I thought I was so cool back in April, paying our 2006 tax bill electronically. Getting with the cyberprogram. Saving the service charge connected with credit card payments.
Then in yesterday's mail was a notice from the IRS telling the hubby and me that we were tax delinquents.
Yep, Uncle Sam said we'd best pony up the amount due shown on our 1040, which he got on time, along with some extra dollars in penalties and interest.
Of course I reacted as any taxpayer would. I was ticked off!
I paid our tax bill on April 16, a whole day early! And I did it in the manner that the IRS prefers: electronically, money going right from our bank account to the Treasury.
What in the heck was this office in Memphis doing sending me this dang notice!?
Third time's a ...: This was the third time we'd gotten a notice from the IRS that a tax payment was wrong.
The first was an underpayment due to a mistake I made transferring info from Schedule D to our 1040.
The second was an overpayment when I used the wrong tax table (single instead of married filing joint) to compute our annual bill. I blogged about both those instances here if you want to read about my tax embarrassment.
Now we have number three, the product of computer error. Or, in all likelihood, computer operator error.
I'm starting to see a disturbing pattern here.
All about EFTPS: First a little background for folks who haven't used the Electronic Federal Tax Payment System, or EFTPS in IRS acronymese. I have extolled the virtues of this system in both face-to-face conversations with folks, as well as here on the blog. (I promise, I have good things to say about it in that entry; just keep reading.)
But it does have some quirks, which I discovered when I first signed up for the program. And I'm not the only one who's run into some oddities on the site. Early in the 2007 filing season, a reader, Eric, dropped me a note about a problem with the system:
"I logged into EFTPS today to walk through the system and was surprised when I came to the Tax Type section:
Please select a Tax Type:
o Estimated 1040ES
o Balance due on Installment Agreement
o Pmt on an amended return 1040X
o UnderReporter CP2000
o Audit Adjustment
As you can see, there are options for everything except an ordinary balance due. I'm thinking that clicking on the second option will cause the IRS to look for an agreement that doesn't exist. I know you pay 1040ES taxes, but have you ever just paid a balance due on April 15?"
In answer to Eric's question, no, I had never paid a regular 1040 balance due with EFTPS. I promised to check into this obvious oversight, but Eric beat me to it. (I expect to see his tax blog any time now!) He let me know that by April, the IRS had added amended the second option to "Payment with Return, Notice, or Installment Agreement."
So when I went to the EFTPS site on April 16, I expected to just sign in, click a few keys, print out my payment confirmation statement, and proceed to post-tax season secure that the hubby and I had fulfilled our legal and civic tax duties.
Not so fast: That's why I was stunned to get the notice yesterday. So I ran up the stairs, pulled out the tax file, logged on to EFTPS and enjoyed the classical music that the IRS played while I was on hold.
After about 20 minutes, a woman greeted me with her name and ID number. I greeted her with, "There's been a mistake."
After confirming I was who I said I was and that I did have all the financial and personal particulars about my hubby, she checked our EFTPS account and informed me that we had a nice balance in there.
Seems when I was merrily clicking away on 4/16, I sent my 2006 tax due money to our 2007 account, which collects our estimated tax payments.
Oops. My bad.
The IRS woman was very nice. She transferred the amount posted on April 16 to our 2006 tax account. She also told me she wiped out the interest and penalty charges and that I should ignore any subsequent notice I get about that $50+/- amount; that it likely is already in process, but not to worry, we don't owe it. (If a follow-up dunning statement does arrive, though, I will call them back about it and let them know about yesterday's conversation.)
Tweaking the system: The IRS rep even tried to make me feel better (who says the kinder and gentler agency is gone?), telling me that this was not the first time this has happened.
And that prompted me to go back onto the system. I started going through a payment process and discovered that when it comes time to enter in an amount, the date shown is the current month/day/year (no problem there), but the tax year for the payment also defaults to the current year (potential big problem there).
I'm supposing that when I paid on April 16, 2007, the tax year was displaying "2007" and I just didn't change it. That was my mistake, and the IRS rep did me a solid by waiving the penalty and interest charges (although the agency did have the money and had been collecting interest on it). I'll know better next year if I owe and make sure that it shows the payment is for the 2007 tax year, not 2008 when payment will be made.
But this also is a systemic problem, just like earlier when Eric noticed that EFTPS didn't have the "pay a return" option.
Since any taxes owed with a return will always be paid the following year, the tax year line should be blank, not default to the current year. If there's a blank space, every taxpayer would have to enter in the tax year (i.e., the year before), making sure they didn't just breeze on by since a year was already automatically entered.
So I've learned a lesson and I'm going to pass this along to the Taxpayer Advocacy Panel so that maybe the IRS can learn from my mistake, too.
Other errors: Seems it's the season for tax mistake discussions. Just last week, the Wall Street Journal ran an article about IRS errors.
According to Tax Report columnist Tom Herman, "Accountants and lawyers say IRS notices may contain significant errors -- and that more taxpayers should take the time to study them and fight back when they think their tax return is correct."
Or at least talk to the agency even when you're the one who made an honest error.