IRS Interest & Penalty Error: Computing Interest On Form 2210 or Form 2220 Penalties.
Background:
Lynn Shoemaker of Edward M. Osinski, Jr. CPA, PC in Phoenix, AZ discovered an IRS error in the computation of interest on underpayments. Lynn's caught the IRS computing interest on a Form 2210 penalty. According to §6601(h), interested is not to be computed on Form 2210 or 2220 penalties.
Basically, there is no excuse for this error. The Internal Revenue Code is very clear on this.
How To Catch The Mistake & Resolve The Issue:
(The following assumes you are using the IRS/State Interest & Penalty Calculator.)
1) Check the transcript to see if "Estimated
Tax Penalty", transcript code 170, appears on the transcript.
2) Run an IRS Interest & Penalty computation, excluding any Form 2210 or Form
2220 penalties. This is the proper way to compute interest on underpayments.
If the IRS's interest amount is higher than the interest computed in this step,
proceed to step 3.
3) Change the filename and input the "Estimated Tax Penalty" amount as an other
charge, menu choice Inputs - Other Charges... Have the interest run from the
estimated tax penalty assessment date, but make sure that the assessment date is before the End
Calculation date.
4) If the program's interest amount from step 3 agrees with the IRS computation,
you have verified that the IRS has made this error. Bring this to the IRS's
attention using the Detailed Anaysis reports that you generated in steps 2 & 3.
How to get the IRS/State Interest & Penalty Calculator:
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