Do you owe money to the IRS?
While the coronavirus pandemic brought unprecedented changes, including extended tax filing deadlines, many Americans continue to face surprises from the IRS. It’s not uncommon for taxpayers to file their returns expecting a refund, only to receive a notice from the IRS withholding some or all of that anticipated amount.
This article explores why this happens and what you can do about it.
Possible Reasons for an IRS Notice
There are several reasons why the IRS may withhold or reduce your tax refund. Some issues are straightforward, while others may require more attention.
You or your spouse owe federal or state taxes.
Owing taxes is a primary reason the IRS might hold onto or reduce your refund. If you or your spouse owed taxes prior to marriage, your joint refund could legally be used to cover those past dues. If you owe the IRS or state taxes, consider:
- The exact amount you owe;
- Accuracy of the IRS or state’s tax calculation;
- Options to reduce your tax liability;
- Potential penalties and interest due.
If your refund was used to cover a spouse’s pre-marital tax debt, you might consider filing an injured spouse claim to recover your share of the tax refund.
You or your spouse owe other types of debt.
The IRS might also use your refund to pay off other government debts, such as overdue child support, unpaid student loans, or incorrectly paid unemployment compensation. If such a situation arises, contacting the respective agency directly is advisable. You can file an injured spouse claim to reclaim your portion of a joint refund if it was used to settle these types of debts belonging solely to your spouse.
The IRS identified errors on your return.
If there are discrepancies in your tax return, the IRS might modify your return and notify you. This could be due to simple errors like mismatched Social Security Numbers or more complex issues.
Your tax return is under review for credit or deduction eligibility.
The IRS may delay your refund while reviewing eligibility for credits or deductions claimed, such as the Earned Income Credit (EIC), especially if there is a dispute over dependency claims. Provide the IRS with necessary documentation promptly to resolve these delays.
You were a victim of tax identity theft.
If someone else has filed a tax return using your Social Security Number, the IRS will contact you to verify the legitimacy of the filing. If the return was not yours, you should confirm your identity with the IRS to ensure they process your legitimate return and issue the correct refund.
The IRS is investigating another one of your returns.
If the IRS is auditing a previous return or investigating a delinquent return, they may withhold your refund until the investigation is complete. Any refund may be applied towards taxes owed, or released if no taxes are due.
What to Do If You Receive a Notice from the IRS
The IRS sends millions of letters to taxpayers each year for various reasons. Here are some tips if you receive one:
Don’t ignore the notice.
IRS letters and notices are specific and include instructions on what to do. Open any IRS communication immediately and respond by the due date to achieve the best outcome.
Take timely action.
Responding promptly can help reduce additional interest and penalty charges.
Review the information in the notice.
If the letter pertains to a changed or corrected tax return, compare the information with your original return. If you agree with the corrections, update your personal copy for your records.
Don’t reply unless directed to do so.
Usually, there’s no need to reply to a notice unless it specifically asks you to. However, if you owe money, you should reply promptly with payment.
Takeaway
If you receive an IRS tax notice, don’t panic. IRS issues are common and often just require reading the letter carefully and taking appropriate action.
Contact an experienced tax attorney at The Law Office of Jason Carr, PLLC for help in resolving your tax issues in Colorado.
For more information on this and other tax matters, consult the IRS or a qualified tax professional.
