by Michael Lodge
Nobody ever wants to get letters from the IRS. Some clients will keep the letter closed until they bring it to me to open and read. When they see the IRS logo and name on the envelope they freeze up and get scared. So let’s go through the process of getting letters and responding to them. The best bet is to always open the letter and send it over to your tax accountant to read. If there is an issue you need to have your accountant have you sign a power of attorney so he can call the IRS, run a compliance check on your tax returns in questions, and be able to represent you. Here is what the IRS says to do.
April 15 is the deadline for most people to file their individual income tax returns and pay any tax owed. During its processing, the IRS checks for mathematical accuracy on your tax return. When processing is complete, if you owe any tax, penalty, or interest, you will receive a bill.
- Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily.
- In addition, if you file a return but don’t pay all tax shown as due on time, you will generally have to pay a late payment penalty. Thefailure to pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains as unpaid from the due date of the return until paid in full. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return by its due date and request an installment agreement, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect. Be aware that the IRS applies payments to the tax first, then any penalty, then to interest. Any penalty amount that appears on your bill is the total amount of the penalty up to the date of the notice, not the penalty amount charged each month. See Topic 202 for information about payment options.
- If you owe tax and don’t file on time, there is a penalty for not filing on time. The failure to file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there is also a minimum penalty for late filing; it is the lesser of $205 or 100 percent of the tax owed unless your failure to file was due to reasonable cause and not willful neglect. See Topic 304 for information about extensions if you cannot file on time.
You must file your return and pay your tax by the due date to avoid interest and penalty charges. Often, you can borrow the funds necessary to pay your tax at a lower effective rate than the combined IRS interest and penalty rate.
IRS electronic payment options are the best way for you to pay your federal taxes. Electronic payment options are available on IRS.gov/Payments. However, if you decide to pay by mail, in order to make sure your payment credits properly to your account, be sure to return the tear-off stub on your bill and use our return envelope, if provided. Please ensure that you:
- Make your check or money order payable to the United States Treasury
- Enter the primary social security number or employer identification number
- Enter the tax year and form number
- Ensure your name, address, and telephone number are on the payment
- Do NOT send cash
For more information about ensuring proper credit of payments, see Topic 158.
The IRS may abate penalties for filing and paying late if you have reasonable cause and the failure was not due to willful neglect. Making a late payment as soon as you are able may help to establish that your initial failure to pay timely was due to reasonable cause and not willful neglect. If billed for penalty charges and you feel you have reasonable cause for abatement, send your explanation along with the bill to your service center, or call us at 800-829-1040 for assistance. Generally, the IRS does not abate interest charges and they continue to accrue until all assessed tax, penalties, and interest are fully paid.
There are some exceptions to the general deadlines for filing a return and paying tax, such as:
- If you are a member of the Armed Forces and are serving in a combat zone. Refer to Publication 3, Armed Forces’ Tax Guide, for additional information and qualifications.
- If you are a citizen or resident alien working abroad. Refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for details.
- The IRS also has the authority to extend filing and payment deadlines in certain disaster situations. For more information, search keyword “disaster” on IRS.gov.
It is important that you review your notice or bill. If, after reviewing it, you believe there is an error, write to the IRS office that sent it to you within the time frame given. You should also provide photocopies of any records that may help correct the error. You may also call the number listed on your notice or bill for assistance. If you are correct, we will make the necessary adjustment to your account and send you a corrected notice.
For more information about IRS notices and bills, refer to Publication 594 (PDF), The IRS Collection Process. For more information about penalty and interest charges, refer to Part One, Chapter 1, Filing Information, of Publication 17, Your Federal Income Tax for Individuals.
Again, if you are receiving notices and letters from the IRS and need help call our office at: 877.778.1770 or scan and email it to: firstname.lastname@example.org