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The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.
- Don’t panic. Many of these letters can be dealt with simply and painlessly.
- There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
- Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
- If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
- If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
- If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
- Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
- It’s important that you keep copies of any correspondence with your records.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
- Publication 594, Understanding the Collection Process (PDF 129K)
- Publication 17, Your Federal Income Tax (PDF 2,072K)
- Tax Topic 651, Notices — What to Do
Most taxpayers have already filed their federal tax returns, but many may still have questions. Here’s what the IRS wants you to know about refund status, recordkeeping, mistakes and what to do if you move.
You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:
- Go to IRS.gov, and click on “Where’s My Refund”
- Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information
- Call 1-800-829-1954 during the hours shown in your tax form instructions
What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.
Change of Address
If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.
What If I Made a Mistake?
Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.
Visit IRS.gov for more information on refunds, recordkeeping, address changes and amended returns.
WASHINGTON ― The Internal Revenue Service [last month] began mailing postcards to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently enacted small business health care tax credit.
Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
“We want to make sure small employers across the nation realize that –– effective this tax year –– they may be eligible for a valuable new tax credit. Our postcard mailing –– which is targeted at small employers –– is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
View Information on state-by-state distribution of the postcard.
WASHINGTON –– With the April 15 tax filing deadline right around the corner, the Internal Revenue Service offers taxpayers who have not yet filed a few last-minute tips.
Don’t Miss the Deadline
If you have a balance due and don’t file a tax return by April 15, you face interest on the unpaid taxes as well as a failure-to-file penalty. Interest and penalties are added to your balance due. If you can’t file by the deadline, request an extension of time to file (see below).
If you file on time or request an extension but don’t pay all or some of the balance due by the deadline, you will incur interest on the unpaid amount and a failure-to-pay penalty. If you can’t pay the full amount, you should pay as much as possible by the deadline to minimize interest and penalties.
Get Recovery Tax Breaks
Last year’s American Recovery and Reinvestment Act created a full slate of tax breaks, which can be claimed on tax returns right now. These include:
- The Homebuyer Credit
- Making Work Pay Credit
- American Opportunity Credit
- Home Energy Credit
- New Car Tax and Fee Deduction
You can get information on these and other Recovery credits at IRS.gov/recovery.
Most tax returns are now filed electronically – either from home using purchased tax software, by a tax professional or through Free File.
There are several reasons the IRS encourages taxpayers to file electronically. Here are two big ones:
- E-file is accurate: Most available tax preparation programs check for errors and missing information, reducing the chances of delayed refunds or follow-up correspondence from the IRS.
- E-file is fast: With most tax software, you can file a state tax return at the same time you file your federal return. Once a return is accepted for processing, the IRS electronically acknowledges receipt of the return. And refunds take only about half the time of a paper return. If you choose direct deposit, you will get your refund in even less time.
Try Free File
Free electronic filing is available to everyone.
Traditional Free File is software with step-by-step help available to anyone whose 2009 adjusted gross income was $57,000 or less. The only way to access Free File is through the IRS Web site, IRS.gov. As the name implies, there is no charge for this service.
For those whose incomes exceed $57,000, there is Free File Fillable Forms. Free File Fillable Forms, also available through IRS.gov, allows a taxpayer to fill out and file tax forms online. You enter the necessary information, sign electronically, print the return for recordkeeping and then e-file the return right to the IRS. Since there is no step-by-step help, Free File Fillable Forms may be best if you are comfortable with the tax law and know which forms to choose.
Choose Direct Deposit for Refunds
Whether you file electronically or on paper, your refund can be automatically deposited into the bank or financial account of your choosing. Direct deposit is faster than a paper check. If you e-file and use direct deposit, you will receive your refund even faster. Direct deposit is also more secure than a paper check since a direct deposit goes directly into your account and cannot be lost in the mail or stolen.
Split Refund: Refunds can be direct-deposited into as many as three different accounts. Most e-file and tax preparation software allow you to “split” your refund this way. Paper return filers need to file Form 8888, Direct Deposit of Refund to More Than One Account, to split a refund among two or three accounts.
Buy Savings Bonds: This year, for the first time, you can buy Series I U.S. Savings Bonds with your refund. Issued by the Treasury Department, a Series I bond is a low-risk investment that grows in value for up to 30 years.
Check for Errors
Tax software finds common errors on electronically prepared returns. However, if you file on paper, you can avoid delays in processing and follow-up questions from the IRS by:
- Double-checking all figures
- Ensuring Social Security numbers are correct
- Signing forms where required
- Attaching required schedules and forms
- Mailing returns or request extensions by the April 15 filing deadline
Electronic payment options are safe and secure methods for paying taxes or user fees. You can pay online, by phone using a credit or debit card, or through the Electronic Federal Tax Payment System.
You may also pay by check made out to the “United States Treasury” using Form 1040-V, Payment Voucher, which must be included along with your tax return. If you have already filed but still need to pay all or some of your taxes, mail the check to the IRS with Form 1040-V.
Request an Extension of Time to File
If you can’t meet the April 15 filing deadline, get an automatic six-month extension of time to file by filing Form 4868, Automatic Extension of Time to File. The form needs to be submitted by April 15.
There are several way you can request an extension, including Free File or Free File Fillable Forms, through your tax professional, with tax software you installed on your computer or on paper.
An extension pushes your filing deadline back to Oct. 15. However, an extension of time to file is not an extension of time to pay. If you owe taxes, you need to pay at the time you file the extension or face a non-payment penalty.
Apply for an Installment Agreement
If you can’t pay your entire balance due, an installment agreement will allow you to pay any remaining balance in monthly installments. If you owe $25,000 or less, you may apply for a payment plan using the Online Payment Agreement application or just attach Form 9465, Installment Agreement Request, to the front of your return. You’ll need to list the amount of your proposed monthly payment and the date you wish to make your payment each month. The IRS charges $105 for setting up the agreement, or $52 if the payments are deducted directly from your bank account.
You will be required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid.
Help Is Available
For more information about filing and paying your taxes, visit 1040 Central on IRS.gov. Important information is also available in Publication 17, Your Federal Income Tax. Forms and publications are available for download from IRS.gov or can be ordered by calling toll free 800-TAX-FORM (800-829-3676).
WASHINGTON — As the April 15 tax deadline approaches, the Internal Revenue Service today announced initial results from its stepped-up effort involving enforcement and education to combat unscrupulous tax return preparers and protect the nation’s taxpayers.
The IRS said it has conducted more than 5,000 field visits to tax return preparers this fiscal year. In addition, the IRS has worked with the Department of Justice to pursue questionable return preparers, an effort that has led to 56 indictments, 25 convictions and 21 civil injunctions since Jan. 1, 2010.
“We are working to help ensure taxpayers receive competent and ethical service from qualified tax professionals,” said IRS Commissioner Doug Shulman. “Our efforts this tax season are part of a longer-term effort to improve the oversight of this critical part of the tax system. The vast majority of tax return preparers provide solid service, but we need to do more to protect taxpayers.”
Shulman announced in January the results of a six-month study of the tax return preparer industry, which proposed new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. While this longer-term effort is underway, the IRS has taken several immediate steps this filing season to assist taxpayers.
The IRS has worked closely with the Justice Department this tax season to increase legal actions against unscrupulous tax return preparers, obtaining 21 civil injunctions, 56 indictments and 25 convictions of return preparers so far in 2010. More information is available at the IRS Civil and Criminal Actions page on irs.gov. and at the Department of Justice Tax Division page on DOJ.gov.
“The IRS appreciates the strong support of the Justice Department for its efforts to pursue and shut down bad actors in the tax return industry,” Shulman said. “This effort makes a real difference for the nation’s taxpayers and helps protect the many tax professionals who play by the rules.”
“While the majority of return preparers provide excellent service to their clients, a few unscrupulous tax preparers file false and fraudulent returns to defraud the government and the tax-paying public. Those actions are illegal, and can result in substantial civil penalties as well as criminal prosecution, for both the return preparers and their customers who knew or should have known better. Taxpayers should choose carefully when hiring a tax preparer,” said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division.
Also during this filing season, the IRS used investigative tools on a broad basis, including agents posing as taxpayers, to seek out and stop unscrupulous preparers from filing inaccurate returns. To date, the IRS conducted 230 undercover visits to tax return preparers. In addition, dozens of search warrants have been completed.
The IRS will continue to work closely with the Department of Justice to pursue civil and criminal action as appropriate.
In January, the IRS sent more than 10,000 letters to tax return preparers. These letters reminded them of their obligation to prepare accurate returns for their clients, reviewed common errors, and outlined the consequences of filing incorrect returns. The letters went to preparers with large volumes of specific tax returns where the IRS typically sees frequent errors, although simply receiving a letter was not an indication the preparer had problems.
The IRS followed up with field visits to about 2,400 tax return preparers who received these letters to discuss many of the issues mentioned in the letter. Separately, the IRS conducted other compliance and educational visits with return preparers on a variety of other issues. All told, IRS representatives visited more than 5,000 paid preparers to encourage and help them avoid filing incorrect or fraudulent returns for their clients.
The IRS will be reviewing the results of these letters and visits to determine steps for future filing seasons.
The IRS has recently begun to implement a number of steps to increase oversight of federal tax return preparers. This includes proposed regulations that would require paid tax return preparers to obtain and use a preparer tax identification number (PTIN). Later this year, the IRS will propose additional regulations requiring competency tests and continuing professional education for paid tax return preparers who are not attorneys, certified public accountants and enrolled agents.
Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in Publication 4832, Return Preparer Review, issued earlier this year.
Help for Taxpayers before April 15
As the tax deadline approaches, the IRS reminds taxpayers that most tax return preparers are professional, honest and provide excellent service to their clients. But a few simple steps can help people choose a good tax return preparer and avoid fraud:
- Be wary of tax preparers who claim they can obtain larger refunds than others.
- Avoid tax preparers who base their fees on a percentage of the refund.
- Use a reputable tax professional who signs the tax return and provides a copy. Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
- Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
- Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.
More information is available on IRS.gov, including IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.
The IRS provides an appeals system for those who do not agree with the results of a tax return examination or with other adjustments to their tax liability. Here are the top seven things to know when it comes to your appeal rights.
- When the IRS makes an adjustment to your tax return, you will receive a report or letter explaining the proposed adjustments. This letter will also explain how to request a conference with an Appeals office should you not agree with the IRS findings on your tax return.
- In addition to tax return examinations, many other tax obligations can be appealed. You may also appeal penalties, interest, trust fund recovery penalties, offers in compromise, liens and levies.
- You are urged to be prepared with appropriate records and documentation to support your position if you request a conference with an IRS Appeals employee.
- Appeals conferences are informal meetings. You may represent yourself or have someone else represent you. Those allowed to represent taxpayers include attorneys, certified public accountants or individuals enrolled to practice before the IRS.
- The IRS Appeals Office is separate from – and independent of – the IRS office taking the action you may disagree with. The Appeals Office is the only level of administrative appeal within the agency.
- If you do not reach agreement with IRS Appeals or if you do not wish to appeal within the IRS, you may appeal certain actions through the courts.
- For further information on the appeals process, refer to Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree. This publication, along with more on IRS Appeals is available at IRS.gov.
- Appeals… Resolving Tax Disputes
- Tax Topic 151 – Your Appeal Rights
- Publication 1, Your Rights as a Taxpayer (PDF 21K)
- Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree (PDF 36K)
- Publication 556, Examination of Returns, Appeal Rights and Claims for Refunds (PDF 105K)
- Publication 1660, Collection Appeal Rights (PDF 31K)
- Publication 3605, Fast Track Mediation (PDF 15K)
Every year, millions of taxpayers donate money to charitable organizations. The IRS has put together the following list of six things you should know about the tax treatment of tax-exempt organizations.
- Annual returns are made available to the public. Exempt organizations generally must make their annual returns available for public inspection. This also includes the organization’s application for exemption. In addition, an organization exempt under 501(c)(3) must make available any Form 990-T, Exempt Organization Business Income Tax Return. These documents must be made available to any individual who requests them, and must be made available immediately when the request is made in person. If the request is made in writing, an organization has 30 days to provide a copy of the information, unless it makes the information widely available.
- Donor lists generally are not public information. The list of donors filed with Form 990, Return of Organization Exempt From Income Tax, is specifically excluded from the information required to be made available for public inspection by the exempt organization. There is an exception, private foundations and political organizations must make their donor list available to the public.
- How to find tax-exempt organizations. The easiest way to find out whether an organization is qualified to receive deductible contributions is to ask them. You can ask to see an organization’s exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible. You can also search for organizations qualified to accept deductible contributions in IRS Publication 78, Cumulative List of Organizations and its Addendum, available at IRS.gov. Taxpayers can also confirm an organization’s status by calling the IRS at 877-829-5500.
- Which organizations may accept charitable contributions. Not all exempt organizations are eligible to receive tax-deductible charitable contributions. Organizations that are eligible to receive deductible contributions include most charities described in section 501(c)(3) of the Internal Revenue Code and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19).
- Requirement for organizations not able to accept deductible contributions. If an exempt organization is ineligible to receive tax-deductible contributions, it must disclose that fact when soliciting contributions.
- How to report inappropriate activities by an exempt organization. If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division by completing Form 13909, Tax-Exempt Organization Complaint (Referral) Form. The complaint should contain all relevant facts concerning the alleged violation of tax law. Form 13909 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).