Times are tough and we all get very excited when we find or receive a little bit of unexpected money. This could be $10 from a scratch off card, finding that you had a security deposit that you are receiving back, or even receiving an unexpected check for a refund from the IRS. While it can be exciting to find some extra money it is not always a good idea to accept the money without first asking a few questions.
Anyone who has ever taken out a loan knows that they have to fill out a great deal of paperwork in order to try and borrow some money. When you are finally approved for your loan you will eventually receive a check for your funds. Up to this point you should be able to cancel the loan without any penalties, but the minute you endorse the check and deposit it you are accepting responsibility for all of the terms and conditions listed in your loan papers. Most loans contain an origination or processing fee plus interest at a minimum. Even if you deposit the check and turn around and write a check in the full amount and mail it back you may still be responsible for the fees.
The IRS deals with their checks much like a bank would in the loan process. Everyone is supposed to have their taxes filed and paid by April 15th every year unless they have an extension. Any money that has not been paid at this point is subject to have penalties and interest charged against it until the IRS receives their payment in full. Most people believe that once they pay their taxes on or before April 15th they will not have to worry about the IRS again for another year. This is actually far from the truth!
The IRS is well known for not being on top of everything, and it quite often takes them a good amount of time before they realize that a mistake has been made. An excellent example of this is that you are a model citizen, you get your taxes done on time, you pay what you owe, and then you are fortunate enough to get some sort of refund check from the IRS a few months later. You will most likely want to run to the bank and deposit it, but that is actually a very unwise thing to do.
Did you know that if the IRS sends you a check and later finds out that it was a mistake that you will be held responsible? That is right, not only will you be responsible for paying back the full amount of the check, but you may also be responsible for paying penalties and interest on that money from the time that you deposited the check until you pay it back in full.
It does seem rather unfair that the IRS is able to get away charging these penalties, but unfortunately they are the IRS and they are right until you can prove them wrong. And that can sometimes take a lot of time, angst and possibly professional fees! The best course of action when you receive a check from the IRS is to wait to deposit it until you are able to speak with the person that prepared your taxes. If they take a look at the check and compare notes with the income tax return that you filed and everything looks okay, then you should be safe to deposit the check. But if they feel that it is a mistake on the IRS's part, it is better to mail the check back to the IRS, citing your reasoning.
Brent Ross, CPA, is president of Brent Ross & Associates, CPAs, LLC. If you would like Brent to help you with your game plan dealing with the IRS he can be reached at 904-448-6408, or click here to email Brent.
Visit our website to learn more about our firm and services - http://www.brjaxcpa.com.
