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[quote=Anonymous]Help me think this through and make a decision.

Background: Four years ago, I made a first-time honest mistake in the 25+ years that I've been a taxpayer.  I was supposed to submit 2 forms to the IRS- one that was due on April 15 and the other one due on Oct 15. I got the deadlines mixed up and didn't realize until I was about to submit the Oct 15 form that the first one had to be submitted first.  I had not used a CPA before because my taxes were fairly simple.  This concerns an international matter, I was reporting a gift that had occurred overseas.

As soon as I realized my mistake, I consulted a CPA who said I should go ahead and submit the 1st form and "see what happens, you might get about a $10k fine, just let us know when you hear back and we'll help you out."

The IRS wrote me back 1.5 years after I had submitted my late form, with a 40k fine (including interest). CPA wrote a letter on my behalf saying this was a first-time mistake, also explaining that even their accounting firm only processes these kinds of forms very rarely and that regular citizens would find it confusing. The letter got rejected. IRS still wants to impose the $40k fine.

I consulted with a Tax Attorney who has 40+ years of experience in international compliance law. Tax Attorney said this should be a simple matter, and submitted another form requesting for an abatement of the penalty because I qualified based on my clean record from the last 3 years, along with other attorney-speak. The tax attorney said he is very confident that I'd get a full abatement.

IRS referred us to an Independent Appeals Officer and we had our discussion in a phone conference. The point of the conference was to go over the facts and see if the law applies to my situation.  The Appeals Officer is not part of the IRS and their job is to settle cases out of court. This Officer is a CPA, not an attorney.  The Appeals Officer said he'd have to consult with his Coordinator (who is with the IRS and probably not an attorney) to make sure they are in agreement.

Their decision:  They are reducing the penalty to 20k.

My options: 
1) Pay the 20k  
2) Go to litigation 
3) Try to negotiate

If I pay the 20k, I'm done.  The Appeals Officer will not provide a justification for how the law was applied. That will only be explored if this case goes to court.  My Tax Attorney doesn't think I should agree to the 20k, which I agree with as well.

If we go through litigation, I first have to pay the $40k, then sue for a refund. Tax Attorney estimates a 70% chance of getting a full refund because if the case goes to court, it will be reviewed by attorneys who will see that I do qualify for the abatement.  Neither the Appeals Officer nor the Coordinator is an attorney.  My Tax Attorney will cap his success fee at $9k. If we lose the case and I had to pay the $40k, my Tax Attorney gets zero. So far, I have spent $4k on the Tax Attorney, and about $1k on the first CPA who wrote the letter.

What would you do? 
If you were going to negotiate, how would you negotiate? 
For those who have experienced IRS litigation, how did it turn out for you?

Thank you for reading and listening, and for your collective input, DCUM. I really appreciate your support. [/quote]

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