Warning About Payments To IRS & State Tax Agencies

This time of year, around April 15, is a very confusing time for taxpayers and tax agencies alike. It is the due date for the final 2000 tax payment and is also the due date for the first estimated tax payment for 2001. A very common problem that I have been seeing quite often is the misapplication of those payments to the wrong year by the IRS & State.

I don't profess to be able to make it idiot-proof; but I do have some real life tips to minimize the risk of this problem. These apply to both IRS and State tax agencies.

Even if you are sending your check in with the appropriate form (4868 or 1040-ES), don't think that will explain to IRS what the money is for. When the payment is received by the IRS service center, the checks are separated from the accompanying forms. If the checks don't identify where the money is to be applied all by themselves, IRS will just guess, and as hard as it may be to believe, they often guess wrong.

On the front of your check, you need to write your Social Security numbers because IRS only sees you as a number, not a name. You also need to write the year the payment is for (2000 or 2001). It is also important to use the proper word to describe your payment. If it is for 2000, write "FINAL 2000" if it is with your actual 1040 or "2000 EXTENSION" if it is with your 4868. If you are making a payment towards your 2001 taxes, write "2001 Estimate."

If you write "2000 ESTIMATE" IRS will be confused and will most likely apply the money to your 2001 taxes because they focus more on the word "Estimate" than the year. I saw this very problem on several occasions from this time last year; many of which we are still trying to unravel.

This has been made more difficult by the unwillingness of banks to return cancelled checks to their customers, as I described here. To date, First Federal Bank in Harrison, Arkansas has refused to budge from their new policy of not returning checks or even providing copies of the backs of the checks.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/09/2001 02:35:00 PM Send this post: