Prepare Fraud Resulting in Substantial Underpayment Penalty


#1

I have a client who had the same tax prepare for 10 years. A couple of months ago the preparer was indicated for overstating mortgage interest deduction from 2011 - 2015. My client was directly affected by the fraud in 2015. The IRS sent him a notice CP2000 assessed him with a substantial underpayment penalty due to the back taxes he owes. The client is not disputing the taxes but since he did not ask the tax preparer to overstate his mortgage interest deduction and solely relied on the work of a paid preparer, I would like to abate the penalty under reasonable cause.

Has anyone had any experience abating a case when a preparer has a criminal conviction? I tried to abate the penalty over the phone and the IRS Agent I spoke with said I could not abate over the phone and need to send the abatement in writing and thinks it will be very unlikely the penalty gets abated.

Thank you in advance,
Diego


#2

Use Reasonable Cause (IRM Chapter 20) and make a written request to use the penalty be abated. I have not tried it myself, but have heard of other’s success recently on a Facebook forum I am in. The logic is that the IRS is supposed to prove intent in order for this penalty to be imposed.