penalty bill due before error resolved
L1: penalty bill due before error resolvedThe IRS sent me a letter saying I owe them the 10% penalty. Wrong, I don’t. I called them, and a nice smart gal got a resolution to their error rolling. But it will take 68 weeks to resolve. Meanwhile, the IRS bill is due in just 2 weeks. Should I pay the 10% penalty bill or not. I mean, it was wrongly billed. It is an IRS mistalke. If I do pay it, just to avoid further complications, will they pay me back once they realize their mistake?2014-08-13 18:01, By: Gimble Pop, IP: [184.108.40.206]
L2: penalty bill due before error resolvedI would not allow my clients to pay it. You could end up with unbelievable complexities in trying to straighten it out. Do not allow “big brother” bully you. Read the new TAXPAYER BILL OF RIGHTS just issued by the IRS NATIONAL TAXPAYER ADVOCATE.2014-08-13 18:11, By: dlzallestaxes, IP: [220.127.116.11]
L3: penalty bill due before error resolvedCould you tell us what the IRS mistake was? We like to know what IRSnotices are issuedif it involves a 72t plan, because it is an indication of what they are thinking when they assess a plan. Like the rest of us, the IRS does not have consolidated regulations to read, and many common 72t questions have an answer buried in various PLRs, tax court decisions, Notices, etc. Therefore, IRS mistakes and inconsistency are fairly commonplace.2014-08-14 17:54, By: Alan S, IP: [18.104.22.168]
L4: penalty bill due before error resolvedThe IRS mistake is in them claiming that I owe unpaid taxes for 2013 when I don’t. My taxable income for 2013 came in way under the amount needed for a single person to file a tax return. So I didn’t. I just filed a 5329 to let them know that my early IRA distribution was made under an SEPP plan and was thus not subject to the 10% early withdrawal penalty. Well, they billed me the 10% penalty anyway. Interestingly, a month before the unpaid taxes bill came, I got a letter from them saying: We reviewed your form 5329, which you submitted, and have associated it with your account.Û I called to ask what associated it with my accountÛ meant, but the phone rep was not helpful. However, I suspect the IRS filed a 1040 in my name (!) and filled it out wrong. Obviously, they did not carry over the zero dollar amount from line 4 of my 5329 to line 58 of the 1040. In other words, they ignored my SEPP exclusion 02 status (as shown on line 2 of my 5329) and calculated my early IRA distribution as untaxed income. That’s what I suspect. Meanwhile, to address dlzallestaxes’ comment, I fear unbelievable complexitiesÛ if I don’t pay the bill, not if I do pay it. I mean, sooner or later, the IRS has to realize their mistake, right? Then they’ll pay me back. As for the notices,Û I received only two communications from the IRS. The first was a letter (LTR 96C), the second was the unpaid taxes bill (CP14). Does anybody think I should pay the bill in order to avoid complications?2014-08-14 23:43, By: Gimble Pop, IP: [22.214.171.124]
L5: penalty bill due before error resolvedIt sounds as if you did not claim the SEPP 72-T distribution as income. It is subject to be included in taxable income. The only purpose of the 5329 is to report that the early distribution was not subject to the 10% penalty because of the exxception indicated.
Line 4 on form 5329 is only the calculation of the 10% penalty. You must include the amount of the distribution on line 15 in boxes a ( Gross ) and b ( taxable)( in case there is a form 8606 because any of your IRA contributions were non-deductible).
How much was your distribution on form 1099-R ? What was your other income ? How much was the total AGI ( Adjusted Gross Income) that you would have reported if you had filed a tax return ? A tax return is required unless the standard deduction and personal exemption exceed the Adjusted Gross Income.
If the IRS prepared a SFR ” Substitute for Return”, you can negate that by filing a correct tax return to prove that you owe zero, if that is the case. I always file tax returns for my clients, even when they are below the required threshold, in order to avoid situations like yours, if you are correct that your were below the threshold. But, since that figure would be about $ 10,000, I doubt that your total gross income, including your SEPP 72-T, is below that figure. I could be wrong, but we will not know until you give us your income figures.2014-08-15 02:16, By: dlzallestaxes, IP: [126.96.36.199]
L6: penalty bill due before error resolvedThanks for your help, dlzallestaxes. Yes, all income, including the SEPP paymentas entered on line 15b of form 1040resulted in zeroÛ taxable income (line 43 of 1040). My AGI was lower than my standard deduction plus my personal exemption (yikes). Thus, I didn’t bother mailing in the 1040. I filled it out, but then I just tossed it in my folder. I guess I should’ve sent it in, even though, technically, I wasn’t required to do so. But the IRSassuming they prepared one of those SFRsdisregarded the information on my form 5329. They’ve billed me exactly 10% of my SEPP payment, so it is the penalty they’re after, not some amount of regular income tax. My 1099-R shows Distribution Code 1, which is misleading, but like you said that’s why I filed the 5329. So now I need to file a corrected return, is that right? I googled that, and is it the Amended Return,Û form 1040-X, that I need to filealong with all other forms, including 5329 again? Do I just mail all of that in without notifying them in any other way? Should I wait the 68 weeks to see if their reprocessing of my notice letterÛ (their language) clears things up? Also, should I pay the bogus tax bill, which is due in ten days, or not pay it? Thanks.2014-08-15 05:10, By: Gimble Pop, IP: [188.8.131.52]
L7: penalty bill due before error resolvedI suggest that you file an original, but late, 1040. I do not think you can, or should, file a 1040-X Amended Tax Return because you never filed a 1040 tax return in the first place.
While you think that the 1099-R code 1 is misleading, that is what most companies file now, rather than code 2. You are correct that the 5329 you filed should have taken care of it, but the IRS had no 1040 to match it up against, which I think is the meaning of the letter that you mentioned earlier.
DO NOT SEND THEM ANY MONEY, unless you want to spend more than that amount to get it back with professional help.
If you want to, mail the tax return ASAP, and then about one week later (i.e. before the 10 days) attach a clearly marked COPY to their notice and send it in to the address on their notice. Mail the tax return and the other mailing both CERTIFIED MAIL, RETURN RECEIPT REQUESTED. I would then track them at USPS, a print out their tracking report. Also, click on the provision for getting an e-mail from USPS with all updates, about 3 days after you mail each one.
One of the 2 mailings should get their attention, and reverse their prior assessment.2014-08-15 05:27, By: dlzallestaxes, IP: [184.108.40.206]
L8: penalty bill due before error resolvedGood advice. I’m going to do all of that. I should mention that I called the IRS billing department on August 1 and asked if I could pay the bill in small amounts. The rep offered a 120-day installment. She said it’s a verbal extension. She said I could pay as little as $50 per month as long as I paid off the whole amount by November 28. So, I’m thinking I could send the first $50 and see if things get resolved before the next $50 rolls around, or the third $50, or the bulk payment in mid-November. It’d be a way of buying time without raising a red flag. If I don’t pay anything, they’ll probably start collections, freeze my money accts, or who knows what. Funny, I didn’t file a 1040 in 2012 either, just the 5329, but they didn’t say anything about it that time. 2014-08-16 00:43, By: Gimble Pop, IP: [220.127.116.11]
L9: penalty bill due before error resolvedSince you have not given us any figures, I can only assume that you are somehow correct, but I don’t see how.
Adjusted Gross Income is line 37 at the bottom of page 1. Taxable Income is on page 2 on line 43.
The only way that you could have the situation as you described it would be to have either a loss from business on Schedule C, a loss from rentals on Schedule E, or a net operating loss carryover, or a combination of them, and possibly a $ 3,000 capital loss carryover on Schedule D to offset the 1099-R distribution from your SEPP 72-T that you are supposed to report on line 15 a and 15 b.
If, on the other hand, the situation is as I think that it really is, then you should have reported the 1099-R distribution from your SEPP 72-T on line 15 a and 15 b, which would then be the figure at the bottom of page 1 on line 37. Then the standard deduction and personal exemptions on page 2 could leave you with a taxable income on line 43 of -0-, or a negative figure. Then you would not owe any tax, but you were still required to file a tax return for 2013, and 2012.
Of course, my figures assume that you also had no wages or unemployment compensation benefits.
Despite all of the above, if you had come to me for any planning before you started your SEPP 72-T, I would have asked if you thought that you might get a job again before reaching age 59 1/2. And if you did think that you would be looking for another job, then I would have probably sugested that you just take distributions from your IRA, which would not be taxable, other than just the 10% penalty. That way, if you did get another job, you would stop taking distributions, rather than being locked into taking distributions for at least 5 years, or longer until you were 59 1/2, which would then be taxed at a tax rate of probably at least 25%.
Further, if you qualified for any of the other exceptions in 2012 and/or 2013, you would not have been sunject to even the 10% penalty, and not have had any income tax either.2014-08-16 03:23, By: dlzallestaxes, IP: [18.104.22.168]
L10: penalty bill due before error resolvedInteresting comments. This line surprises me: “…but you were still required to file a tax return for 2013 and 2012.” If my taxable income is zero, then I shouldn’t have to file a tax return. That is the simple premise I was acting on. But I am definitely throwing out that idea. Next spring I will file both a 1040 (showing zero income) and a 5329. Hopefully, meanwhile, I can straighten out this 2013 mess. Thanks for your ideas and advice. I’ll post back when something material develops.2014-08-17 06:01, By: Gimble Pop, IP: [22.214.171.124]
L11: penalty bill due before error resolvedYes, I thought that you might have misunderstood the tax filing requirements.
Go to irs.gov or google “IRS MINIMUM INCOME FILING REQUIREMENTS” :
“GROSS INCOME” — If under 65, about $ 10,000 if single, or $ 20,000 if married. $13,000 if Head of Household)
” This figure includes all income from all sources unless any of that income is specifically exempt from taxes.” Also, it includes gross receipts from self-employment or gross rental income.
Because the IRS cross-references all W-2, 1099-INT, 1099-DIV, 1099-B, and 1099-MISC to your tax return from documents reported by 3rd parties, in almost all situations I recommend to my clients that they file a tax return, even for children (unless it is an insignificant amount of interest or dividend income). It is always less expensive to pay me to prepare the tax return than to correspond with the IRS looking for unreported income. If a child had losses on sales of stocks or mutual funds, these can be carried forward only if a tax return is filed, even though no taxes were due.
In addition, often there is taxable income for state or local income taxes, even if there is no federal income tax due. Finally, there can be self-employment taxes due even if there is no federal income taxes due.
Therefore, I recommend that you now file tax returns for 2012 and 2013.
2014-08-17 12:32, By: dlzallestaxes, IP: [126.96.36.199]