Things I don't get about the IRS

[BulldogTom]

Some of you will remember my spectacular failure on a client where I missed a quarter million dollar 1099.   I correct the return, and my client sent in the check with the full amount we calculated included with the return.   The check cleared April 24th.   Client gets a notice this week saying he owes the same amount, plus interest and penalties.   So I call the IRS PPL and I ask why the notice does not have the payment applied.   We expected interest and penalties, but the tax has been paid.   Their notice of tax due matches my client's check amount.   I also noticed the interest seemed to be calculating from the date of the return to the payment date on the letter, not the date the IRS cashed the check.

The lady at IRS was very polite and informative.   She said the tax was still not assessed, even though they processed the correction and the amount of tax due matches the check the client sent in.   And because the tax is not assessed yet, they could not apply the payment, even though they know we paid the tax that was not assessed and our amount was the same as they say we still owe.   And because the payment is not applied to the tax that is not assessed, they have to calculate interest to the date the letter says we have to pay the tax that has already been paid but not assessed.   So the interest amount is overcharged, and they know that, but they will fix everything when the tax gets assessed.

So, after digesting this information, I started wondering how many people get letters from the IRS with tax due and interest and just pay it without checking the calculation?  Or making sure that payments made have been applied?

It seems to me that the IRS, when they got the same number that I did, would say we all agree and lets put this puppy to bed.   Calculate the interest correctly, assess the penalties, send out one letter, and get paid what is owed.  

I guess I have to make a mistake on a return every once in a while to remind me why I spend so much effort trying to get everything correct on the returns I produce.   It is a BITCH working with the stupid rules of the IRS.   At least when it is my client who screws up and I have to fix things, I get paid.   This was my screw up, and now I have to eat this time.  Sucks to make mistakes.

Tom
Modesto, CA

[Catherine]

The day the IRS (or any large bureaucracy of any kind) operates in a sensible fashion, I will need smelling salts.

I remember the tale, and sympathize!  I have also eaten the time and effort to fix quite a number of errors over the years.

[Edsel]

The amazing thing is the women that talked to you on the phone talked in a manner that this forlorn procedure was normal and commonplace.  As if this is "business as usual" for the IRS.

Tom, I can confirm that I've had similar experiences recently where it looks like things have crossed in the mail, and the client receives the second mailing instead of what should have been the first mailing.  Doesn't match your situation exactly, but has resulted in continued demands for money already paid, prior to a later correspondence that the money has been received.

Classic:  I had to backfile a 2016 return last month because the IRS claimed they were holding off on the 2017 return because the taxpayer had never filed a 2016 return.  My client found a letter almost a year ago acknowledging receipt of her 2016 return.

Go figure...

[Max W]

I don't buy this at all.  The tax does not have to be assessed for the payment to be applied.  I think the problem is that two returns were filed, the first presumedly efiled, the corrected return by paper.  The efiled return went into an automated system.  The paper return was entered manually and somewhere in the process something did not match, or an IRS employee entered the picture and screwed things up.  

 

 

[Catherine]

12 hours ago, Edsel said:

My client found a letter almost a year ago acknowledging receipt of her 2016 return.

When that happens with our clients, we include a copy of the letter with the re-filed return.  Hoping (probably futilely) that whoever sees that will at chagrined, not that anything will change.  Those letters (e-file acks too) can come in handy, especially to refute penalty assessments for non-filing.  

[Abby Normal]

8 hours ago, Max W said:

I don't buy this at all.  The tax does not have to be assessed for the payment to be applied.  I think the problem is that two returns were filed, the first presumedly efiled, the corrected return by paper.  The efiled return went into an automated system.  The paper return was entered manually and somewhere in the process something did not match, or an IRS employee entered the picture and screwed things up. 

The IRS has very old computer systems that don't connect with each other automatically, so it's very believable that the system that sends the automated letters out does not know that a payment is pending, but not yet applied to the balance due. Very believable.

When my clients file an amended paper return and get a letter like this, I do nothing. I tell the client to relax, enjoy their summer and wait for the dust to settle. It will eventually work itself out and you will get a correct notice of interest and penalties due. I always calculated what the P&I is in ATX so we have some idea of about what they should be.

[Max W]

7 hours ago, Abby Normal said:

The IRS has very old computer systems that don't connect with each other automatically, so it's very believable that the system that sends the automated letters out does not know that a payment is pending, but not yet applied to the balance due. Very believable.

When my clients file an amended paper return and get a letter like this, I do nothing. I tell the client to relax, enjoy their summer and wait for the dust to settle. It will eventually work itself out and you will get a correct notice of interest and penalties due. I always calculated what the P&I is in ATX so we have some idea of about what they should be.

I think that this article gives a good picture of what is going on with the IRS computers

https://www.bloomberg.com/view/articles/2018-04-17/the-irs-computer-system-is-the-oldest-in-the-government

[Roberts]

I was going on an extended International vacation / work from another location type thing and paid a bunch of corporate bills for the next 3 months. No problem I do it routinely with tons of companies.

The document storage company couldn't comprehend it. When month 2 came around they sent me a refund for the extra 2 months paid and the very same week they mailed me a bill. The third month comes around I now have two bills and a notice that I'm late more than 30 days on the first one. Before I get in the office they are calling and threatening co-workers for not paying a bill that is now 40 days late. When I get back I send them a check for everything owed (which is now 3 months of bills). They apply the money only to one of the bills outstanding and mail me back my over payment and at the same time demand I make a payment on our outstanding bill owed.

 

[Max W]

Must be retired IRS folks working there. 

[Abby Normal]

$10 an hour clerks rule the world. If they don't know how to leave a payment on account, you're getting a refund! Although, refunding part of that second check is beyond the pale.