ES Payments on wrong forms

[erchess]

Like I am sure all of you, I provide the relevant forms each year to all my clients who in my opinion should even consider making estimated payments. Yet for some reason a client elected to use IRS forms from the year 2004 to make his 2011 estimated tax payments. He did mark out the year and put 2011 on the forms. He did not put his name or social security number or 1040 ES on the check he used for one payment or the money order he used for the other payment. He also made the two payments for widely different amounts totaling a tiny sum relative to his tax and dated them 7/11 and 9/14.

What are the odds these payments got credited to his account vs the odds they did not? Is there a better procedure for him to follow than electronically file the return and make payment as though there were no ES problem and wait for the possible or probable correspondence about the ES situation? I have everything to prove he made the payments.

Oh and another complication. He is making payments on an IA so naturally the Service would have been tempted to apply the monies to that debt particularly since the checks and money order were not properly made out. Seems to me I have heard that when you owe back taxes the Service can apply payments as it chooses..... Any ideas on what I can do if they did apply the payments to old debt?

[taxea]

If he doesn't owe for any past years it will go to 2011 but, without designating the year with his SSN, "ty 2011" and the form # it is likely they will use it for past debt...if there is any.

[erchess]

Thank you

I thought that was right. He does in fact owe from previous years which is why he has an ongoing installment agreement. Now, given all this I have two questions.

1. Is there a way to find out for sure what they did with that money? For example I could pull a transcript from eservices or call the PPL or anyone else at the IRS I was told to.

2. If in fact they did apply the money to old debt is there a way to get them to change that and would it be desirable if it were possible? I am focused on lowering this year as much as possible because he needs to pay the bottom line on this year's return in full without missing a beat on his IA or his IA might go into default.

[JohnH]

It probably won't matter where they applied it. If they did apply the payments to the prior years, and if he goes into default, he can get the IA reestablished. It will cost him a new setup fee, but the setup fee will probably be cheaper than what you will need to charge him to untangle this mess he made. You are going to charge him for your efforts, right?

Insofar as penalties and interest are concerned, they are the same on the unpaid balance, regardless of whether it's owed for the current year or a prior year. So where the payment was applied is basically irrelevant.

I'd probably file the return under the assumption that the esitmated tax payments were filed correctly, then wait for the correspondence, if any. If no correspondence arrives, you're done.

[taxea]

I thought that was right. He does in fact owe from previous years which is why he has an ongoing installment agreement. Now, given all this I have two questions.

1. Is there a way to find out for sure what they did with that money? For example I could pull a transcript from eservices or call the PPL or anyone else at the IRS I was told to.

2. If in fact they did apply the money to old debt is there a way to get them to change that and would it be desirable if it were possible? I am focused on lowering this year as much as possible because he needs to pay the bottom line on this year's return in full without missing a beat on his IA or his IA might go into default.

Depends on how old the payment is. Or you could call collections. They may have more current information..

[Kram BergGold]

Call Priority Line

Get P of A and call The Priority Line.

[JohnH]

I'll have to respectfully disagree on this one.
Why waste your time?
File it and forget about it.

If you get a notice in 6-8 weeks, then spend some quality time sorting it out.
And bill the client big time for straightening out his dumb mistake.

[RitaB]

It's all about the respect

I'll have to respectfully disagree on this one.
Why waste your time?
File it and forget about it.

If you get a notice in 6-8 weeks, then spend some quality time sorting it out.
And bill the client big time for straightening out his dumb mistake.

I'm with John. And, how did you get my client, Erchess? Who has 2004 forms laying around? LOL.

[JohnH]

At the risk of beating a dead horse, this situation hits close to home for me. The following numbers may not be exact, but they're close.

A few years back a long-term client did this exact same thing with a $4K estimated tax payment, except they only used a 1-year-old 1040ES. In that case, IRS sent them a refund check.

The client called me and I said to cash the check and then send the money back with the proper 1040ES. For some strange reason they decided to call IRS and ask them what to do. IRS said to send the check back because they'd be hit with an estimated tax penalty if they cashed the check and then sent in the money. I told the client the estimated tax penalty was negligible and to follow my advice.

For some stranger reason, client decided to heed the advice of the IRS over mine. Over the next 2-3 months, they received several letters and ANOTHER check from IRS for the same amount. It took me 2 or 3 letters to IRS, plus a couple of phone calls to get it straigtened out.

Cost for my involvement was about $200.
The estimated tax penalty would have been less than $30.

[erchess]

It's all in what you value

John and Rita seem to be taking the position that a dollar is a dollar and if it comes out of someone's wallet it's irrational for them to care where it goes. On the other hand most of my clients and I would say that $200 or $2000 to a tax pro to save $30 to the government is money well spent.

[JohnH]

I need more clients like that.
Given the right attitudes & incomes, I could do quite well preparing a dozen returns or so a year.

[RitaB]

Well

John and Rita seem to be taking the position that a dollar is a dollar and if it comes out of someone's wallet it's irrational for them to care where it goes. On the other hand most of my clients and I would say that $200 or $2000 to a tax pro to save $30 to the government is money well spent.

Well, when you put it THAT way...

[taxea]

I'm with John. And, how did you get my client, Erchess? Who has 2004 forms laying around? LOL.

Me too. When my clients ask I tell them that the IRS and state websites and phone numbers were put on their invoices for their convenience should they want to check on their returns. Further, that I have no control over the return once it is filed so I cannot possibly answer any questions they have about their refunds.