May 072012
 

Since we have previously established that the IRS is willing to make taxpayers wait a substantial period of time for their refunds while they sort out identity theft issues, we are now focusing on whether the IRS will wait for the taxpayer while the issue sorts itself out.  Not surprisingly, the answer is a resounding no.

A recent article in the Florida Sun Sentinel highlights the plight of one Florida business owner who was a victim of identity theft.  The business owner had directed that a portion of his $3,562 refund  go toward paying his first 2012 quarterly estimated tax installment of $600.  However, he discovered in March, within days after his accountant tried to file his tax return, that a thief had already claimed his identity and used it to receive a bogus refund.  As a result, that taxpayer’s refund was frozen and his quarterly installment payment was not credited from his refund to his 2012 taxes.  To make matters worse, the IRS informed the taxpayer that his quarterly payment was late and that he would be penalized.

The general rule is that taxpayers have a duty to satisfy their continuing tax obligations to the IRS, even when there are issues or conflicts that the taxpayer has with the IRS itself that ultimately may be resolved in the taxpayer’s favor.  To do otherwise invites trouble in the form of penalties and interest.  Taxpayers who feel that they are unfairly penalized by the IRS can file a Form 843, Claim for Refund and Request for Abatement, and seek abatement of penalties where there is reasonable cause.  However, what qualifies as “reasonable” may differ largely from the assumptions of the average taxpayer when held under the lens of IRS interpretation.  Thus, it is preferable to avoid these kinds of issues altogether.

If a taxpayer does find themselves owing the IRS penalties and interest that they feel are undeserved, they may find it valuable to consult with a knowledgeable tax attorney who can help them make sense of the issue and assist them in filing the appropriate documentation to seek penalty abatement.  An improper or incomplete submission at the outset can greatly complicate matters in the future, especially if it is denied.