Ask Liz Weston

Get smart with your money

IRS

Q&A: Delayed tax refund? Contact your lawmaker

By Leave a Comment

Dear Liz: A reader requested advice regarding a delayed tax refund. I had a similar problem a few years ago. The IRS owed me a substantial refund. I tried calling the IRS but couldn’t reach a person.

The automated system insisted my refund had been sent. I wound up calling my congressman’s office. They assigned a field representative to investigate. She was able to contact someone at the IRS who opened an investigation. She periodically followed up and kept me advised by email of her efforts. It took a few months but thanks to her work (and persistence), the IRS finally sent me my refund.

Answer: Thanks for the great tip! Elected representatives’ constituent services teams often can help people resolve issues with government agencies.

Q&A: What to do when a stolen IRS check is altered and cashed

By

Dear Liz: My mail with a check to the IRS was stolen from inside the post office (I dropped it into the internal wall slot). The envelope was pre-addressed to the IRS P.O. box. The payee on the check was altered. The memo section text was removed, and parts of the upper-left section of the check were removed or altered, including a misspelling.

I discovered the mail theft after the bank’s 90-day reporting period but within the UCC (Uniform Commercial Code) filing period. I opened a police report, filed a notarized Affidavit of Check/Account Fraud with my bank, closed that checking account, and filed a complaint with the Consumer Financial Protection Bureau.

The amount lost is in the mid-five figures. Is there anything more I can do to get my money back? If not, any way to deduct the loss? I am crying all the time and losing sleep. I am a senior, if that matters.

Answer: Francoise Cleveland, AARP’s government affairs director, says you’ve already taken many of the recommended steps to deal with check fraud, including filing a police report, closing the account and working with your bank.

In addition, Cleveland recommends reporting the theft to the Federal Trade Commission and the U.S. Postal Inspection Service, which investigates mail theft and related check fraud. (You can file a mail theft complaint online at the USPIS.) Cleveland also encourages you to contact the AARP Fraud Watch Network for information, support and further guidance.

Whether you ultimately get your money back depends on several factors, including the specific facts of your case and state and federal law. Banks work through these determinations behind the scenes, and it can take time, Cleveland says.

That said, you may want to hire an attorney familiar with banking or consumer law. Unfortunately, it can be easy for a bank to ignore a customer, but it’s a lot harder to ignore a law firm. At a minimum, make sure your bank has copies of the police report and your USPIS filing.

As far as deducting the loss, the news isn’t good. Personal theft losses generally are deductible only in limited circumstances, such as when the theft is attributable to a federally declared disaster, Cleveland says. Victims of investment fraud may deduct their theft losses, but victims of other types of fraud (such as romance scams and government impersonators — ”I’m from the IRS and you’re about to be arrested”) aren’t eligible.

It gets worse. People have had money stolen from a 401(k) or another account where withdrawals are taxable. So not only are the victims out the money and unable to deduct their losses, but they typically still owe taxes on the withdrawal. Cleveland says AARP supports a bipartisan bill called the Tax Relief for Victims of Crimes, Scams, and Disasters Act that would provide some help to victims of fraud and unexpected disasters even if they are unable to recover their stolen funds.

You should also be aware that scammers may target you again, promising they can help you recover your stolen money. The Federal Trade Commission warns you to be wary of anyone trying to charge you an upfront fee to get your money back.

And for everyone else who’s reading this: Please take heed. Mail theft and check fraud have soared. Switch to electronic payments now before you become yet another victim.

Q&A: Timing matters with estimated tax payments

By

Dear Liz: Your recent column about how to distribute estimated tax payments over the year (equal versus backend loaded) may have missed an important nuance. Your answer regarding the Form 2220 safe harbor is correct and would apply if the taxpayer’s income were retirement fund distributions. As I read the query, however, it’s possible (perhaps likely?) that the year-end distributions are from a taxable brokerage account. In that case, even absent intra-year distributions to the taxpayer, the dividends appearing in the account are deemed constructively received when paid by the portfolio companies into the brokerage account.

I can understand how an IRS agent would simply argue for equal payments. And I similarly understand that a competent accountant would know the safe harbor rules. It’s impossible to know which of them is correct here from the letter as printed.

Answer: My answer relied on guidance from Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, and he says that you have a point.

The original writer stated that they received the majority of their income at the end of the year, and most of it was dividends from their brokerage account. The writer had been told by an IRS agent that estimated tax payments were due throughout the year, while the writer’s accountant contended that wasn’t necessary. The writer didn’t specify whether it was a taxable or retirement account or when the dividends were actually paid into the account.

Luscombe assumed that the dividends were received at the end of the year, but the writer could have meant that dividends were only withdrawn then.

If the account is a qualified retirement brokerage account, it wouldn’t matter when the dividends were paid, only when the withdrawal was made, Luscombe notes. If it’s a taxable account receiving dividends throughout the year, then the IRS agent would be correct that the dividends would be taxable based on when they were received into the account.

Q&A: Are IRS quarterly payments mandatory?

By

Dear Liz: I live totally on my investment income. I receive the majority of my income at the end of the year, mostly dividends from my brokerage account.

A couple of years ago, when talking to an IRS agent about another matter, I asked when I should make my estimated tax payment. I was told that I had to make the payments quarterly. This year, when I was talking to my accountant, she told me that I could make a lump-sum payment at the end of the year without incurring a penalty. Who is correct, the IRS agent or my accountant?

Answer: Ours is a pay-as-you-go system, and the IRS assumes that your income is received evenly throughout the year, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Therefore, the agency typically expects four estimated tax payments of roughly equal size, with the payments due April 15, June 15, Sept. 15 and Jan. 15. If the payments aren’t made as expected, you can get hit with an underpayment penalty.

However, the IRS allows a taxpayer to show that their income is not earned equally throughout the year by filing a Form 2210 with a related Schedule AI (Annualized Income Installment Method), Luscombe says. Schedule AI allows you to show when income was earned during the year so you can match your estimated payment dates to when you actually received the money.

Schedule AI is more work, since it requires you to report adjusted gross income for each of the four quarters, as well as your itemized deductions and other tax details items, Luscombe notes. But if your income comes at the end of the year and the corresponding estimated tax payment was made on Jan. 15 of the following year, filing this paperwork may be sufficient to avoid a penalty for underpaying estimated taxes, he says.

Q&A: How do I get tax forms from my online bank?

By

Dear Liz: I have a savings account and a revocable trust money market account with an online bank. They provide the 1099-INT tax form for the savings account as a downloadable file. However, they do not provide a downloadable form for the trust account money market.

They insist that it can only be mailed after Jan. 31 and cannot be downloaded online. When I complained several times, saying that I received trust account tax forms from other financial institutions, I received frivolous answers.

Can you explain what is going on here and what I should do to get my 1099-INT early so I can do my taxes without having to wait for it?

Answer: What’s going on is that the bank and its customer service reps are ignorant of the law.

There’s no requirement that the form be downloadable, but the Internal Revenue Service does require 1099-INT forms to be provided to recipients and to the IRS by Jan. 31, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. This year, the deadline was actually Feb. 2, since Jan. 31 fell on a weekend.

Since the IRS can levy penalties for late filing, you can be sure the bank has found a way to electronically provide the forms to the tax authorities, even if it can’t be bothered to get them to you.

As you’ve personally experienced, other financial institutions give their customers access to the forms well before the deadline. You can’t personally reform a dysfunctional institution, so consider moving your business to one that provides actual customer service.

Q&A: Foreign tax credit delays substantial IRS refund

By

Dear Liz: My tax professional submitted amended tax returns for 2023, 2022 and 2021 a year ago. I’m supposed to receive a nice refund for those years but I have heard nothing from the IRS and cannot get any information from its website. I asked my tax professional about it and she said the foreign tax credit claimed on the amended returns must be reviewed by the foreign tax department, which is very far behind. This just feels like a black hole. The IRS wants me to pay my taxes but drags its feet on giving me my refund.

Answer: The foreign tax credit is designed to prevent double taxation. If you earn income abroad, you may be able to deduct taxes paid to another country on your U.S. tax return.

Unfortunately, this is an area where there has been substantial fraud and noncompliance. That raises the odds of a manual review and potential audit. The fact that you’re claiming large refunds, and doing so by amending returns, also increases the chance your filings will be scrutinized.

Still, a year is a long time to wait. Consider reaching out to the Taxpayer Advocate Service, which may be able to help you break the logjam.