A client received a letter from the I.R.S. several months ago. The letter reminded him that he had not paid his 2016 taxes. He ignored the letter for several weeks, before a second letter arrived; this one with more forceful language. In the second letter, the I.R.S. was kind enough to calculate the taxpayer’s amount due, including penalties and interest, and asked for the taxpayer’s concurrence with payment. Although the taxpayer recalled the letter, he subsequently misplaced it and questioned what to do next. Heritage Income Tax worked with the client to determine the true tax obligation, electronically file the overdue return, and put a stop to the I.R.S. compounding interest and penalties. The taxpayer ended up with a tax savings of $1,200 less than the I.R.S. initially demanded. Find out if you qualify for IRS relief HERE
This scenario is all too common in today’s busy world. Jobs, family, bills, and volunteer activities make it easy to disregard other important aspects of life, like Uncle Sam. Unfortunately, most I.R.S. letters are not pleasant. Some taxpayers avoid opening the letters due to fear of what awaits inside. However, the letters will not go away unless the recipient does something to address the overarching issue. Here are a few tips for taxpayers who receive “the Letter.”
1) First and foremost, do not ignore it. The adage that bad news doesn’t get better with time is particularly relevant when it comes to I.R.S. correspondence. Most I.R.S. letters will include a deadline. Make note of that date and put it on your calendar. I recommend, however, that you wait no more than 10 days to respond to the I.R.S. regardless of the stated deadline.
2) Second, make sure that you keep ALL correspondence that you receive from the I.R.S. All too often, taxpayers misplace these important letters, enticing a family member to throw the stray papers into the garbage. As a matter of practice, keep all I.R.S. correspondence in a folder where you can easily reference it in the future. The correspondence will usually contain critical information that you tax adviser will need to thoroughly understand the issue and work toward your most favorable resolution.
3) Third, remember the I.R.S. will apply penalties and interest on unpaid taxes, and unfiled returns. These penalties can build up quickly, exacerbating the problem and rendering it unaffordable for the taxpayer. If a taxpayer cannot afford to pay taxes due, it is still beneficial to file the return and avoid accrual of additional “failure to file” penalties. When appropriate, the taxpayer may submit a payment plan or installment agreement with the I.R.S. for any taxes due. Of course, the I.R.S. has a form for initiating an installment agreement. However, penalties and interest charges will continue to accrue until the taxpayer’s balance is paid in full.
4) In many cases, it is not advantageous to pay the I.R.S.’ calculated amount of taxes due. Some I.R.S. letters ask the taxpayer to concur with their calculation of “amount due” and return the letter with a payment of the “balance owed.” This could be a bad deal for the taxpayer. Remember, the I.R.S. will generally not calculate a tax return in a manner that best saves the taxpayer money. For example, in some cases the I.R.S. will treat unfilled married taxpayers as “married filing separately” resulting in a higher tax liability. Taxpayers who want to take advantage of their own entitlement of credits and deductions should compare the I.R.S. calculations with their own before concurring with the amount the I.R.S. calculates, or handing over a check.
5) When the I.R.S. identifies a deficiency in the taxpayer’s filing or taxes, it is most likely state and local tax authorities will quickly catch up with the taxpayer. Most state and local taxing authorities rely on federal tax return information to determine tax due to state and local agencies. If a federal return is not filed, or taxes are underpaid, it is most likely the same holds true for the taxpayer’s state and local tax returns. In those cases, penalties and interest on state and local obligations may further compound the taxpayer’s problems.
Receiving a letter from the I.R.S. can be unnerving at first. Rather than ignoring the problem, face it head-on. The professionals at Heritage Income Tax can assist you with your taxes, even if you are in arrears. If you need assistance with your complicated tax issues, schedule an appointment with one of our tax professionals who can help. Don’t delay!
The author, Bryan Corcoran, Esq, is a retired Marine Judge Advocate. He earned his J.D. and Masters in Taxation from the University of Akron in 1997. He is currently a Tax Analysts for Heritage Income Tax. The views expressed in this paper are his own, and are not intended as a substitute for professional tax planning or legal advice.
See I.R.S. form 9465, Installment Agreement Request