The issue sounds too easy, right? What's there to know? Well, in a recent Tax Court case (Windover vs. Commissioner, T.C. Summary 2007-50) the taxpayer found out the hard way there is more than meets the eye.
The taxpayer, Fred Windover, filed his 1999 Federal tax return and included with his filing a check in the exact amount of the balance shown on his tax return. The IRS claimed that he had a balance due in a previous year and applied the check to the unpaid balance of the other year.
Mr. Windover believed that the IRS should apply it to the 1999 year because the check he had written exactly equalled the balance due and was included with the 1999 tax return.
Held, for the IRS.
Don't let this problem happen to you. When you pay a balance due to the IRS or NYS there are steps you need to take in order to make sure the funds are applied properly. What mistake did Mr. Windover make you ask; after all he included the check with the tax return when it was filed and the check matched the balance due on the return? Answer---he never indicated on the check itself which year it was to be applied, so, the IRS was at liberty to apply it to an open balance in another year.
The proper procedure for preparing a check is to include in the memo section the tax year and tax form for which the check should be applied. The taxing authority will then be required to apply it to that particular year and tax return.
Make sure you also include your social security or Federal ID number on your check as well. Don't learn the hard way as Mr. Windover did. Take a few seconds longer and properly prepare your check.