underpayment penalty refund

[JimOfficehead]

I've had three 1040 clients this week tell me that they got a refund check for the underpayment penalty that was calculated on their 2023 return in ProConnect Tax.  The underpayment penalty calculations for all three of these clients appear to be correct to me (i.e. there's no reason they would be exempt from the penealty).  Is anyone else experiencing this?  Am I missing something?  Is there a glitch in the 2210 calculations in ProConnect?  

[ptax255]

Are they in CA?

[JimOfficehead]

Thanks for asking.  No, no CA or other disaster area relief would apply as they are all in the Chicago area.

[BobKamman]

Thumbs up for "unintentionally funny."

[Glen]

Same here with ProSeries, and impacted clients are also in Chicago.

[Lizhoh]

Some of my clients are also getting a refund of their penalty in the Chicagoland area.

[BobKamman]

Apparently storms and floods in Cook County and surrounding counties in mid-September were enough to trigger a disaster declaration, and IRS extended the January 15 payment date to February 15.  Are these notices clear enough to show that a month's grace period has been allowed?

https://www.irs.gov/newsroom/irs-announces-tax-relief-for-taxpayers-impacted-by-severe-storms-and-fl... 

[Lizhoh]

The entire penalty has been refunded including short payments for all quarters, not just the last quarter.  The disaster area proclamation for cook county is the only thing making sense, but all of it is being refunded.

[JimOfficehead]

None of my clients have received explanatory notices, just refund checks.

[BobKamman]

What are the amounts of the penalties that are being refunded?  IRS has never been known to assess the ES penalty when under $100 -- maybe they decided to apply that rule to some disaster cases.  

[JimOfficehead]

Refund amounts are as follows so far - $162, $633, $235, $430, $230, and $232.

I did get through to a phone rep on the IRS Practitioner Priority line and asked about one specific return.  She could offer no detailed explanation as to why the entire penalty was refunded, and agreed with me that the taxpayer had not met any of the safe harbor requirements.  The taxpayers' record reflected that a CP30A notice (reduction of penalty) was generated; the taxpayer has not received the notice. She also indicated that she had been receiving numerous calls about this exact issue in the last few days, but could not verify the geographical location of the taxpayers.  She indicated she would escalate the general issue to her manager for further investigation. I guess we just wait to see if explanatory notices start showing up in taxpayers' mail boxes.

[Lizhoh]

I also called the IRS this morning and the rep said that a CP 30 Notice will be coming out explaining the checks but that their system found that the self imposed penalties were incorrect because the taxpayers had an overpayment.  My clients did not have an overpayment and she also said that the penalty was computed on 110% and they recomputed it on 100% - but the AGI is well over $150K from the prior year.  The math looks correct from my end unless there was a tax law change we are unaware of.  No one seems to know at the IRS.  I expect more checks and letters.

[Glen]

Received CP30A for one client; discrepancies are as follows:

1st installment - IRS penalty calc appears to be accurate. 

2nd installment - IRS used 6/15/2023 to 6/29/2023 (14 days), whereas client had an underpayment from 6/15  to 9/15 (92 days).

3rd installment - IRS did not assess a penalty, whereas client appears to have an underpayment.

4th installment - IRS used 2/15/2024, as BobKamman suggested.

[Camp1040]

@BobKamman I generally do not calculate the penalty for underwitholding and failure to pay estimated taxes. I inform my clients they may get a "request" for additional payment due because of ES penalty. I had a client receive a letter for the ES penalty and the amount due was $100.20.

That 20 cents triggered the $100 norm!!

[BobKamman]

@Glen Are you in northern Illinois also?  There were two disaster declarations there, I think the dates were July and September, sounds like your client might be in an area impacted by both.  

@Camp1040 If I know the penalty is going to be assessed, I will add it to the balance due (or subtract it from the refund, which happens more often than it should, and results in the credit-elect being changed without my knowledge).  This year I had two clients who had to have their arms twisted to file in March, rather than follow their usual custom of waiting until April 15, and did not really understand why it would save them $105.  

[Glen]

@BobKamman You are awesome. This particular client is located in Chicago, so it appears that the disaster declarations you identified may, in fact, be the reason for the penalty reduction. Thank you and everyone else who posted regarding this issue; greatly appreciated!

[SensibleandHourly]

Yes, I had one in Northern Michigan. $304. The only thing I could figure is that it was the taxpayer's first time ever having to pay in at the end of the year, and the system wouldn't know that. The explanation simply stated that the IRS had recalculated the penalty.