Taxpayers have been heard to say, “I’ve already resolved my case. Why am I still receiving notices from the IRS?” Unfortunately, the issue is not uncommon, as computer glitches and other issues can cause a flood of ominous IRS notices, even though a taxpayer may have already reached an agreement with the IRS. Unfortunately for the taxpayer, once an issue is in the system it can be difficult to remove. Some of the taxpayers who came forward to participate in the Offshore Voluntary Disclosure Program (OVDP)—paying the 8 years of taxes, as well as the penalties and interests on the offshore accounts that were previously undisclosed—are now finding themselves in the middle of the IRS notice deluge for several reasons.
The first reason may have to do with the misapplication of payment. When the IRS receives a payment with amended returns for the taxes owed, as well as the interest and penalties accrue, there is a possibility that the IRS will misapply the payment. For example, if your amended returns for the year 2009 required a payment of $20 dollars and your 2010 amended returns required a $300 dollar payment, you may send in a check for $320, thinking the money would be appropriately applied. Unfortunately, all $320 may be applied to 2010. That misapplication would result in an overpayment of $20 for 2010 and an underpayment for 2009.
When this occurs, the IRS computers will see the underpayment as a failure to comply, despite the OVDP promise of protection, and will begin the send notices. There have been cases in which individuals receive Second Notices without ever receiving a first notice. Notices of Levy have also been issued to taxpayers who have had payments erroneously applied.
Taxpayers may also encounter a situation in which they continue to receive notices for the same years for which they had reached an agreement with the IRS. In extreme cases, taxpayers—after exhausting all other resources within the IRS itself—have been instructed to send the erroneous notices to the voluntary disclosure contact at their local IRS CID, who will then forward the letter to the IRS CID office in Washington, D.C.
The IRS is also known to erroneously calculate interest when resolving issues. Interest should cease to accrue after the taxpayer has paid the taxes, interest, and a 20% penalty, but there are times in which the IRS continues to calculate interest up until the closing agreement is signed. According to an article on this topic in a recent edition of Forbes, IRS agents seem to be unable to assist in resolving the erroneous interest charges, but they do say that the taxpayer can expect to receive a refund or an offset on the next return filed.
While you may not be dealing with issues associated with reporting offshore accounts, you may still find yourself the recipient of unwarranted notices from the IRS. The important thing to remember is to always, always follow up on the notices. It can only do you harm as a taxpayer to ignore them. Speaking to a qualified tax attorney regarding your case could mean the difference. The attorneys at Segal, Cohen and Landis, LLP are prepared to answer your questions and deal with IRS issues as they arise. Contact them today:
Segal, Cohen & Landis 9100 Wilshire Blvd. Ste. 601E Beverly Hills, CA 90212 (310) 285-3999