The IRS normally sends correspondence in the mail. They mail millions of letters to taxpayers every year. Keep these important points in mind if you get a letter or notice:
•Don’t ignore it. You can respond to most IRS notices quickly and easily.
•Follow instructions. Read the notice carefully. It will tell you if you need to take any action. Be sure to follow the instructions. The letter will also have contact information if you have questions.
•Focus on the issue. IRS notices usually deal with a specific issue about your tax return or tax account. Your notice or letter will explain the reason for the contact and give you instructions on how to handle the issue.
If you agree, you don’t need to reply unless a payment is due. If you don’t agree, it’s important that you respond. Follow the instructions on the notice for the best way to respond. You may be able to call to resolve the issue. Have a copy of your tax return and the notice with you when you call.
If you choose to write, be sure to include information and any document you want them to consider. Also, writer your taxpayer identification number (Social Security number, employer identification number or individual taxpayer identification number) on each page of the letter you send. Mail your reply to the address shown on the notice. Allow at least 30 days for a response.
April 15 is the deadline for most people to file their individual income tax returns and pay any tax owed. During its processing, the IRS checks for mathematical accuracy on your tax return. When processing is complete, if you owe any tax penalty or interest, you will receive a bill.
Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent interest compounded daily.
In addition, if you file a return but don’t pay all tax shown as due on time, you will generally have to pay a late payment penalty. The Failure To Pay Penalty is one-half of 1 percent for each month, or part of a month, up to a maximum of 25 percent of the amount of tax that remains as unpaid from the due date of the return until paid in full. The one-half of 1 percent rate increases to 1 percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.
If you file your return by its due date and request an installment agreement, the one-half of 1 percent rate decreases to one-quarter of 1 percent for any month in which an installment agreement is in effect. Be aware that the IRS applies payment to the tax first, then any penalty amount charged each month.
Late Penalty
If you owe tax and don’t file on time, there is a penalty for not filing on time. The Failure to File Penalty is usually 5 percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25 percent. If your return is over 60 days late, there is also a minimum penalty for late filing; it is the lesser of $205 or 100 percent of the tax owed unless your failure to file was due to reasonable cause and not willful neglect.
Making a late payment as soon as you are able may help to establish that your initial failure to pay timely was due to reasonable cause and not willful neglect.
Don’t ever ignore the IRS. A timely response to any notices may keep open the various options that are available to resolve your matter. Finally, if you don ‘t know what to do or are just intimidated by the IRS, contact a professional that specializes in IRS Tax Resolution. Remember for every tax problem, there’s a solution.
(Constant W. Watson III, CPA, CTRS, is both a Certified Public Accountant and a Certified Tax Resolution Specialist. For a free consultation, call 708-206-9900.)
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