I owe the IRS for 2018 taxes

[NotBadForADad]

I owe the IRS somewhere in the ballpark of $6000 for the 2018 tax year.

I sent in a 1040-X.

I also tried to appeal.

They moved forward with the judgment that I owe.

What are my choices here?

[dandarc]

Why do you owe that money specifically? Was there an error on the return? Something else?

[FIPurpose]

^yep need actual details on if you're guilty or not.

[NotBadForADad]

Why do you owe that money specifically? Was there an error on the return? Something else?

They say I under reported my earnings, which technically I did when I withdrew from from my 401k. I explained this in multiple letters to then with my 1040-X.

What I withdrew was no where near what I owe.

Just going to bite the bullet and make a payment plan I suppose.

[tj]

Why do you owe that money specifically? Was there an error on the return? Something else?

They say I under reported my earnings, which technically I did when I withdrew from from my 401k. I explained this in multiple letters to then with my 1040-X.

What I withdrew was no where near what I owe.

Just going to bite the bullet and make a payment plan I suppose.

If you didn't report your 401k distribution on your tax return, then yes you would owe taxes on that.

[dandarc]

Ok, so you underreported income, specifically the 401k withdrawal. Does the tax amount owed look correct based on what you actually paid vs. the correct amount? They'll have also added penalties and interest, but it should all be based on the amount actually paid for 2018 taxes vs what you should have.

Presumably they sent you documentation / a transcript of what they think the correct income is and therefore the tax bill.

If the amount is correct the best thing to do is just pay. If it is not correct, then you'd want to weigh whether it is worth fighting it or not. I could see $6,000 going either way for me.

[NotBadForADad]

Ok, so you underreported income, specifically the 401k withdrawal. Does the tax amount owed look correct based on what you actually paid vs. the correct amount? They'll have also added penalties and interest, but it should all be based on the amount actually paid for 2018 taxes vs what you should have.

Presumably they sent you documentation / a transcript of what they think the correct income is and therefore the tax bill.

If the amount is correct the best thing to do is just pay. If it is not correct, then you'd want to weigh whether it is worth fighting it or not. I could see $6,000 going either way for me.

The amount is not correct but I've been fighting this already with them for almost two years. They still owe me refunds for 2020, but at this point I'm tired of fighting it.

Isn't there a thing where they can't collect after ten years?

[FIPurpose]

Ok, so you underreported income, specifically the 401k withdrawal. Does the tax amount owed look correct based on what you actually paid vs. the correct amount? They'll have also added penalties and interest, but it should all be based on the amount actually paid for 2018 taxes vs what you should have.

Presumably they sent you documentation / a transcript of what they think the correct income is and therefore the tax bill.

If the amount is correct the best thing to do is just pay. If it is not correct, then you'd want to weigh whether it is worth fighting it or not. I could see $6,000 going either way for me.

The amount is not correct but I've been fighting this already with them for almost two years. They still owe me refunds for 2020, but at this point I'm tired of fighting it.

Isn't there a thing where they can't collect after ten years?

There's a thing where they can seize your property to get payment.

[dandarc]

Ok, so you underreported income, specifically the 401k withdrawal. Does the tax amount owed look correct based on what you actually paid vs. the correct amount? They'll have also added penalties and interest, but it should all be based on the amount actually paid for 2018 taxes vs what you should have.

Presumably they sent you documentation / a transcript of what they think the correct income is and therefore the tax bill.

If the amount is correct the best thing to do is just pay. If it is not correct, then you'd want to weigh whether it is worth fighting it or not. I could see $6,000 going either way for me.

The amount is not correct but I've been fighting this already with them for almost two years. They still owe me refunds for 2020, but at this point I'm tired of fighting it.

Isn't there a thing where they can't collect after ten years?

There's a thing where they can seize your property to get payment.

This - trying to run out the clock is just not smart for this relatively small amount of money. I'd be interested to see what they've sent you and what the original return said and where you think their error is in the whole deal. The one time I've personally had something like this come up (well my then fiancee, now wife) did, the IRS was 100% correct on everything - H&R Block paid her back for the penalties and interest for an erroneously claimed tax credit, but she did owe the tax there.

[Sibley]

"They say I under reported my earnings, which technically I did when I withdrew from from my 401k. I explained this in multiple letters to then with my 1040-X."

It's not you technically under reported your earnings. You did under report. So, they recalc'ed what you owed, which would include the tax on the ordinary income of the withdrawal plus the 10% early withdrawal penalty, plus penalties and interest because you didn't pay your tax timely, plus possibly a penalty for filing an inaccurate return, plus additional penalties and interest that have accrued ever since. And penalties accrue interest as well.

Have you accounted for all of those things when you say that you don't owe that much? Good chance that they're right and you're in denial.

Whether this was an error or deliberate, the IRS will get their money. Its easiest to just pay them.

[JAYSLOL]

Make a payment plan.  There’s no winning on this. 

[Duke03]

Make a payment plan.  There’s no winning on this.

This x100.  Years ago, I was a 1099 employee for about 5 years. The IRS decided to come after me for about $4,000 on income I made the first year I was 1099.  I did what OP did send letters fight them etc. Even had an IRS assigned agent I could speak to on the phone.  They eventually told me we are not 100% sure you owe the money, but we are going to insist you pay it and if in fact you don't owe it, we will send you a refund.  I sent the payment, but still kept sending letters fighting it etc.  Each time they would just close my case out. I finally got the agent on the phone, and he said if I didn't believe I truly owed the tax why'd it pay it!!!!  Needless to say, the years after this my tax returns looked like Trump's and I wrote everything under the sun off.  Never heard from them cheats again!!!

[Runrooster]

I’m still waiting for OP to come back and explain why he’s filing a 1040-x after they’ve fined him. Or why he would expect to get a refund in 2020 when he owes for 2018. I am not a tax accountant but I was until recently. The IRS doesn’t need letters explaining why you misfiled your taxes. Pay up or ask for your once in a lifetime penalty waiver.

Seems likely that if you don’t know that you pay taxes on a 401k distribution, you probably don’t know about the 10% penalty for early withdrawal. Much less know how to calculate penalties and interest. Even a cheapie firm like HR Block could help him understand the IRS calculation since they spell it out in the notice pretty clearly. I suspect my boss wouldn’t even charge you.

[sonofsven]

I’m still waiting for OP to come back and explain why he’s filing a 1040-x after they’ve fined him. Or why he would expect to get a refund in 2020 when he owes for 2018. I am not a tax accountant but I was until recently. The IRS doesn’t need letters explaining why you misfiled your taxes. Pay up or ask for your once in a lifetime penalty waiver.

Seems likely that if you don’t know that you pay taxes on a 401k distribution, you probably don’t know about the 10% penalty for early withdrawal. Much less know how to calculate penalties and interest. Even a cheapie firm like HR Block could help him understand the IRS calculation since they spell it out in the notice pretty clearly. I suspect my boss wouldn’t even charge you.

Am I the only person that's never heard of this? Or is this in jest?

[Runrooster]

Not in jest.  I messed up my taxes once, and owed a smallish penalty. Figured there would be some bigger crisis, cancer or loved ones death, to cause me to screw up later in life and just paid the penalty. My brother recently forgot to file his extension request, and used his get out of penalty free card.

I think people expect that fancy explanations matter more than they do. Use it once, use it wisely.

[Catbert]

Interesting, but I suspect that the IRS caught under reporting of 2018 income in 2019 so OP has been ignoring this underpayment for a l-o-n-g time.  Not the same as saying, "My bad" and sending a check quickly.

[NotBadForADad]

Interesting, but I suspect that the IRS caught under reporting of 2018 income in 2019 so OP has been ignoring this underpayment for a l-o-n-g time.  Not the same as saying, "My bad" and sending a check quickly.

False. I got the notice around the end of 2020.

In 2018 I changed my job 3 times, had a PT job as well and took out my 401k twice.

It was a mess.

So they told me to file the 1040X, I sent all my returns, a letter explaining everything I did and a spreadsheet showing where all the dollars are. My calculations showed that if I did owe, it was close to $500 since I was in a new tax bracket due to the 401k withdrawal.

They wrote back to me pretty much saying they won't accept a 1040X after their direction. After which I appealed  to tax court, spoke to a lady on the phone and she said the best she could do was take off like $500 of interest from 2018 to 2020 since they caught the error I'm 2020.

I appreciate everyone's help here. But I'll probably just call them and set up payment plans or see if they just hold my future returns.

[dandarc]

Well - now two IRS letters. Received a bill for $19,500 for later filling of my 5500-ez for 2021. Two really stupid mistakes by me:

1. Filled in the form online, signed it, then forgot to submit it which is a separate step.

2. Upon realizing this error a couple months later I filled the return before researching what options I had - I should have applied for voluntary relief and paid $500, but but by the time I learned of this option, I had already filled and no longer qualified.

The person I spoke to thought they might wave the penalty with a "I really tried - look at the timestamps in the system for this!" but now I get to find out.

ETA: Have sent in abatement request letter. If they don't go for it, I'll probably just pay (or set up a payment plan - the letter says only interest will accrue if I'm late with this payment, so I mean, why not try to pay $200 / month or whatever if they'll take it).