Is it true that the IRS uses certified mail right before they come after you aggressively?

Question

I am in a strange situation. I have found nothing online to help explain my experience with the IRS so far.

I recently did the responsible thing and hired an accountant to help take care of some back taxes. In the area of taxes, I am next to clueless.

According to the IRS, I hadn't filed since 2000, so they hung onto my refund for 2007 as well as my Stimulus. (This is partially true, some of those years I failed to file. My fault. I assumed that because I made so little money that I couldn't possibly owe anything and that I had endless time to handle it. Yes ... very stupid.)

I did as they asked, filed for all those years (some of them for the second time) with the help of my accountant. -Missed out on a 2.5k refund for one of those years because it is too late to collect. My fault for being ignorant.- Then I received a notice saying that I owe 8k in taxes and penalties for a year that I worked as a private contractor. My accountant helped me file for that year and informed me that I was entitled to small refund for it, and that my 2007 refund and stimulus would be released soon.

My 2007 refund was recently deposited into my bank account, just as he said. However... I received another notice for the 8k payment they were expecting (claiming that I didn't file for that year still) a few days before this deposit was made. My accountant told me that is was a mistake and that I shouldn't worry about it, because there was no letter of intent included with it. (This Form was basically asking me to agree with the IRS' assessment of what I owed for that year). So I laid the matter to rest.

Then I received a certified mail at the place I used to live at (apparently, they didn't get my address change form either). I've had it forwarded to my new address, but it could be a week before I get it. I assumed it was my stimulus check, but none of my friends have received theirs via certified mail.

After looking online, it seems that certified mail is used by the IRS exclusively to deliver threats. Is this true?

I know people are going to reply with "Wait till you get the mail and find out." but I am trying to plan a trip in the near future. If it is a mistake, and it is possible that they are going to take action to seize money from my account due to poor inter-office communication, I'd like to cancel my plans immediately and resolve the matter asap.

(If it's time to render unto Caesar, I'd rather do that instead of buying plane tickets.)

So I guess I have more than one question

1 - Does the IRS use certified mail to deliver threats exclusively, right before they take direct action?

2 - If so, why would they release my 2007 refund instead of applying it to whatever it is they think I owe them? I ask this out of curiosity, I'm not going to complain too much about the IRS doing something correctly. :)

3 - I used express mail, but not certified mail to file for the years in question. I have tracking numbers for the packages, and the name of the person who signed for them. Will that be sufficient to prove that the IRS received them?

Any insight is appreciated. My accountant is on vacation himself atm :-(

Answer 1

IRS sends its 4th notice by certified mail.  At that point the penalty for late payment is increased form 1/2% per month to 1% (but still maxes out at 25%).  IRS can seize any state refund you have but nothing else. Yet.  It will subsequently send you, also by certified mail, a Notice of Intent to Levy and Your Right to a Hearing.  30 days after that you are fair game.  

If you had been billed for anything, your 2007 refund should have been applied to it.

You do not indicate that IRS is claiming you haven't filed everything now.  Express or Certified mail should be adequate to show you filed although all it proves is that you sent something--maybe just a blank piece of paper. If you are really paranoid, you should take your return and a copy to your nearest IRS office and request to have your copy date stamped.

Answer 2

You made a common contractor mistake.

You visualized your tax return with all expenses, deductions, exemptions, credits and said, I bet I don't owe anything and didn't file.

The IRS computer looked at the same income, no expenses, single standard deduction, 1 exemption, no credits and said, $4000 (the total quickly doubles with penalties and interest).  Since you didn't file on time, the IRS eventually did it for you.  Thus the bills.

Finally you did file.  But with the substitute return in the system, your tax return was forwarded for a closer look by exams.  Even without exams, processing of an old tax reurn can take 8-12 weeks.  Meanwhile the computer is cranking out bills, you are happily ignoring them and then wondering why you are getting nasty letters.

Get off you duff. Call the IRS tomorrow and ASK for an 120-day extension to pay.  Point out that you have filed all of the missing returns, but the delays in processing are killing you.

Answer 3

the certified letter probably got crossed in the mail with your tax returns, but the returns that IRS was requesting had a special address to mail the returns to.  IF you didn't mail the to the appropriate address it will take IRS longer to process the returns.

the notice that stated you owed 8K is stating that if you don't file within 30 days then IRS will file and you could owe 8K because IRS will file for you at higher tax rates and no dependents or deductions .

Since you released your refund it is because IRS can only hold the refund for a total of 6 months, if all your tax returns are filed then you will encounter the same situation again next year.

contact IRS at the number listed on your letter to verify the returns have been received and if assigned to a tax examiner.

Answer 4

Threats? No, but notices that give you the right to appeal proposed actions, as in a notice of filing of a federal tax lien or a notice of intent to levy, or a notice that the IRS has determined that you owe additional taxes, known as a notice of deficiency, must by law be sent to you by certified mail.  Do not ignore any such notice.  Discuss the notice with your accountant.  You may have to hire a tax attorney to file a timely appeal of the IRS's proposed action against you.  As another answer correctly pointed out, all the IRS knows is the amount of your gross revenues based on 1099s issued to you.  They have no way of knowing about deductions and in some cases, your opportunity to contest assesssments that they may have made by preparing substitutes for returns may have passed.  Don't ignore the notices.