What to do if IRS pay­ment is lost

Los Angeles Times - - BUSINESS BEAT - By Liz We­ston Ques­tions may be sent to Liz We­ston, 3940 Lau­rel Canyon, No. 238, Stu­dio City, CA 91604, or by us­ing the “Con­tact” form at askl­izwe­ston.com. Dis­trib­uted by No More Red Inc.

Dear Liz: I just re­ceived a let­ter from the IRS in­form­ing me that I missed a quar­terly tax pay­ment last Septem­ber with sev­eral re­sult­ing penal­ties.

I made that pay­ment with a check from a se­cu­ri­ties trust ac­count that I don’t closely mon­i­tor, so I didn’t re­al­ize the check hadn’t been cashed. The check was placed in a pread­dressed en­ve­lope with the IRS pay­ment no­tice, stamped and de­posited at the post of­fice and has never been seen since.

Do I have any re­course, and should all pay­ments to the IRS be sent by cer­ti­fied mail with re­ceipt re­quired?

An­swer: Elec­tronic pay­ments are typ­i­cally the best and safest method for get­ting money to the IRS. Elec­tronic pay­ments gen­er­ate a dig­i­tal trail that shows the money leav­ing your ac­count and land­ing at the IRS.

If you in­sist on pay­ing with checks, use cer­ti­fied mail, re­turn re­ceipt re­quested. This pa­per trail isn’t a sure way of prov­ing your case — af­ter all, you could have mailed an empty en­ve­lope — but at least you’d have some­thing to show the IRS.

Still, you shouldn’t give up hope of get­ting the penal­ties waived, said tax pro Eva Rosen­berg, an en­rolled agent who pub­lishes the Tax Mama site.

You can re­quest a penalty abate­ment based on “rea­son­able cause,” Rosen­berg said. Ac­cord­ing to the IRS site, “Rea­son­able cause re­lief is gen­er­ally granted when the tax­payer exer- cised or­di­nary busi­ness care and pru­dence in de­ter­min­ing his or her tax obligations but nev­er­the­less failed to com­ply with those obligations.”

The IRS may say that you didn’t ex­er­cise “or­di­nary busi­ness care and pru­dence” since you didn’t use cer­ti­fied mail. But you can make the coun­ter­ar­gu­ment that you’ve con­sis­tently made pre­vi­ous es­ti­mated tax pay­ments this way with­out in­ci­dent and this is the first time you’ve en­coun­tered a prob­lem.

Rosen­berg said the key to pre­vail­ing is to keep try­ing. The IRS may re­ject your first and sec­ond at­tempts to get a penalty waived but ac­qui­esce on the third, she said.

“Don’t give up af­ter the first two re­jec­tions,” Rosen­berg said.

One more thing: Given the high rates of iden­tity theft and data­base breaches, closely mon­i­tor all your fi­nan­cial ac­counts. That means check­ing them at least monthly, if not weekly. If you have more ac­counts than you can ad­e­quately mon­i­tor, con­sider con­sol­i­dat­ing ac­counts.

So­cial Se­cu­rity’s ‘break even’ point

Dear Liz: This is in re­gard to the reader who cre­ated a spread­sheet that he thought showed the ad­van­tage of tak­ing So­cial Se­cu­rity early. I re­tired at age 62 and am now 69 and have not yet started drawing my benefits. I have never done a spread­sheet to de­ter­mine the rel­a­tive ad­van­tage in wait­ing to draw on my per­sonal benefits; I’ve sim­ply as­sumed there is no ad­van­tage or dis­ad­van­tage, ac­tu­ar­i­ally. That is, whether I took benefits be­gin­ning at age 62 or waited, as I’m do­ing, the to­tal amount I would re­ceive would be the same if I lived an av­er­age life ex­pectancy. Given the fact that my wife would be drawing my ben­e­fit if I die first, how­ever, it’s clear that my wait­ing to age 70 to draw my benefits works to our joint ad­van­tage. Am I right?

An­swer: In the past, the So­cial Se­cu­rity Ad­min­is­tra­tion ad­vised peo­ple that they would re­ceive roughly the same amount by start­ing re­duced benefits early as they would by wait­ing to re­ceive larger amounts, as­sum­ing they lived an av­er­age life ex­pectancy.

Th­ese days, though, longer life ex­pectan­cies at age 65 mean that most peo­ple will live past the “break even” point where wait­ing for en­hanced benefits re­sults in more money over a life­time than start­ing early. The break-even point is in one’s late 70s. Men have a 60% chance of living to age 80 and women have a 71% chance, ac­cord­ing to the So­ci­ety of Ac­tu­ar­ies.

When you’re mar­ried, you need to think in terms of two life ex­pectan­cies, be­cause the chances are even bet­ter that one of you will live past the break-even point — per­haps well be­yond.

With cou­ples, there’s an 88% chance at least one of you will live to 80, a 72% chance of at least one living to 85 and a 45% chance one will live to 90.

Be­cause a sur­viv­ing spouse will have to get by on just one So­cial Se­cu­rity check — ei­ther her own or one equal to what her spouse was get­ting — max­i­miz­ing at least one ben­e­fit makes a lot of sense.

There’s also the idea that So­cial Se­cu­rity should be used as a kind of longevity in­sur­ance. The longer you live, the more likely you are to use up all your other as­sets, so a big­ger check can mean a much bet­ter stan­dard of living.

Elaine Thomp­son As­so­ci­ated Press

ELEC­TRONIC pay­ments are safest. If you must pay with checks, use cer­ti­fied mail, re­turn re­ceipt re­quested.

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