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Posted by Paultry on March 10, 2008, 4:02 pm
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David Chesler wrote:
> Apparently I underpaid my taxes for 2005 by not reporting a capital
> gain. (My fomer employer closed out my ESOP either because I was laid
> off or because they were taken over or both. I'd thought that amount
> was included in my severance and thus in my W-2 but it wasn't.) I
> paid the additional tax; no penalty was assessed.
>
> IRS also billed me for interest. I've never paid estimated taxes.
> Presumably I owed the Treasury these extra taxes from around April 15,
> 2006 (when I filed) to spring 2007 (when they billed me.) But I
> received a refund (too large by this amount) in 2006, and a large
> refund in 2007. When I filed 2006 I asked that more than enough of my
> refund to cover the underpayment be held back for future taxes,
> because I didn't want to have more of the Treasury's money than I
> ought to.
>
> Once we came up with a number (IRS first assumed short-term with zero
> basis) I learned that the "hold on to my refund for next year" can't
> be applied to past years, so I paid the bill under separate cover, and
> requested the unpaid refund back (just doing my part to keep the
> economy stimulated) and they sent it to me.
>
> It seems to me that there was very little time that I owed anything
> to the US Treasury. Even though I got too large a refund around May
> 2006, by then I'd been over-withheld for 2006 wages; by some time well
> before the end of 2006 until I filed in April 2007, and continung
> until they processed the refund request, the amount I was owed was
> more than the underpayment.
>
> I know IRS doesn't pay interest on over-withholding that is later
> refunded.
>
> Do they ever offset unerpayments with over-withholding payments for
> interest purposes? I've asked them to recalculate the interest and
> find it wasn't owed. The first answer letter addressed a totally
> different issue; the second letter said they can't forgive and waive
> interest.
>
> What are the right words to say "You calculated interest but I didn't
> owe any interest because in net I didn't owe you any money at all."
> Does that argument hold at all by IRS accounting rules?
>
> --
> Free Cory Maye
>
By IRS rules, your 2006 withholding was credited to you not
when it was withheld during the 2006 tax year, but with an
effective date of 04/15/2007. If the 2006 overpayment had
been applied to the 2005 liability, you would have been on
the hook for interest from 04/15/2006 to 04/15/2007. Since
you paid the 2005 tax bill in the Spring of 2007, you
realized approximately the same net result.
--
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