Tax mix-up and refund/recalculation?
June 15, 2018 9:55 AM   Subscribe

I had an income tax mix-up and am wondering how/if a refund will be calculated.

For 2015, I owed $3000, and have been making monthly installment payments. For 2016, I owed $0, but the IRS miscalculated my return and said I owed $1000. I filed an appeal, and they finally approved it and agreed that I owed $0 for 2016. However, my installment payments have been going towards both sums (plus their interest and fees) all this time.

That is, my monthly installment has been going towards the principal and interest for years 2015 and 2016. However, as 2016 was wrongly charged, I think my total balance should be much less (e.g., payments should have been going towards the $2000 principal from 2015, rather than the $3000 for both years). Will they re-calculate the total owed, and credit the money I'd paid towards the 2016 tax owed to the 2015 balance? (Or am I misunderstanding this completely?) Thanks for any insight.
posted by robertthebruce to Work & Money (4 answers total) 1 user marked this as a favorite
The 2015 and 2016 returns are separate. Probably they will refund you the money paid on 2016 (P&I), as that is the simplest way to do it. If you like, you can turn around and include that money in an early payment on the 2015 bill, but that's up to you.
posted by ubiquity at 11:01 AM on June 15, 2018

Call them and ask. They might be able to take whatever has been applied to 2016 and apply it to 2015 or they might have to refund it to you. Ask them to send you an accounting of everything for both years once the refund or transfer is complete so you know exactly how much you owe now.
posted by soelo at 12:39 PM on June 15, 2018

A long time ago I was an IRS Tax Examiner. The following is my opinion and not that of the Service. You are a responsible adult taxpayer, use my answer as you see fit.

I believe what should have happened (will happen) is that when the appeal was approved for tax year 2016, your 2016 tax module should have been corrected to show no balance due effective on the 2016 return due date. If there was a credit balance on your 2016 tax module after that appeal (you owed no tax plus you made payments which leads me to believe you may have had a credit balance) it would be reasonable to me if the IRS applied it toward your tax year 2015 debt because the IRS will apply any credit balance on any tax module towards an existing tax debt before refunding money to the taxpayer. I would expect that you will receive a notice to that effect but if this situation has happened recently I could understand why you might have not received a notice yet.

I cant speak for the refundability of IRS fees, but I would say that they are probably not refundable. I know that the IRS will only abate interest in cases where there was an unreasonable error or delay in performing a managerial or ministerial act. In my opinion, it seems reasonable to me that the interest on your "tax mix-up" may be abateable, and it would be reasonable to me if the money you paid toward interest on your 2016 debt that was then corrected was automatically applied toward your 2015 debt.

One thing you could do would be to get transcripts of your account for tax years 2015 and 2016. The transcripts should all transactions on each tax module and you'll be able to tell definitively where you payments went and the result of the appeal. I would suggest writing a letter requesting a transcript versus calling because then you have a written record of your request and also because then you won't die of old age waiting for someone at the IRS to answer the phone.
posted by Rob Rockets at 1:47 PM on June 15, 2018

Very helpful, thanks for the responses.
posted by robertthebruce at 2:41 AM on June 17, 2018

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