How to Respond to a "Proposed Amount Due" Notice From IRS

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Small Law Survivor
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How to Respond to a "Proposed Amount Due" Notice From IRS

Post by Small Law Survivor » Tue Aug 07, 2018 10:50 am

I received a notice from the IRS informing me that I owed $1600 in taxes for 2016.

They identified two income items, each one approximately $3,000.

ITEM 1: Withdrawal from 529 Plan - I withdrew $3,000 to purchase a computer for my daughter, who was a full time student in 2016. I assume I can sent the IRS the computer invoice, plus invoice from her college showing she was a full time student, and that will resolve this item.

ITEM 2: The second item - I had some miscellaneous income ($3,000) that my accountant failed to include on the return, so I do owe taxes on this.

Given that I will give the IRS a split response on this, how should I handle this logistically? I'm happy to pay the tax on item 2 when I provide documentation on item 1, but they don't break it up in a way that would enable me to do that. I'm not sure how long it will take for them to process my response on item 1, and I don't want interest to continue to run on item 2 while they are doing that.

In other words, I want to say: yes, here is the tax + interest on item 2, and here is the documentation to support no tax on item 1. How do I do this?

Also, am I missing anything in how I'm thinking about this?

Thanks!

dcabler
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by dcabler » Tue Aug 07, 2018 10:52 am

Wouldn't your accountant be the starting point for this?

ThankYouJack
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by ThankYouJack » Tue Aug 07, 2018 11:02 am

I'm going through this myself with the IRS.

You can include a letter back to them. Expect a while for a response - a couple months. So you may want to send them an check for the approximate amount you owe for the misc income so interest doesn't continue to build.

You can also call them, but I was on hold for 40 minutes the representative didn't help clarify my issue.

fabdog
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by fabdog » Tue Aug 07, 2018 11:02 am

If your accountant is not sorting it out for you (and since they made an error, they should be), you should have details buried in the letter that show what they are charging, and for what, so you can respond with partial payment, as you said, you don't want the clock to run, as they are quite slow in response.

I got a letter asking for tax on 529 withdrawals. It was all used for qualified expenses so I wrote up a nice letter explaining that, documenting tuition, room/board/books, computer and showing all spent on qualified expenses

The letter had a nice breakdown of what they wanted to charge me in tax (the withdrawal amount) and the 10% penalty for non qualified use, and the interest they proposed. Of course if they had a form like they do for HSA where you document all this, it would save them a lot of trouble.

Letter was dated Jun 4th, reply due by Jul 4th. I sent it off return receipt, it got there Jun 11th. I got a letter dated Jul 11th saying they had gotten my response on Jun 11th but still needed more time to process it. As of today, no further contact

Call the accountant. He/She owns helping you fix this. They should pay any penalty/interest on the part they did not include on your return (assuming you gave them the info)

Mike

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CaliJim
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by CaliJim » Tue Aug 07, 2018 11:03 am

Did the letter say anything about how to respond if you disagree with their findings?
I would assume you need to file an amended return.
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Small Law Survivor
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by Small Law Survivor » Tue Aug 07, 2018 1:26 pm

CaliJim wrote:
Tue Aug 07, 2018 11:03 am
Did the letter say anything about how to respond if you disagree with their findings?
I would assume you need to file an amended return.
The letter explicitly states that I do not need to file an amended return.
dcabler wrote:
Tue Aug 07, 2018 10:52 am
Wouldn't your accountant be the starting point for this?
You would think so. But, I gave the accountant a letter explicitly informing him of item #2, and he did not include it on the return. There's no excuse for this. I don't trust him any longer.

HereToLearn
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by HereToLearn » Tue Aug 07, 2018 1:31 pm

Watching with interest as I started using 529 last year, including computer purchase, and have not heard from the IRS yet. I guess I shouldn't be surprised that it took them more than a year to contact you.

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CaliJim
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by CaliJim » Tue Aug 07, 2018 2:19 pm

OK. Whelp... on the IRS web site I found this: https://www.irs.gov/newsroom/if-you-rec ... what-to-do

"1)Don’t panic."

LOL

"3)...If you don’t agree with the correction the IRS made, it’s important that you respond as requested. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS."

There you go!

(Also... might be worth re-calculating what you do owe based on the missing $3k.)
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Pigeon
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by Pigeon » Tue Aug 07, 2018 2:26 pm

I recently got one of these telling me I owed them $26,000 for 2016. I rolled over an old IRA into a retirement account with TIAA. They assumed I had taken the distribution even though the forms from both Janus and TIAA showed otherwise. They then readjusted my AGI by the amount of the rollover, which caused them to disallow a number of other deductions/credits.

I responded by mail about a month ago, but still don't have a response back.

"Don't panic." Hahahaha. Nice they have a sense of humor.

schwank
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by schwank » Wed Aug 08, 2018 9:20 pm

I got one due to stock based comp and how it was taxed. It was included as w2 income with a specific callout about rsu totals, and the docs from the plan adminstrator were marked as no tax withheld. I provided a written response and documentation. After about a month I got a letter saying it was under review, and about a month later another letter arrived saying the issue was resolved.

Still, never a fun letter to receive.

Katietsu
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by Katietsu » Wed Aug 08, 2018 10:13 pm

The plan described in the original post is perfectly fine. I am not sure why you think it is not possible. You can say you agree with one proposed change but disagree with the second proposed change. And you can send a payment for the change you agree with.

Being questioned about a 529 withdrawal is very common. In the future, do have any payments from the 529 issued to the college or the student if at all possible instead of to the parent or grandparent. It does reduce the likelihood of an IRS notice being sent.

Small Law Survivor
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by Small Law Survivor » Thu Aug 09, 2018 9:26 am

Katietsu wrote:
Wed Aug 08, 2018 10:13 pm
The plan described in the original post is perfectly fine. I am not sure why you think it is not possible. You can say you agree with one proposed change but disagree with the second proposed change. And you can send a payment for the change you agree with.

Being questioned about a 529 withdrawal is very common. In the future, do have any payments from the 529 issued to the college or the student if at all possible instead of to the parent or grandparent. It does reduce the likelihood of an IRS notice being sent.
I will do this, thank you.

neilpilot
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by neilpilot » Thu Aug 09, 2018 10:18 am

You may need to amend your 2016 state tax return if it's effected by the second item (misc $3k income).

DIFAR31
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by DIFAR31 » Thu Aug 09, 2018 11:55 am

Katietsu wrote:
Wed Aug 08, 2018 10:13 pm
Being questioned about a 529 withdrawal is very common. In the future, do have any payments from the 529 issued to the college or the student if at all possible instead of to the parent or grandparent. It does reduce the likelihood of an IRS notice being sent.
It will certainly reduce the likelihood of an IRS notice being sent to the 529 account owner/parent/grandparent, but if the IRS computer determines that a notice should go out, it will be sent to the student instead. Been there, done that.

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celia
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by celia » Thu Aug 09, 2018 12:17 pm

Write them a letter showing them the documentation for item 1. Agree with them on item 2 and calculate the tax by adding $3,000 to your taxable income (line 43) and looking up what the tax liability would be for that amount. Include a check for the difference.

That should theoretically stop the clock on interest on taxes owed and they will probably respond with the late fees, which you can then pay.

Alternately, pay half of the amount they are billing you, since their bill should be including taxes owed and penalties for twice the amount you really owe. If the two items weren't exactly $3,000 each, pay a little more than half with your letter and ask them to apply the excess to your 2018 withholdings and notify you about the amount.

GrowthSeeker
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Re: How to Respond to a "Proposed Amount Due" Notice From IRS

Post by GrowthSeeker » Thu Aug 09, 2018 12:34 pm

I had something similar several years ago: 3 items, one was legitimate (some income I didn't know about, I never got the 1099, so I owed the tax) and 2 bogus items that were due to employer mistakes / shenanigans.

I left it up to my accountant, sending him a detailed email. He did whatever he did, but apparently without a resolution. About 8 months later I got a call from IRS; first I verified it was them and got a number and called them back. Then I explained to the person (who was I think a higher level person than is standard) and it was resolved.

My take away from this was: get all facts in front of you, then call the IRS.
Just because you're paranoid doesn't mean they're NOT out to get you.

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