When it comes to any partnership that you may be a part of, it can be easy to forget about the tax responsibilities that your organization is responsible for. Throw into the mix all of the legalities of partnership taxes, and you could be looking at a situation that it a lot more difficult and time consuming than you had originally thought. Luckily for you, the IRS understands that sometimes mistakes are made and taxes are filed late, which is why the Rev Proc 84-35 exists.
The Rev Proc 84-35 is an IRS Penalty Abatement that allows for the automatic penalty abatement for any organization whose partners or LLC/LLP members file their personal taxes on time (by May, or if filed for an extension, by October). Basically, if the people who make up the organization have made no mistakes in filing their own personal taxes, the organization is granted a get out of jail card when it comes to an IRS penalty.
However, there are several factors that must be met in order for an organization to be eligible for the Rev Proc 84-35 IRS Penalty Abatement:
- The partnership must be a domestic partnership
- The partnership must have 10 or fewer partners (husband and wife and their estate count as one)
- All partners must be natural persons (other than a nonresident alien) or an estate of a deceased partner
- Each partner’s share of each partnership item has to be the same as their share of every other item
- All partners need to have filed their income tax returns timely
- All the partners need to have full reported their share of the income, deductions, and credits of the partnership on their timely filed income tax returns
- As long as all of these requirements are met, and you have submitted a letter to the IRS regarding the matter that looks like this example, the abatement will be yours.
In recent years, the IRS seems to have grown tired of Rev Proc 84-35 abatement requests, and have been trying to shift the discussion of penalty abatement to “reasonable cause”. Do not let them pressure you into backing down. The Rev Proc 84-35 is available to you as long as you meet the above criteria. No matter the number of years you have claimed the abatement, it is there for you to use. If they persist with a reasonable cause argument, stick to your knowledge of Rev Proc 84-35, and stand firm until you get your abatement.