filing. I have a client that had five years of 1120S returns (single shareholder) that needed to be filed recently to get him back into compliance. Beyond the obvious, is there something out there that can be applied to help abate the late filing penalties for S-Corps? I know about “reasonable cause”, but the client doesn’t really have a good reason for not filing. Obviously Rev Proc 84-35 does not apply from what I understand because this is not a partnership. We discussed dissolving the company and starting over to make the penalties go away, but I do not want to participate in something to be considered as fraud. The business is small only shows a profit of $15K to $30K over the five years so the penalties are pretty tough in comparison to the income (around $10K or so over the five years). Any suggestions outside of the obvious are definitely appreciated. Thank you.

In terms of requesting abatement of penalties for non-filing for 5 consecutive years is an uphill battle and other than “dumb luck” the request will be denied. In and of itself starting over is not committing fraud but without having all of the details I cannot provide guidance in this case. Keep in mind that the shareholders of the S-corp will be assessed penalties individually which will not disappear if the corporation is dissolved.

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