Tax Procedure and Administration

Q: Can I make installment payments on the amount I owe?

Yes. If you cannot pay the full amount due as shown on your return, you can ask to make monthly installment payments. If your request to pay in installments is granted, the following conditions apply.

  • You will be charged a one-time user fee of $105.00, for direct debit agreements, the fee will be $52.00.
  • Interest is charged on any tax not paid by its due date, and
  • You will be charged a late payment penalty unless you can show reasonable cause for not paying the tax by the due date (April 15) for individual income tax returns Penalty will be charged until it reaches 25% of the original balance due and interest will be charged until the account is fully paid.

Before requesting an installment agreement, you should consider less costly alternatives such as a bank loan.

Q: What is an Offer in Compromise?

An offer in compromise is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC.

Q: What kind of interest and penalties will I be charged for filing and paying my taxes late?

Interest is compounded daily and charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months. For current interest rates, click here.

In addition, if you filed on time but didn’t pay on time, you’ll generally have to pay a late payment penalty. The late payment penalty is one-half of one percent of the tax (0.5%) owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. You will not have to pay the penalty if you can show reasonable cause for the failure.

The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

Currently, if you filed a timely return and are paying your tax via an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause.

The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return.

After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. The total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. If your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 ($135 for returns required to be filled after December 31, 2008) or 100% of the tax required to be shown on the return.

Q: What should I do if I made a mistake on my federal return that I have already filed?

It depends on the type of mistake that you made. Many mathematical errors are caught in the processing of the tax return itself. If you did not attach a required schedule, the IRS will contact you and ask for the missing information. If you did not report all your income or did not claim a credit, you should file an amended or corrected return using Form 1040X, Amended U.S. Individual Income Tax Return.

When filing an amended or corrected return:

  • Include copies of any schedules that have been changed or any Form W-2 you did not include.
  • Generally, to claim a refund, the Form 1040X must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
  • Please allow the IRS 8-12 weeks to process an amended return.

Q: What should I do if I haven’t filed a tax return for one or more prior years?

Regardless of your reason for not filing, file your tax return as soon as possible.

If you are not sure you are required to file a return, refer to Publication 17, Your Federal Income Tax. If you cannot pay all of the tax due on your return, the IRS may be able to assist you with arranging payments. For additional information on what to do if you cannot pay your income tax, refer to Topic 202, Tax Payment Options.

If your return was not filed by the due date (including extensions), you may be subject to the failure to file penalty, unless you have reasonable cause for your failure to file timely. If you did not pay your tax in full by the due date of the return (excluding extensions), you may also be subject to the failure to pay penalty, unless you have reasonable cause for your failure to pay. Additionally, interest is charged on taxes not paid by the due date, even if you have an extension of time to file. Interest is also charged on penalties.

There is no penalty for failure to file if you are due a refund. But, if you want to file a return or otherwise claim a refund, you risk losing a refund altogether. A return claiming a refund would have to be filed within 3 years of its due date for a refund to be allowed.

After the expiration of the three-year window, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid. On the other hand, the statute of limitations for the IRS to assess and collect any outstanding balances does not start until a return has been filed. In other words, there is no statute of limitations for assessing and collecting the tax if no return has been filed.

Q: What should I do if I have not received my Form W-2 or Form 1099?

If you do not receive your Form W-2 or Form 1099-R by January 31st , or your information is incorrect, contact your employer/payer.

If you do not receive the missing or corrected form by February 14th from your employer/payer, you may call the IRS at 800-829-1040 for assistance. You must provide your name, address (including zip code), phone number, Social Security Number, dates of employment, your employer/payer’s name, address (including zip code), and phone number. The IRS will contact the employer/payer for you and request the missing form. IRS will also send you a Form 4852 (PDF), Substitute for Form W-2 or Form 1099-R.

If you do not receive the missing form in sufficient time to file your tax return timely, you may use the Form 4852. If you receive the missing or corrected Form W-2 or Form 1099 after you file your return and a correction is needed, use Form 1040X (PDF), Amended U.S. Individual Income Tax Return. For additional information on filing an amended return, refer to Topic 308, Amended Returns.

Q: What is Innocent Spouse Relief?

Many married taxpayers choose to file a joint tax return because of certain benefits this filing status allows. Both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire liability. Thus, both spouses are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits. This is true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. In some cases, however, a spouse can get relief from joint and several liability.

Q: How long should I keep my tax records?

Well organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if an IRS notice is received.

Records such as receipts, canceled checks, and other documents that support an item of income or a deduction appearing on a return should be kept until the period of limitation expires for that return. For assessment of tax you owe, this generally is 3 years from the date you filed the return. Returns filed before the due date are treated as filed on the due date.

There are no periods of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses. Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. Publication 552, Recordkeeping for Individuals, provides more information on recordkeeping requirements for individuals.