Today Jay from Tampa, FL says, “In October, I won $125k as a contestant on “Who wants to be a Millionaire”. In Jan, I sent an Estimated tax payment to cover the tax on the additional income. Now I’ve been notified by the IRS that I’m being assessed a penalty because I did not make Estimated payments for quarters 1 thru 3. Since I obviously could not anticipate the winnings, how could I know to pay for the first three quarters? I sent them documentation to substantiate my claim, and received a letter saying they will put a lien on my property if I don’t pay within 10 days. If I do pay now, can I request a refund of the penalty, and if so, how?“
Congratulations! That is so terrific.
Don’t worry. You can easily fix this.
Well, maybe not SO easily…but here’s what you do.
First, call IRS at the phone number on the notice IMMEDIATELY!
Ask them to put a hold on the collections activity. (they will.)
They will freeze the account and stop any levies of your bank account
for at least 30 – 60 days – however long the hold is, that they agree to.
Read the instructions for Form 2210 (about 100 times
before it starts to make any sense)
IRS claims it only takes a half hour to read this form. Uh huh….many tax pros have never quite figured out how to use it!
Then, look at page 3 of the form. This whole page is about receiving income unevenly throughout the year. http://ftp.fedworld.gov/pub/irs-pdf/f2210.pdf
You’ll have to do some calculations to determine your income/earnings for each of the periods in question. But, if you’re smart enough to get on that show, you
should be able to handle it.
Better yet, find a tax pro who can fill it out.
Incidentally, if your tax liability for last year was not very high, you may be able to get away with just filling out the first page of the form and using the simple method.
Good luck – and don’t spend all that money on taxes.
You’ll find links to all kinds of tax information for winners and others at TaxMama.com
- Ask TaxMama :: Where taxes are fun – and answers are free
- Small Business Taxes Made Easy :: Chapter 13 teaches you how to respond to IRS notices