2014 Tax Error - Interest and Penalty

[Pilot2013]

Just got a notice about an error on 2014 taxes August 8th, 2016. So now, 2 years later, I have a $498 interest payment in addition to the tax correction.

Verified I missed the reported income , but isn't there some time frame that they should have notified me before 2 years of interest accrual?

 

[harley]

Just got a notice about an error on 2014 taxes August 8th, 2016. So now, 2 years later, I have a $498 interest payment in addition to the tax correction.

Verified I missed the reported income , but isn't there some time frame that they should have notified me before 2 years of interest accrual?

Personally I think you got off easy. I've had them hit me after 5 years. Luckily it turned out to be their fault, but I was facing a couple of thousand in interest and penalties. They have the guns, so they make the rules.

 

[aaronc879]

Just got a notice about an error on 2014 taxes August 8th, 2016. So now, 2 years later, I have a $498 interest payment in addition to the tax correction.

Verified I missed the reported income , but isn't there some time frame that they should have notified me before 2 years of interest accrual?

My parents got hit earlier this year on an error from their 2013 taxes. Stupid me, I loaned them the $6K and they haven't even tried to pay me back yet several months later.

 

[Pilot2013]

Got off easy? I'm paying $40k in just federal taxes, hardly getting off easy. Just seems they took a long time. Yes, I know it was my fault, I screwed up, etc. but we are all human and I am not one to try and blow off my "responsibility to the rest of society". Just think they should have it figured out within 6 months or so, versus 18 months.

 

[harley]

Got off easy? I'm paying $40k in just federal taxes, hardly getting off easy. Just seems they took a long time. Yes, I know it was my fault, I screwed up, etc. but we are all human and I am not one to try and blow off my "responsibility to the rest of society". Just think they should have it figured out within 6 months or so, versus 18 months.

Sorry for poking a sore spot. I obviously should have enclosed my comment in <sarc></sarc> tags. I still stand by my guns statement. They could care less about fair or reasonable. You have no recourse.

 

[aaronc879]

Got off easy? I'm paying $40k in just federal taxes, hardly getting off easy. Just seems they took a long time. Yes, I know it was my fault, I screwed up, etc. but we are all human and I am not one to try and blow off my "responsibility to the rest of society". Just think they should have it figured out within 6 months or so, versus 18 months.

I agree. The penalty and interest shouldn't start until you are notified.

 

[Pilot2013]

Sorry for poking a sore spot. I obviously should have enclosed my comment in <sarc></sarc> tags. I still stand by my guns statement. They could care less about fair or reasonable. You have no recourse.

No problem. I didn't mean to be so sensitive. Although the tax spot is pretty sore for me most of the time. Especially when I have relatives that I know the details on and that I am basically paying to be lazy, with the Govt as the middle man.

 

[pb4uski]

Did you have earnings on the tax that you failed to pay from when the 2014 return was due until now? IIRC the IRS rate was 3% annually for much of that time so if you earned more than 3% then they did you a favor by waiting to notify you.

 

[pb4uski]

I agree. The penalty and interest shouldn't start until you are notified.

No, that makes no sense.... if that were the case there would be no disincentive to just habitually underpay since you can earn interest from the filing date to when you are notified and pay nothing under your scheme.

 

[Pilot2013]

Did you have earnings on the tax that you failed to pay from when the 2014 return was due until now? IIRC the IRS rate was 3% annually for much of that time so if you earned more than 3% then they did you a favor by waiting to notify you.

I am sure I got a good 0.05% on that money... And it was 3% until April, then 4%

 

[Dash man]

I just got hit with a $25 fine for not filing a local earned income tax return last year...I didn't file because I had no earned income since I'm retired. What a scam!


Enjoying life!

 

[Pilot2013]

No, that makes no sense.... if that were the case there would be no disincentive to just habitually underpay since you can earn interest from the filing date to when you are notified and pay nothing under your scheme.

I don't disagree, but I think their should be a time limit for informing (6 months?) and then interest stops until notification. Wishful thinking, I know. Penalty was "accuracy related" so ok, put that on right away. That was my fault. I do wonder if the interest includes the Penalty amount though. I am betting yes.

 

[Sunset]

Got off easy? I'm paying $40k in just federal taxes, hardly getting off easy. Just seems they took a long time. Yes, I know it was my fault, I screwed up, etc. but we are all human and I am not one to try and blow off my "responsibility to the rest of society". Just think they should have it figured out within 6 months or so, versus 18 months.

I agree, it is strange in this day and age that it takes them that long to realize you forgot to claim about $100K in money ? (a guess).

From the IRS point of view, they think they just caught a big tax cheat.

Are you sure they are correct ?
If this is because of first year of estimated payments or RMD, you should appeal (while still paying the $$) as they may reverse the fine or some part of it.

 

[pb4uski]

I don't disagree, but I think their should be a time limit for informing (6 months?) and then interest stops until notification. Wishful thinking, I know. Penalty was "accuracy related" so ok, put that on right away. That was my fault. I do wonder if the interest includes the Penalty amount though. I am betting yes.

Six months? The federal government can't do much of anything within 6 months.

 

[Pilot2013]

I agree, it is strange in this day and age that it takes them that long to realize you forgot to claim about $100K in money ? (a guess)

$48k from missing a distribution to DW (inheritance) of tax deferred annuity which came early 2014. Long story, but I still should have remembered when I was filling out tax in April of '15... Luckily, they did withhold 20% so that was added to taxes paid in the notification.

 

[pb4uski]

One of the good things about using Quicken for everything is that it would be hard to miss something like that.... but given it was a one-off I can see where it would be easy to forget.

 

[target2019]

There must be something definitive about the review/audit period on the IRS tax site.
Might look there?

 

[RE2Boys]

$48k from missing a distribution to DW (inheritance) of tax deferred annuity which came early 2014. Long story, but I still should have remembered when I was filling out tax in April of '15... Luckily, they did withhold 20% so that was added to taxes paid in the notification.

Didn't you receive a 1099R with your other tax papers?

Depending on your state, you may have a significant error regarding your state income tax return, would be best to file an amended return if that is the case. They will likely hit you with an interest penalty but not a negligence penalty as the feds probably have if you file an amended return before they send out a letter.

With Congress continually underfunding IRS staffing, it's not a surprise to me. From what I have observed at my CPA firm (my seasonal employment), 12-18 month is about the norm.

 

[frayne]

I think the time frame is probably pretty usual and customary. I think when the tax forms sent to the IRS don't match up with the return, the red flag goes up. I think the time lag may be a result of lack of IRS personnel due to budget cuts. Years ago I missed 1099 from a small stock sale and it took about two years before it caught up via the IRS.

 

[RunningBum]

I am sure I got a good 0.05% on that money... And it was 3% until April, then 4%

Why is that? Are you keeping all of your money in low interest accounts? You may have paid the money out of a cash account but I doubt you kept an extra $10K in cash not knowing you'd have to pay it to the IRS 18 months later. Most likely you'll sell some other investment that may have done better than 3-4% to replenish your cash account.

3-4% is a pretty reasonable rate of interest, IMO. It's better than missing a credit card payment and getting hit with 18%.

As long as they find the error within the statute of limitation it's legit for them to charge interest. Don't like it? Be more careful with your taxes.

 

[Pilot2013]

Didn't you receive a 1099R with your other tax papers?

Depending on your state, you may have a significant error regarding your state income tax return, would be best to file an amended return if that is the case. They will likely hit you with an interest penalty but not a negligence penalty as the feds probably have if you file an amended return before they send out a letter.

There was a 1099 (according to the annuitant) but apparently misplaced, or thrown out with other mail, and didn't remember. Stupid, I know.

I'm going to check on the State. I am sure their will be at least interest if not a penalty there as well.

 

[Ian S]

With Congress continually underfunding IRS staffing, it's not a surprise to me. From what I have observed at my CPA firm (my seasonal employment), 12-18 month is about the norm.

I suspect that the IRS is way behind in technology too. It shouldn't take long to match up 1099's with an individual's return. Maybe some Canadians can chime in here but my mother in Canada gets a "Notice of Assessment" within a couple of months after the return is filed and I'm quite certain that notice would catch something as glaring as a missed T slip (akin to a 1099).

 

[nwsteve]

Definitely make timely payment in full but consider requesting a waiver of the penalty due to the one time nature of the error (inheritance distribution). You may have to do some "creative" writing but the Service is reputed to be a bit more flexible with penalties and may give you a waiver for all or some of the penalty.
Cost nothing to ask.
Nwsteve
\

 

[RobbieB]

They have 3 years to "correct" your return. Be happy they didn't take longer.

 

[ShokWaveRider]

This brings up a good point about 1099 forms. I have a very small internet business that I use PayPal for. I included all the sales from my website on my Tax forms. I do all sales vis the web site. BUT I use PP or everything. Personal things I have sold that are not business related. I have been selling off a lot of hobby items purchased before the business went into play. I do not put them on my taxes as it is not applicable and is not income.

PayPal just sends out 1 1099 for all and does not differentiate.

I wonder how that will work?