Monthly Employment Tax Return Option Eliminated by the IRS

The IRS will no longer give Taxpayers that are continually noncompliant with timely filing tax returns the ability to make their tax deposits on a monthly basis. Rather, the employer must use the regular Form 941. The Form 941M is being discontinued. The internal memorandum instructs revenue officers to consider pursuing the Civil Injunction process for noncompliant taxpayers.

Accountant forgot to list $3.4M of income on your return? You will probably still be liable for accuracy related penalties.

In the recent Woodsum  case, the Tax Court ruled that a managing director of a private equity firm could not claim the "my accountant forgot to include the $3.4M of income" defense to avoid accuracy related penalties under code § 6662(a) and § 6662(b)(2).  The Court reminded Mr. Woodsum that “Even if all data is furnished to the preparer, the taxpayer still has a duty to read the return and make sure all income items are included.”

Moral of the story: you need to read your own return before the IRS does it for you. 

Hat Tip: Tax Prof Blog    

Accuracy-related penalty: Corporations can't rely on employee-tax professional, should be an independent third party.

According to a recent Tax Court opinion in Seven W. Enterprises, Inc. & Subsidiaries and Highland Supply Corporation & Subsidiaries, (2011) 136 TC No. 26, which can be found here, a Corporation could not rely on its employee-tax professional to avoid accuracy related penalties under (under IRC §§ 6662(a) and 6662(b)(2)). 

The Court held that while the Corporation engaged an independent consultant tax professional to prepare returns, the Corporation could reasonably rely on him to avoid accuracy related penalties.  However, when that Corporation later employed that same tax professional as Vice President, and he prepared tax returns, the Corporation no longer had reasonable cause to avoid the penalty.  The Court reasoned that while the tax professional was independent from supervision of the Corporation that it could reasonably rely on his advice.  The Corporation lost its reasonable cause once the tax professional was made an officer of the Corporation.