How would you like to get the following notice in the mail?
Believe it or not, the IRS sent this to a public
school system in Virginia. I am looking at the Tax Court petition as I write
this.
This notice is for a Section 6721 penalty, assessed
for failure to file certain information forms with the IRS. Common information
forms include:
· Form
W-2 (Wage and Tax Statement)
· Forms(s)
1099 (Interest, Dividends, and numerous others)
· Form
8027 (Tip Income and Allocated Tips)
· Forms(s)
1094 & 1095 (Health Insurance)
There is a virtually automatic companion to this penalty
- Section 6722 – which assesses another penalty for failure to provide an
information form to the recipient.
Combined we are talking over $2.2 million.
To a school?
Let’s go through this.
The school (Arlington) received the above notice dated
June 13, 2022.
The second notice (for Section 6722 penalties) was
dated June 27, 2022.
The IRS wanted payment by July 12, 2012.
COMMENT: Arlington had an issue. While they knew the IRS was assessing penalties for information returns, they had no idea which information forms the IRS was talking about.
The IRS Revenue Officer (RO) issued a Final Notice of
Intent to Levy on July 12, 2022.
COMMENT: The same day? I have been leaving messages with a Revenue Agent for over two weeks now concerning an individual tax audit, and this RO issued a FINAL on the same day stated in the notice?
COMMENT: There is also a procedural error here. The IRS must issue notices in a certain order, and the RO is not entitled to jump the line and go straight to that FINAL notice.
We learn that this specific RO had previously assessed
penalties (without explanation) and filed liens (again, without explanation) on
a middle school in the Arlington school system. These miraculously went away before
an Appeals hearing could occur.
COMMENT: Sounds like something personal.
On August 10, 2022, Arlington requested a collection due
process hearing on the June 13 and June 27 notices. It faced a formidable obstacle,
however, as it did not know what the IRS was talking about.
The IRS sent a letter dated December 5, 2022,
scheduling an Appeals conference on January 18, 2023. That letter also suggested
that Arlington had not filed Forms 1042, which concerns withholding on payments
to foreign persons.
COMMENT: Seems an odd one. I would have thought Forms W-2, if anything.
It turns out that the 1042 reference was mistaken.
COMMENT: Clown show.
Arlington (more specifically, Arlington’s attorneys)
tried repeatedly to contact the Appeals Officer (AO). It appears that he inadvertently
answered his phone one time, and the Appeals conference was moved to January
31, 2023. Arlington still wanted to know what form was costing them over $2.2
million.
The attorneys marched on. They contacted the IRS
Practitioner Line, which told them that the penalties might relate to the Affordable
Care Act (Obamacare). They also sent a written request to IRS Ogden for explanation
and copies of any correspondence concerning the matter.
COMMENT: I’ve done the same. Low probability swing, in my experience.
The attorneys also contacted the Taxpayer Advocate.
Receiving nothing, the attorneys again requested to
postpone the Appeals hearing. They learned that two additional penalties had
been added. What were the two penalties about? Who knows.
The two late penalties were “abated” before the Appeals
hearing on February 10, 2023.
The AO failed to show up to the Appeals hearing on
February 10, 2023.
COMMENT: That sounds about right.
At the re-rescheduled hearing on February 24, 2023,
the AO wanted to know what Arlington intended to do. Arlington replied that
they were still trying to figure out what the penalties were for, and that a little
help would be welcome.
That however would require the AO to – gasp – actually
work, so he attempted to transfer the case to another AO. He was unsuccessful.
COMMENT: Fire the guy.
On June 30, 2023, the AO sent the attorneys
re-generated IRS notices (not copies of originals) proposing $1,1113,000 in
penalties for failure to send Forms 1094-C to the IRS and an additional
$1,113,000 for failure to provide the same 1094-C to employees.
COMMENT: Finally, we learn the mystery form.
Arlington (really, its attorneys) learned that the IRS
had listed a “Lang Street” address for correspondence. Lang Street was never
Arlington’s address and was only one of the middle schools in the district. It
was, however, the middle school which the RO had liened earlier in our story.
While talking to the AO on June 30, 2023, the
attorneys requested additional time to submit a penalty abatement request. The AO allowed 14 days.
COMMENT: Really? This is the school’s summer recess, no one is there, and you expect people to dig up years-old paperwork in 14 days?
Once again, the AO refused to answer numerous calls
and faxes.
The attorneys – frustrated – contacted the AO’s
manager. The manager gave them additional time.
On August 21, 2023, Arlington received a mysterious IRS
letter about a claim filed on or about February 23, 2023. Problem: Arlington had
not filed any such thing.
The attorneys sent a copy of the mystery notice to the
AO.
On September 13, 2023, the AO told the attorneys that he
had closed the case and issued a Notice of Determination.
COMMENT: This is the “90-day letter” and one’s entrance ticket to the Tax Court.
The attorneys asked why the NOD. The AO explained that
he could not provide a penalty abatement while the underlying Obamacare forms remained
unfiled.
Uh huh.
By the way, while the AO verbally communicated that a
NOD had been issued, Arlington never received it. It appears - best I can tell –
that the NOD is stuck at a processing facility.
COMMENT: Fits the rest of the story.
So, what happened with those forms?
It turns out that Arlington sent employees their
copies of the Obamacare forms on or about February 28, 2020.
COMMENT: Well, there goes one of the two penalties.
Arlington was going to send the IRS copies on March
16, 2020.
What happened at this point in 2020?
The Governor of Virginia closed all schools for two
weeks over COVID-19.
He then closed the schools through the rest of the
school year.
On March 30, 2020, Arlington requested an extension of
time to file those Obamacare forms with the IRS.
Virtually no one was at the school. People were working
remotely, if possible. The school was trying to figure out how to even pay its
employees when everyone was remote.
Yeah, I suspect those forms were never sent.
Heck of a reasonable cause, I would say.
And fire the guy.
