I often hear comments from friends that one of their greatest fears is getting a notice from the IRS or Illinois Department of Revenue. They fear that they will owe penalties, interest, or go to jail. Some of them fear tax notices more than motor vehicle tickets!
If you receive a letter or notice from the IRS or Illinois, it will explain the reason for the correspondence and provide instructions. The notice you receive will cover a very specific issue about your account or tax return. Generally, the taxing authorities will send a notice if they believe you owe additional tax, are due a larger refund, or they have a question about your tax return or need additional information. What can be intimidating is the way the notice is presented. For example, if they believe you owe additional tax, the notice will come in the form of an invoice with penalties and interest added to what they have ârecalculatedâ as your tax. In other words, they assume you are guilty of not paying the tax rather than thinking you might have made an error in completing the return.
I remember getting a claim from the IRS a few years back. When completing that yearâs tax return, I had transposed the numbers in my daughterâs social security number when I listed her as a dependent. Even though I had claimed her in previous years (with the correct social security number), they denied her as a dependent and recalculated my tax without her dependent exemption in the return. Instead of looking at prior year returns, correcting the error and sending me my refund, they invoiced me. It took me awhile to figure out why they denied her as a dependent. All I had to do was correct the social security number and send them the revised form. I then got my refund.
Unfortunately, I have heard stories of similar situations where the tax payer just paid the bill because they were intimidated by the taxing authority. They didnât take the time to see if the âassumptionsâ made by the taxing authority were correct or not. Of course (they thought), the taxing authorities are always right! Donât be intimidated by notices from the taxing authorities. Many times the ânoticesâ are automatically generated by a computer program and no one has even looked at your return. Read the notice carefully, and if it isnât clear, call the taxing authority and have them explain it to you in clear, simple language. The IRS knows it can do better. There is a notice on their website saying they are working on making their notices clearer, in simpler language. Yes, just like the âpaper reduction act,â simplified tax forms!
Next issueâPart 2: Tax Planning Tips for Seniors. Send in your tax planning questions by mail to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142 or by email to: thefrugalforum@gmail.com
