Today TaxMama hears from Steve in the TaxQuips Forum with a reminder. He says, “After finding a true tax professional through one of the associations you suggested on this site, we feel much more confident, moving forward. We are now making voluntary payments with no installment agreement but designating the payments specifically to the Trust Fund Penalty. This is something that no other tax consultant explained to us.”
And thank you for reminding me about something I take for granted and arrange to do as a matter of course!
“Designating the payments specifically to the Trust Fund Penalty.”
Folks, let me just explain. This applies when you owe IRS or any taxing agency a large balance, consisting of taxes, penalty and interest – and you hope to dispute any or all of the balance. Make sure that YOU control where your payments are applied.
ON each check, and with a cover letter, spell out that your payment is for TAXES ONLY (or a specific portion of the taxes) on the specific tax ID number, for the specific form and year you are paying.
If you don’t specify that, the taxing agency can apply your payment to taxes, or to interest or to penalties. When and if you settle your case with them, after making payments for a year or two in the meantime, you will be shocked to learn that your payments have not been applied to taxes – but to penalties or interest – or even to a different year. And that you still owe the entire tax balance, even if you have paid thousands of dollars towards it. Or thought you had.
By controlling how the payments are applied, especially with a Trust Fund penalty (where your obligation is limited to a specific type of taxes), when you settle the case, you are apt to have a much smaller balance left. OR, you can bankrupt the penalties and interest, even when you cannot certain kinds of bankrupt taxes.
And remember, you can find answers to all kinds of questions about payment strategy and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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