IRS CP14: Dishonored Payment Penalty?

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Anon1234
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IRS CP14: Dishonored Payment Penalty?

Post by Anon1234 »

Hi Tax Expert Bogleheads, I have two questions about the IRS notice CP14 (Notification of balance due) that I just got.

1) There is a $25.00 "Dishonored payment penalty." However, they have received, and recognize having received, all the money I sent in - exactly, to the penny. There is no missing payment. Any idea why I would be charged such a fee? How should I respond?

2) Every year for a long time they send me a notice saying that I overpaid or underpaid taxes by less than a dollar. This year I underpaid by $0.64, and they want the $0.64 plus $0.01 failure to pay penalty. I gave up trying to get paper I-bonds because this small discrepancy causes them to send all my money back. For many years I used an accountant, but for 2013 I used HR Block software. Same result. Any ideas why this happens?

Total due $25.65. I probably should just pay it, but after so many years, I'd like to stop the recurring headache if possible.
livesoft
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Re: IRS CP14: Dishonored Payment Penalty?

Post by livesoft »

Interesting that you are always +- about a dollar. Next time, why not overpay by $30 and have the overpayment applied to next year's taxes? That way, if the software makes a rounding error (like TurboTax did on my return), then they just reduce the $30 to $29 and apply $29 to next year's taxes. That doesn't help you now, but it should help going forward.
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Phineas J. Whoopee
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Re: IRS CP14: Dishonored Payment Penalty?

Post by Phineas J. Whoopee »

I've noticed some weird numbers from them recently, which seem to agree if I round all values on my return to the nearest dollar. I suspect that's the way the IRS computers are programmed these days. Maybe trying that, if you're not doing it already, could help in the upcoming tax season.
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Dale_G
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Re: IRS CP14: Dishonored Payment Penalty?

Post by Dale_G »

Maybe the problem is rounding:
Rounding Off to Whole Dollars

You may round off cents to whole dollars. If you do round to whole dollars, you must round all amounts. To round off amounts to the nearest whole dollar, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding and only round off the total.
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MarkNYC
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Re: IRS CP14: Dishonored Payment Penalty?

Post by MarkNYC »

Anon1234 wrote:I have two questions about the IRS notice CP14 (Notification of balance due) that I just got.

1) There is a $25.00 "Dishonored payment penalty." However, they have received, and recognize having received, all the money I sent in - exactly, to the penny. There is no missing payment. Any idea why I would be charged such a fee? How should I respond?

2) Every year for a long time they send me a notice saying that I overpaid or underpaid taxes by less than a dollar. This year I underpaid by $0.64, and they want the $0.64 plus $0.01 failure to pay penalty. I gave up trying to get paper I-bonds because this small discrepancy causes them to send all my money back. For many years I used an accountant, but for 2013 I used HR Block software. Same result. Any ideas why this happens?

Total due $25.65. I probably should just pay it, but after so many years, I'd like to stop the recurring headache if possible.
1) When a check to the IRS does not clear, the IRS will assess a penalty: $25 if the check is less the $1,250, 2% if the check is larger. Perhaps the check did not clear the first time it was submitted, but cleared the second time ? The IRS does not usually re-deposit a second time, but the bank may have. Or maybe the penalty was just an IRS computer error. Not sure if the $25 is worth the time, but you may want to call the bank to find out what actually happened.

2) Don't understand the late-payment penalty of $ .01, but if you owe the IRS less than one dollar, the IRS says you don't have to pay.
TradingPlaces
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Re: IRS CP14: Dishonored Payment Penalty?

Post by TradingPlaces »

This whole thing is just dumb on the part of the IRS. There is no reason not to track everything down to cents. There was no such reason even 50 years ago. You don't need a super-computer to track cents (as long as you are already tracking dollars).
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dodecahedron
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Re: IRS CP14: Dishonored Payment Penalty?

Post by dodecahedron »

livesoft wrote:Interesting that you are always +- about a dollar. Next time, why not overpay by $30 and have the overpayment applied to next year's taxes? That way, if the software makes a rounding error (like TurboTax did on my return), then they just reduce the $30 to $29 and apply $29 to next year's taxes. That doesn't help you now, but it should help going forward.
It is my strong impression that if you overpay by $X (by your calculations) and tell them on your 1040 to apply the $X overpayment to next year's taxes, they will do exactly that--and they won't automatically reduce the amount applied to next year's taxes if they determine your software made an error in calculating your tax liability. Instead they will apply precisely the amount you requested to next year's estimated taxes and send you a bill for the amount of tax liability net of the amount you requested to apply to next year's taxes (possibly plus interest and penalties.)
lululu
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Re: IRS CP14: Dishonored Payment Penalty?

Post by lululu »

I do my taxes to the penny. Rounding offends me. I have never encountered the OP's problem.
livesoft
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Re: IRS CP14: Dishonored Payment Penalty?

Post by livesoft »

dodecahedron wrote:It is my strong impression that if you overpay by $X (by your calculations) and tell them on your 1040 to apply the $X overpayment to next year's taxes, they will do exactly that--and they won't automatically reduce the amount applied to next year's taxes if they determine your software made an error in calculating your tax liability. Instead they will apply precisely the amount you requested to next year's estimated taxes and send you a bill for the amount of tax liability net of the amount you requested to apply to next year's taxes (possibly plus interest and penalties.)
OK, if you say so, but my personal experience is exactly as I stated.

I am not sure if the IRS can distinguish between one making an entry error and one's tax software making a round-off error in calculating one's tax liability.
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Anon1234
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Re: IRS CP14: Dishonored Payment Penalty?

Post by Anon1234 »

livesoft wrote:Interesting that you are always +- about a dollar. Next time, why not overpay by $30 and have the overpayment applied to next year's taxes? That way, if the software makes a rounding error (like TurboTax did on my return), then they just reduce the $30 to $29 and apply $29 to next year's taxes. That doesn't help you now, but it should help going forward.
I am going to try this for my 2014 taxes. Thanks for the tip.
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Anon1234
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Re: IRS CP14: Dishonored Payment Penalty?

Post by Anon1234 »

An update:

If this happened to you, call the IRS and ask them to reference "Alert 15A0011"

Background: After a letter, 2 calls to the IRS, and being very persistent with my payment processor, PayUSAtax.com, I have a story that I believe.

The IRS processed all the October 15, 2014 payments from PayUSAtax.com incorrectly, then processed them a second time, correctly, on the same day. For all those people, the 1st failed processing caused a dishonored payment penalty (minimum $25). PayUSAtax.com got a lot of calls from people like me and worked with the IRS to find the problem. But instead of fixing it for everyone affected, the IRS decided to deal with it on a case by case basis as people call. PayUSAtax.com decided that providing the alert number and sending their customers back to the IRS phone queue was good enough. For me, that means I wasted about 5 hours of my time, the time of 6 people who posted here, and the time of 1,129 people who read this thread. Also the time of 2 IRS phone answerers, one IRS supervisor, and 3 people at PayTAXusa.com.
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