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Lions and Tigers and IRS Notices Oh My
Open Your Tax Notices
By Stacie Kitts, CPA
Once upon a time, a long time ago, I knew a taxpayer who was afraid to open correspondence from the IRS and accumulated a pile of letters hoping it would all go away. It didn’t and bad things happened.
If you receive correspondence, open it right away while there is still time to do something about it.
Most of the time correspondence from the IRS is no big deal – you forgot to report some investment income, or you made an estimated tax payment a little later than your were supposed to so you owe some interest.
Honestly, I can’t think of many things you should be worried about when the IRS comes a-callin unless…..
- You’re a crook and you know it
- You don’t have advisers or you don’t listen to them
- Someone was feeding you a line that was to good to be true. Wesley Snipes is a good example of what not to believe. Mr Snipes failed to file several years of tax returns based on the advice of shyster tax preparer and is now serving time in jail.
Getting a letter from the IRS informing you of an audit of your tax return can be distressing. And let’s face it, even if you did everything hunky dory, it can be costly to have someone represent you.
There are things you can do ahead of time to help mitigate the cost of an audit should you win that lottery.
- Choose the right tax preparer. Do your research and make sure they are qualified to help you
- Have your accountant look over your accounting records before the end of each tax year.
- If you have a business, make sure you give details of your accounting transactions to your preparer. (full general ledger detail)
- Do some tax planning with your tax professional
- Keep records of your income and deductions organized and easy to find
- During the audit process – provide your representative the requested information timely and as organized as possible. Messy records are not going to help you and will likely drive up the cost of the audit.
The IRS published the following points they think you should know if you receive a notice.
- Don’t panic. Many of these letters can be dealt with simply and painlessly.
- There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change 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 need 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, usually no reply is necessary unless a payment is due.
- If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part 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 corner of the notice. Have a copy of your tax return and the correspondence available when you call.
- It’s important that you keep copies of any correspondence with your records.
Fixing Your Tax Return If You Messed It Up
By Stacie Kitts, CPA
So you filed your tax return and now you’ve discovered that it’s all wrong or you simply forgot to include something. Not to fret, there is a way to fix it all up.
Ultimately, the IRS will “fix” it for you if you forget to add a W2 or a Form 1099. However, if you wait for the IRS to find and correct the error, and you owe additional tax, they are going to charge you interest on the taxes that are due until you pay them. If you are going to owe a large amount of tax, you should consider filing an amended return and paying what you owe as soon as possible.
The Form you use to amend your return is Form 1040X. Be sure to read the instructions carefully before you begin to complete this form.
You are required to explain the reason for the amendment and the effect on the tax return – there is a place for this on the form. Plus, additional attachments will likely be required to be filed with the Form 1040X including updated / corrected Form 1040, the originally filed Form 1040 and associated schedules.
Here are ten facts from the Internal Revenue Service about amending your federal tax return:
- When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
- When NOT to amend a return In some cases, you do not need to amend your tax return. The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return. [ya, I don’t completely agree with this – see my comments above]
- Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ. Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
- Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
- Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B. There is an area on the back of the form to explain the specific changes and the reason for the change.
- Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
- Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
- Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
- When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
- Processing time Normal processing time for amended returns is 8 to 12 weeks.
Stacie's Tax Stuff 