Underreported income on 2014 Tax year, IRS says I owe money plus interest

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
Accountant accidentally omitted some forms which stated that I earned about $5K more money than I actually owed and consequently the IRS gave me an automated under reporter status notice stating that I owe them more money. After some back and forth, I agree with most of the changes on the notice in that I do owe them more money. Here is the problem: They want to assess me interest. Like robots, they say I owe interest on this money and that I should pay. I could understand their belief in that I owe interest except for the fact that I way overpaid my taxes in 2014, so much so that it carried forward into the 2015 and 2016 Tax years. So since 2014, the IRS has had more than enough money that they've owed me and consequently I shouldn't be assessed any sort of interest charges.

The last time I had this issue, someone on the line was able to fix the problem for me and the problem went away. However, this time, they're not being so useful and insist that I owe them interest. Last I checked the Interest was $147 and it's probably accruing. How do I fix this issue so that I can pay off the $2300 balance (not interest) and not pay the interest charges?

Member Summary
Most Recent Posts
They paid interest on my refunds for when I amended the previous three years of returns.

stanolshefski (Mar. 05, 2017 @ 7:53p) |

The IRS interest rate for overpayments (refunds) and underpayments (you owe) is the same (currently 4%) except for corpo... (more)

jhburgess (Mar. 06, 2017 @ 3:11a) |

He wouldn't be requesting the interest be waived. He would be requesting the balance due be recalculated to include the... (more)

Glitch99 (Mar. 06, 2017 @ 6:42a) |

Staff Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

I don't think you can get out of this one so easily. I'd suggest just paying the interest and moving on. Carryover losses are inconsequential.

Since this is your accountant's error, you should ask her to pay the interest.

bluechalk said:   Since this is your accountant's error, you should ask her to pay the interest.
  Yep, exactly. My CPA made an error a couple of years back also, it had to do something with daycare costs I remember then IRS asked me to pay the owed taxes plus the interest, so I paid it all, and the following year I asked the CPA, he instructed me to deduct the interest from his fees. I guess that was fair.

goku2 said:   Accountant accidentally omitted some forms which stated that I earned about $5K more money than I actually owed and consequently the IRS gave me an automated under reporter status notice stating that I owe them more money. After some back and forth, I agree with most of the changes on the notice in that I do owe them more money. Here is the problem: They want to assess me interest. Like robots, they say I owe interest on this money and that I should pay. I could understand their belief in that I owe interest except for the fact that I way overpaid my taxes in 2014, so much so that it carried forward into the 2015 and 2016 Tax years. So since 2014, the IRS has had more than enough money that they've owed me and consequently I shouldn't be assessed any sort of interest charges.

The last time I had this issue, someone on the line was able to fix the problem for me and the problem went away. However, this time, they're not being so useful and insist that I owe them interest. Last I checked the Interest was $147 and it's probably accruing. How do I fix this issue so that I can pay off the $2300 balance (not interest) and not pay the interest charges?

  When you applied the overpayment from 2014 to your estimated taxes for 2015, that money was no longer available to satisfy any 2014 liability.  It's the same as if you had gotten a cash refund and then subsequently paid your 1st 2015 estimate.
The interest on your 2014 underreporting is due and continues to accrue until paid. The interest rate was 3% through 3/31/16 and increased to 4% thereafter.

goku2 said:   The last time I had this issue...

Seems like you need a new accountant.

goku2 said:   Last I checked the Interest was $147 and it's probably accruing. How do I fix this issue so that I can pay off the $2300 balance (not interest) and not pay the interest charges?
  For most people, $147 would a bargain price to the get the IRS off their back.

I got a Notice of Deficiency from the IRS a few months ago, it was for unreported income on my 2014 taxes (I did not include a 1099 I received from eBay) I ended up submitting a Schedule C and Self Employment Form to account for the income. I ended up paying an extra $549 in taxes and $53 in interest. I have never been so happy to pay a $600 bill, anything to get off the IRS's radar. I agree with the others that stated your accountant should have to pay the interest bill to the IRS because it was their mistake.

pull the Trump card. write on postcard saying i win and mail it in

 Unfortunately it is just about impossible to get out of interest charges. If there were penalties those can get waived if you have a good reason, but interest not usually.  Just pay it as soon as you can because the interest charges will keep accruing. You can ask your accountant to give you a break on his bill for this year's taxes  if he was to blame and he probably will oblige.

 What we, US taxpayers, should really be asking is why there are any interest charges when the Federal Reserve has held interest rates near zero  for the past 8.5 years.  If savings accounts have not been paid interest for the better part of this decade, how does the IRS justify that they should be paid interest?    It's not like your  owed taxes earned any interest during the period from when they were owed to when you will pay them.   It is actually grossly unfair.    In theory, when you over pay your taxes with the IRS,  they should earn interest at the same interest rate that they charge you when  they find you in under payment. Of course, it doesn't work like that,  because the rules are in their favor always. 

khakuda said:    What we, US taxpayers, should really be asking is why there are any interest charges when the Federal Reserve has held interest rates near zero  for the past 8.5 years.  If savings accounts have not been paid interest for the better part of this decade, how does the IRS justify that they should be paid interest?    It's not like your  owed taxes earned any interest during the period from when they were owed to when you will pay them.   It is actually grossly unfair.    In theory, when you over pay your taxes with the IRS,  they should earn interest at the same interest rate that they charge you when  they find you in under payment. Of course, it doesn't work like that,  because the rules are in their favor always. 
  Not to sound snarky, but isn't underpaying the IRS essentially you  (often inadvertently) taking out a loan from them? 

I would just pay the interest and ask the accountant to reimburse you. 

$145 is cheap. I once had to pay $2k interest to IRS. You can't fight the IRS

i can reccomend a good law firm,,, they are Dewey, Cheatem and Howe...they have gotten me out of a lot of jams...

lilstabber said:   $145 is cheap. I once had to pay $2k interest to IRS. You can't fight the IRS
  I once received a letter from the IRS stating that I owed $36K in back taxes.
They were wrong, but I still had to prove it.

Pay the $145 and move on with life.
 

scoutconnor said:   
khakuda said:    What we, US taxpayers, should really be asking is why there are any interest charges when the Federal Reserve has held interest rates near zero  for the past 8.5 years.  If savings accounts have not been paid interest for the better part of this decade, how does the IRS justify that they should be paid interest?    It's not like your  owed taxes earned any interest during the period from when they were owed to when you will pay them.   It is actually grossly unfair.    In theory, when you over pay your taxes with the IRS,  they should earn interest at the same interest rate that they charge you when  they find you in under payment. Of course, it doesn't work like that,  because the rules are in their favor always. 
  Not to sound snarky, but isn't underpaying the IRS essentially you  (often inadvertently) taking out a loan from them? 

 Not snarky at all, you just weren't following me. When you overpay you are making them a loan and they pay no interest to you on that loan.  As you said when you underpay, you were taking out a loan from them and you owe them interest. The point I was making is that the IRS and states pay you no interest when you overpay them, charge interest when you underpay AND use an interest rate that is way higher than it should be given the current level of rates. I believe the state of New York charges you at 7.5% There are no short-term annualized risk free interest rates that are that high in the real world  with the Federal Reserve having kept interest rates near zero for 8 1/2 years 

khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

I'm afraid all the posters above are correct and the interest starts accruing from the due date of the return without regard to any overpayment you may have had. Relevant authority could be found in Revenue Ruling 99-40. The date when you requested the overpayment to be applied to next year's liability the funds became "unpaid" resulting in the interest charge. Interest will keep accruing untill is paid in full so you may want to call IRS to determine updated amount due.

Unless your return is complicated, take this years return as a guide and do your taxes yourself next year.

Matr0skin said:   I'm afraid all the posters above are correct and the interest starts accruing from the due date of the return without regard to any overpayment you may have had. Relevant authority could be found in Revenue Ruling 99-40. The date when you requested the overpayment to be applied to next year's liability the funds became "unpaid" resulting in the interest charge. Interest will keep accruing untill is paid in full so you may want to call IRS to determine updated amount due.
  You could amend your tax returns so that the correct overpayments were carried from each tax year to the next year.

cowboyBill said:   
Matr0skin said:   I'm afraid all the posters above are correct and the interest starts accruing from the due date of the return without regard to any overpayment you may have had. Relevant authority could be found in Revenue Ruling 99-40. The date when you requested the overpayment to be applied to next year's liability the funds became "unpaid" resulting in the interest charge. Interest will keep accruing untill is paid in full so you may want to call IRS to determine updated amount due.
  You could amend your tax returns so that the correct overpayments were carried from each tax year to the next year.

  I don't think I can amend a return that is in the middle of an audit, no? lol

Yes you can. I did so a few years ago to the detriment of the IRS. In effect, they put me in a position that I had to do a more honest return. I had some losses that I originally intended to overlook, because I was living financially hand to .Mouth.. I figured as long as I did not owe anything, that was good enough. By making me deal with the audit, I had to file a more detailed amended return ... enough to affect other years to my advantage in those other years.

JW10 said:   Yes you can. I did so a few years ago to the detriment of the IRS. In effect, they put me in a position that I had to do a more honest return. I had some losses that I originally intended to overlook, because I was living financially hand to .Mouth. . I figured as long as I did not owe anything, that was good enough. By making me deal with the audit, I had to file a more detailed amended return ... enough to affect other years to my advantage in those other years.
  So I do call them again on Monday and tell them my intentions? Cause I recently received a Notice of Deficiency (CP3219A) which I think at this stage, things are looking much worse. I am willing to do an amended return for both 2014 and 2015 tax years if need be. 

cowboyBill said:   
Matr0skin said:   I'm afraid all the posters above are correct and the interest starts accruing from the due date of the return without regard to any overpayment you may have had. Relevant authority could be found in Revenue Ruling 99-40. The date when you requested the overpayment to be applied to next year's liability the funds became "unpaid" resulting in the interest charge. Interest will keep accruing untill is paid in full so you may want to call IRS to determine updated amount due.
  You could amend your tax returns so that the correct overpayments were carried from each tax year to the next year.

  Please see the following article
 link here
While I think it's too late to file an amended return to request the change from applying overpayment to refund; OP may still save some interest if he had no required estimated payment due for the follwoing tax year. The article covers both of these issues.   
 

rufflesinc said:   
khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

 Hahaha, not risk free interest rates. Citi can't decide to go into one of your bank accounts and take the money  without your authorization like the IRS can. Citi can't garnish your wages.  In other words, Citibank has to charge a higher interest-rate because they have very little recourse if you don't pay them.  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

The IRS is on the other hand is pretty much the worlds most risk-free operation  when it comes to getting paid back - they don't worry about getting their money. They can charge a lower interest-rate because if you don't pay they will take any money you have or any assets you have or  garnish  your wages or send you to jail  if none of the above work out for them in terms of getting their money.

The OP should just pay the $147 interest and the problem will go away.   That is the best possible solution in this case.  You do not get out of interest on under paying taxes. As I said in the beginning, you can get out of penalties that come on top of interest, but never interest.  Be glad it is only $147.  People would kill to get the IRS off their backs for $147.

khakuda said:   
  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

 

  The first is true.

But conventional mortgages are backed by the govt. If they were not, the rates would be higher. Not 13% , but probably more like 6-7%

If Trump does not have to pay taxes why should you????

belgique said:   If Trump does not have to pay taxes why should you????
  The majesty of the tax law allows rich and poor alike pay lower capital gains tax and can take all legally allowed deductions. #anatolefrance

belgique said:   If Trump does not have to pay taxes why should you????
  Morally, it's the right question to ask. Too bad the IRS only cares about the legal aspect.

In this country, the more you make, the less percentage of your income you pay. The people who have get all their income from an employer get screwed the most. The people who simply invest their family's fortune, and live off the investment gains without ever working, pay almost nothing.
It's really no different than the MIddle Age aristocracies.

Pay the interest but write "Tell Trump to pay tax too" on the front or back of the check. It might make you feel better. Remember, our billionaire president pays no tax.

khakuda said:   
rufflesinc said:   
khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

 Hahaha, not risk free interest rates. Citi can't decide to go into one of your bank accounts and take the money  without your authorization like the IRS can. Citi can't garnish your wages.  In other words, Citibank has to charge a higher interest-rate because they have very little recourse if you don't pay them.  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

The IRS is on the other hand is pretty much the worlds most risk-free operation  when it comes to getting paid back - they don't worry about getting their money. They can charge a lower interest-rate because if you don't pay they will take any money you have or any assets you have or  garnish  your wages or send you to jail  if none of the above work out for them in terms of getting their money.

The OP should just pay the $147 interest and the problem will go away.   That is the best possible solution in this case.  You do not get out of interest on under paying taxes. As I said in the beginning, you can get out of penalties that come on top of interest, but never interest.  Be glad it is only $147.  People would kill to get the IRS off their backs for $147.

  Actually, if your credit card and bank account is with the same bank they may have the ability to go in and take money. Most credit card agreements have right of setoff language in them.

Additionally, the IRS does pay interest on overpayments. The interest rate they pay is a bit lower than the interest rate they charge (just like any other entity), but a 3% underpayment interest rate actually seems pretty fair to me. Also, they do worry about getting their money. That's why they have authority to do certain things (jeopardy assessments, etc.)

I agree with you that the IRS doesn't generally have authority to waive interest charges. Of course, they can remove interest charges, but that's only when they agree that they shouldn't have been assessed in the first place.

goku2 said:   
JW10 said:   Yes you can. I did so a few years ago to the detriment of the IRS. In effect, they put me in a position that I had to do a more honest return. I had some losses that I originally intended to overlook, because I was living financially hand to .Mouth. . I figured as long as I did not owe anything, that was good enough. By making me deal with the audit, I had to file a more detailed amended return ... enough to affect other years to my advantage in those other years.
  So I do call them again on Monday and tell them my intentions? Cause I recently received a Notice of Deficiency (CP3219A) which I think at this stage, things are looking much worse. I am willing to do an amended return for both 2014 and 2015 tax years if need be. 

  No, do not call them.  Read the notice where it provides instructions on how to appeal.  Request that they take the amount due out of the amount that was rolled forward, and remove the interest penalty. 

Your accountant erred here, you should pay the tax and you should be looking at your accountant to pay for the interest and penalties from their errors and omissions insurance. You would have owed the taxes either way so you obviously should pay them but your accountant prepared the return and they made a mistake causing you to owe additional money. I can't imagine it's that much based on $5k. 

OP, you can appeal the Notice if you want to, but you'd have to pay a filing fee, which probably makes just paying the interest look pretty nice. There are other options, but to me, the interest amount seems pretty small.

marginoferror said:   
khakuda said:   
rufflesinc said:   
khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

 Hahaha, not risk free interest rates. Citi can't decide to go into one of your bank accounts and take the money  without your authorization like the IRS can. Citi can't garnish your wages.  In other words, Citibank has to charge a higher interest-rate because they have very little recourse if you don't pay them.  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

The IRS is on the other hand is pretty much the worlds most risk-free operation  when it comes to getting paid back - they don't worry about getting their money. They can charge a lower interest-rate because if you don't pay they will take any money you have or any assets you have or  garnish  your wages or send you to jail  if none of the above work out for them in terms of getting their money.

The OP should just pay the $147 interest and the problem will go away.   That is the best possible solution in this case.  You do not get out of interest on under paying taxes. As I said in the beginning, you can get out of penalties that come on top of interest, but never interest.  Be glad it is only $147.  People would kill to get the IRS off their backs for $147.

  Actually, if your credit card and bank account is with the same bank they may have the ability to go in and take money. Most credit card agreements have right of setoff language in them.

Additionally, the IRS does pay interest on overpayments. The interest rate they pay is a bit lower than the interest rate they charge (just like any other entity), but a 3% underpayment interest rate actually seems pretty fair to me. Also, they do worry about getting their money. That's why they have authority to do certain things (jeopardy assessments, etc.)

I agree with you that the IRS doesn't generally have authority to waive interest charges. Of course, they can remove interest charges, but that's only when they agree that they shouldn't have been assessed in the first place.

  I don't think you are correct that the IRS pays interest on tax overpayment unless they fail to give you your refund within 45 days  after April 15 of the following year when you file.  

khakuda said:   
marginoferror said:   
khakuda said:   
rufflesinc said:   
khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

 Hahaha, not risk free interest rates. Citi can't decide to go into one of your bank accounts and take the money  without your authorization like the IRS can. Citi can't garnish your wages.  In other words, Citibank has to charge a higher interest-rate because they have very little recourse if you don't pay them.  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

The IRS is on the other hand is pretty much the worlds most risk-free operation  when it comes to getting paid back - they don't worry about getting their money. They can charge a lower interest-rate because if you don't pay they will take any money you have or any assets you have or  garnish  your wages or send you to jail  if none of the above work out for them in terms of getting their money.

The OP should just pay the $147 interest and the problem will go away.   That is the best possible solution in this case.  You do not get out of interest on under paying taxes. As I said in the beginning, you can get out of penalties that come on top of interest, but never interest.  Be glad it is only $147.  People would kill to get the IRS off their backs for $147.

  Actually, if your credit card and bank account is with the same bank they may have the ability to go in and take money. Most credit card agreements have right of setoff language in them.

Additionally, the IRS does pay interest on overpayments. The interest rate they pay is a bit lower than the interest rate they charge (just like any other entity), but a 3% underpayment interest rate actually seems pretty fair to me. Also, they do worry about getting their money. That's why they have authority to do certain things (jeopardy assessments, etc.)

I agree with you that the IRS doesn't generally have authority to waive interest charges. Of course, they can remove interest charges, but that's only when they agree that they shouldn't have been assessed in the first place.

  I don't think you are correct that the IRS pays interest on tax overpayment unless they fail to give you your refund within 45 days  after April 15 of the following year when you file.  

  They paid interest on my refunds for when I amended the previous three years of returns.

khakuda said:   
marginoferror said:   
khakuda said:   
rufflesinc said:   
khakuda said:   
 There are no short-term annualized interest rates that are that high in the real world  

  cite? outside of 0% bt, my CCs charge me 13%+

 Hahaha, not risk free interest rates. Citi can't decide to go into one of your bank accounts and take the money  without your authorization like the IRS can. Citi can't garnish your wages.  In other words, Citibank has to charge a higher interest-rate because they have very little recourse if you don't pay them.  They have risk  because there is no asset backing the loan they have made to you that they can repossess  when you borrow on a credit card.    It is one of the reasons you're home mortgage rate is much lower than 13%, because they can take your house and foreclose.

The IRS is on the other hand is pretty much the worlds most risk-free operation  when it comes to getting paid back - they don't worry about getting their money. They can charge a lower interest-rate because if you don't pay they will take any money you have or any assets you have or  garnish  your wages or send you to jail  if none of the above work out for them in terms of getting their money.

The OP should just pay the $147 interest and the problem will go away.   That is the best possible solution in this case.  You do not get out of interest on under paying taxes. As I said in the beginning, you can get out of penalties that come on top of interest, but never interest.  Be glad it is only $147.  People would kill to get the IRS off their backs for $147.

  Actually, if your credit card and bank account is with the same bank they may have the ability to go in and take money. Most credit card agreements have right of setoff language in them.

Additionally, the IRS does pay interest on overpayments. The interest rate they pay is a bit lower than the interest rate they charge (just like any other entity), but a 3% underpayment interest rate actually seems pretty fair to me. Also, they do worry about getting their money. That's why they have authority to do certain things (jeopardy assessments, etc.)

I agree with you that the IRS doesn't generally have authority to waive interest charges. Of course, they can remove interest charges, but that's only when they agree that they shouldn't have been assessed in the first place.

  I don't think you are correct that the IRS pays interest on tax overpayment unless they fail to give you your refund within 45 days  after April 15 of the following year when you file.  

  The IRS interest rate for overpayments (refunds) and underpayments (you owe) is the same (currently 4%) except for corporate overpayments.
Interest is paid on overpayments from the date of payment.  Payments made by withholding or estimated payments are deemed paid on the due date of the return.  For overpayments made by withholding and/or estimates, interest is not paid on the first 45-days from the date of the return or the date filed, whichever is later.  

khakuda said:    Unfortunately it is just about impossible to get out of interest charges. If there were penalties those can get waived if you have a good reason, but interest not usually.  Just pay it as soon as you can because the interest charges will keep accruing. You can ask your accountant to give you a break on his bill for this year's taxes  if he was to blame and he probably will oblige.
 

 He wouldn't be requesting the interest be waived. He would be requesting the balance due be recalculated to include the overpayment that was rolled forward, so that there is no balance due to incur interest charges.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017