Tom's Tax Tip

[yesthattom]

If you receive a letter from the IRS that says you messed up and you have to pay $A plus a fine of $B for making the mistake, just send them a check for $A. They won't come after you for the $B.

Why?

Because many years ago someone did that and took it to tax court. He said, "Do I owe you $A now?" the IRS said, "No" and he replied, "Well then I certainly don't owe you a fine, do I?"

The judge upheld it. It's been true ever since.

(Obviously, ask you tax advisor before doing this.)

(And, no, I didn't receive any such letter.)

Comments

[barking-iguana.livejournal.com]

This sounds like an urban legend. Are you sure?

[yesthattom.livejournal.com]

I believe it was this book that made the claim.

[etler.livejournal.com]

Cite?

[yesthattom.livejournal.com]

See above.

Dude!

[mrfantasy.livejournal.com]

You don't even need to pay income tax at all! It's voluntary!

[gmdraves.livejournal.com]

The first year I lived in NY, I worked for several months as a temp, and I gave the agency a W-4 on which I claimed to be exempt from income tax. Needless to say, I filed late the following year trying to come up with the money for my outstanding tax bill. I included a letter of explanation with both my federal and state filings, and Uncle Sam was cool--sending me a bill for interest, but no penalties. NYS, however was hard-ass--they sent me a bill for interest and penalties totaling in excess of 4 times the outstanding tax amount. I paid, but included a very angry letter (I still have a copy of it) on which I copied my state rep and state senator. My state rep made an inquiry, and I wound up getting a full refund of both the penalties and interest!

[sfo2lhr.livejournal.com]

I'm skeptical and would like to try to chase down the story/facts as well.

As a practical matter, the IRS freely waives penalties, interest, and even part of the tax liability itself, just like any creditor, in order to try to settle cases and get some cents on the dollar. And Tax Court judges are equally liberal in reducing liabilities. But I would need to be convinced by case law that this is legally required somehow under the tax code or regulations.

[yesthattom.livejournal.com]

A number of years ago I sat in Borders and read the first 2-3 chapters of this book which made the claim.

A few years later when helping a non-profit dig out of a financial disaster, I saw they had paid $1,000 in IRS fines for late filing and someone ELSE made the comment that they shouldn't have paid the $1,000. The (then) president was very inexperienced and had just paniced and sent a check for the full amount. Everyone helping the non-profit dig out was like, "Oh, dear! you [polite word for idiot]! You shouldn't have sent the full amount!"