• 6550 Rock Spring Drive, Suite 530, Bethesda, MD 20817
  • 301-962-1700
  • mendoza@mendozaco.com

Blog - Tax Related

Many people don’t think twice about sending a check to the IRS to pay off their tax liability. They write the check, send it to the IRS, the check will clear, and they go about their day. That is until the IRS sends them a notice of intent to levy several months later, claiming that the debt was never paid off. The check could be cleared, the money could be taken out of your checking account, but the IRS can still claim that you owe a debt. But, this would be at no fault of your own. Sometimes the IRS will take payments and apply them to balances at their own discretion, even though you logically expect the payment to be applied to your debt. Now you are faced with additional penalties and interest, and the IRS is threatening to levy your property.

 

IRS CP161It’s a sticky situation to be in, but unfortunately, we see it happen often. Before you pay your debt, consider writing a check. Our recommendation is to avoid sending your payment through money orders, cashier's checks, or certified checks. In case something goes wrong and the IRS does not receive the payment, getting a canceled check from anything aside from a simple bank check can be a challenging and time-consuming ordeal. Money orders and cashiers checks require going to the post office or bank, requesting the check, and waiting several days or weeks to receive the canceled check in the mail. The IRS grants the recipient only 30 days to respond to a notice to levy. After 30 days, the IRS will begin to aggressively collect by threatening to garnish wages or assets. By the time you locate your canceled check, your time to respond to the notice has greatly diminished. If you use a personal check, getting a copy is as easy as logging into your bank account and printing the check.

 

Aside from online payment, using a regular check from your normal bank account is the most simple method for the IRS to locate your payment. Each canceled check comes with an endorsement stamp when it is processed by the IRS. The endorsement will include an IRS confirmation number and where the payment was deposited. A stamped endorsement on the check is essential if you come to find out whether the IRS has misallocated your payment. At times, the IRS can make a mistake and deposit the payment into accounts belonging to the wrong SSN entirely. IRS employees can accidentally mix up the numbers while entering them. Although unlikely, it is often due to simple human error. More common are the cases where the payments are applied to current tax liabilities instead of previous debts. Without specifying the tax year, the IRS will use their own discretion and often designate the payment to the most recent tax year. The older liability will continue to accrue penalties and interest during that time and the debt will continue to grow larger, unbeknownst to the taxpayer.

Designation IRS Letter

 

Here at MendozaCo, we formulated a reliable method of ensuring that your payment to the IRS goes to the right place. We went over the first step of the process: the importance of sending a check from your bank account. On the check, you should provide your SSN, the year of the liability in which you are paying, and the form you are addressing. We understand it can be uncomfortable to include sensitive details like your SSN on a check, but it is a crucial step in getting the check to the right place. For every check we send on behalf of our clients, we also attach a certified letter. The letter includes the name or person of reference, the purpose of the letter, the form, SSN, the year being paid, and a tax notice number if applicable. 

 

Not sure how to write your certified letter? No problem! We are giving out a complementary template letter free of charge. It’s simple- just click here: Designation Letter Template and fill in the blanks. Now you will have everything you need to securely pay your debt and avoid additional letters or fees from the IRS.

 

**Note: All opinions discussed in this blog are for general informational purposes only. The contents of Mendoza & Company blog posts are not intended to, and shall not be construed as, provide specific legal, financial, or tax advice. The contents expressed by Mendoza & Company are from the personal research and experience of the owner of the site and are intended as educational material. We encourage you to seek professional advice on the complementary templates.

Published in Tax Tips
Thursday, 15 July 2021 13:57

Watch Out for IRS CP2000

CP2000

Watch out for IRS CP2000 letters! It has come to our attention that we are receiving several calls regarding taxpayers receiving CP2000 letters from the IRS proposing corrections to their tax returns. If you have complicated tax returns, multiple streams of income, or you filed your taxes on your own, there is a chance you may receive a letter from the IRS claiming that you pay additional taxes. 

 

In 2019, before our client was engaged with us, our client filed her tax return using a free tax-filing software. There, she did as anyone else would: she input all of her revenue streams, calculated her taxes, and paid- all on time. She did as she was supposed to. What she didn’t realize, however, is that she forgot to include the sale of a stock that she had made earlier last year. During that time, the IRS was receiving her investment information from the financial institutions she had an activity with, and noticed that she did not report the stock sale. The discrepancy between the IRS tax calculations and her’s, prompted the IRS to send a CP2000 letter. Over two years later, in June of 2021, she finally receives the letter in the mail. 

 

CP2000 1Within the letter, the IRS stated that she had made an additional $27,000 of income that was not reported. It read, “We are proposing changes to your 2019 Form 1040 tax return” with a proposed amount due of $8,200. Since she was already engaged in our services for 2020 tax filing, she called us asking how to apply for an installment agreement. It’s common for us to see the IRS play up the urgency of the scenario and frighten people into believing that they owe them money. The CP2000 letter is a prime example of how the IRS can scare anyone into taking the proposal at face value. When someone is mailed a letter from the IRS, especially a CP2000 letter, it’s natural to assume that you are in serious trouble. 

 

After reviewing the letter with the client, we asked her to send us a copy of her 2019 Investment Activity Summary. The first thing we thought to ask was, “did the IRS include her cost basis in their calculation?”. As we came to find out, as eager as the IRS was to send her a proposed tax bill, they were not nearly as eager to check her 1099B form to account for the stock’s cost basis. Although the stock was sold for $27,000, she had purchased it for $2,000 more than what she had sold it for. The stock was sold at a loss. We promptly amended her 2019 tax return, and our client left with a refund of $407.00 plus a refund from Maryland. 

 

The key takeaway from this is in the event you receive a CP2000 letter, to have it reviewed by a tax professional. Sometimes, when using a free tax-filing software, mistakes can happen. The unfortunate fact is that there is more room for error, and you may end up paying more in taxes than you would if you had directly paid a tax professional to correctly file your taxes. If you have business income, foreign income, investments, capital gains income, rental income, or real estate income, consider Mendoza&Company, Inc. for your tax needs.   

 

Our results in response to IRS CP2000:  At the start the client owed the IRS $8251.00, but by the end, they left with $407.00 in their pocket. 

 

2019 Form 1040X page 1

2019 Form 1040X page 2

Published in Tax Resolution

Owing more than $51,000.00 of taxes can stop your travel plans.

Cp508c

Beginning in 2018, The IRS started mailing to Taxpayers owing more than $51,000.00 a notice called "CP508C - Notice of Certification of your Seriously Delinquent federal tax debt to the State Department".

If you owe taxes over $51,000, the IRS may inform the State Department which can then revoke your passport.   And you might not even know until you get to the airport.

"On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted Section IRC §7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers owing more than $51,000.00 and certifying the Taxpayer as “Seriously Delinquent. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a Taxpayer with seriously delinquent tax debt. (per IRS)"

The IRS has the following power if you don’t act soon;

  • Filed a Notice of Federal Tax Lien,
  • Issued a levy to collect the debt to your employer or from your customers,
  • If you apply for a passport or passport renewal, the State Department will deny your application,
  • If you currently have a valid passport, the State Department may revoke your passport or limit your ability to travel outside the United States.

 It is estimated that about 270,000 Taxpayers are about to receive Notice CP508C in 2019.

Step 1: What to Do? 

  1. Give us a call,
  2. Request the IRS to provide the detail of accounting for the years and the balances under question.   We will call on your behalf and request IRS “Account Transcripts.” 
  3. Evaluate the Account Transcripts for missing payments and locate the canceled check(s) for account adjustments.
  4. Verify if the amount owed is correct.

Step 2:  Propose a Viable Collection Alternative

  1. Stablish Installment agreement (IA).  The installment agreement must be accepted with the IRS prior the passport revocation can be reversed.
  2. Offer in Compromise (OIC).  Same as IA, it must be accepted.
  3. Request for an Innocent Spouse Relief.  While the request is pending, reversal is available.  IRC §6015(e)(1)(B) prohibits enforcement while the application is pending.   If the debt is related to your spouse income or business and you did not participate in the business activity, Innocent Spouse Relief can be a good avenue for passport revocation reversal.  The key is that the request does not need to be accepted by the service.  It only needs to be pending.

Key Facts

passportBefore denying a passport, the State Department will hold the application for 90 days to allow a citizen to:

  1. Resolve any erroneous assessment issues (Incorrect tax debts or identity theft matters)
  2. Make full payment of their debt,
  3. Enter into a satisfactory payment arrangement – IRM 5.1.12.27.7(6).

Reversal Certification under IRC §7345(c)

You have established a collection alternative with the IRS and accepted.  The IRS must give notice to the State Department reversing the certification if:

  1. Certification is found to be erroneous,
  2. Debt is legally unenforceable,
  3. Debt is fully satisfied,
  4. Debt is no longer “seriously delinquent” per §7345(b),
    1. Installment Agreement is entered into,
    2. Offer in Compromise is accepted,
    3. Justice Department enters into a settlement agreement,
    4. Innocent Spouse Relief is requested.

Once the (IA) and (OIC) are accepted or Innocent Spouse Relief request is pending, the IRS will mail the “Reversal” notice to taxpayer CP508R and to the State Department.  

If you have questions or concerns about the passport revocation, please call Mendoza, Silva & Company today!

We are here to help. 

Published in Tax Resolution

About Us

Mendoza & Company, Inc. is a full-service accounting, Payroll, and Tax Resolution firm in Bethesda, MD and Miami, FL. As a client, you gain a professional team with expertise in multiple fields, providing you the right advice to strengthens your organization and long-term goals.

Mendoza & Company © All Rights Reserved 2019. Powered By mendozaco.com