For once when I say the incident in question did not happen to me, I mean it. here’s the situation:
A friend of mine does payroll for a small business on Mondays. This Monday, the owner calls in and asks if he would write the quarterly tax check and send it off because the owner doesn’t want to come all the way in to work just to do that one thing. My friend agrees. He is told where to find the relevant documents and left to his own devices. Having never seen the form in question before, my friend looks at it and concludes that the taxes owed are $89.95, so he writes a check for that amount and sends it off.
Today, my friend gets a call from his employer who is hopping mad. It turns out that my friend has misread the tax form. He assumed that the amount in the box was dollars and cents, when in fact there were no cents. The real amount owed was $8995! The employer is angry because he believes that he will be required to pay a penalty because of my friend’s mistake.
Questions:
Is there any way out of this? Will the employer be able to plead innocent mistake (which it was) and pay the balance post haste and avoid a penalty? Is anyone familiar with the IRS’ rules in such situations, especially considering the mistake was caught within four days?
Further background: my friend is a trusted, usually competent employee who made a simple (although admittedly potentially costly) mistake because he was thrown into a situation with which he had no training to deal with. This is the first time my friend has made a mistake of this nature, and he is very upset about it and fears for his job. I told him to not worry, that it would be unreasonable for him to be fired in this situation (although a vigorous dressing down would seem to be in order). Any opinions on that?
Most likely nothing will happen if the company immediately sends in a check for the correct remaining balance along with a respectful letter explaining the mix-up. The IRS will probably waive any penalties.
See this FAQ on the IRS’ web site. The relevent question is the fourth one in the FAQ.
It looks as though the payment was due on the 15th of the month. Since the payment was late from the start (if I’m reading the IRS site correctly), the four days in which it was caught may not matter.
To ask someone to do something for which he has not had training or instruction, which you could do yourself, and then blowing up because it was done wrong strikes me as lousy.
Your friend made a mistake and based on my experience, the IRS is NOT out to screw anyone. Call, explain the mistake, ask how to correct it and it is probably going to go away. There may be a small penalty, but (again, based on experience) they will usually wave the penalty for first-time offenders. Let me stress: They are not there to screw anyone and will usually help as best they can. If they don’t/won’t, ask your congressmen for help. He will usually be willing and able. I am not an accountantant, BUT, I have gone through this experience. The IRS are mostly good people, who are just doing their jobs. The will go after criminals, but will help out with innocent mistakes.
Assuming this was a payroll type tax just tell the upset business owner to chill and pay an additional amount. In most cases the IRS will not care that it is a few days late. A penalty for a supplemental payment coming a few days later is extraordinarily unlikely.
I have not had THIS particular tax screw-up, but I’ve done a couple myself, and known other folks who did boo-boo’s, too.
IF you go to the IRS and explain that there was a mistake AND rectify said mistake immediately (a polite letter and a check for the missing amount) you will almost always have no or few penalities. Particularly since this was a matter of an inexperienced employee and a decimal point error.
Honestly, I’ve seen much worse payroll tax problems resolved without penalty when the affected business came forward and made a good-faith effort to fix the problem BEFORE the IRS found it on its own.
Thank you all for your responses. I have advised my friend accordingly. Since the payment appears to have been late in the first place, I don’t see how my friend can possibly be held accountable for any late penalty. The supplemental payment appears to have been mailed yesterday. I’ll update this thread as more information becomes available. But right now he’s hoping it all just blows over.