We will understand what IRS Notice CP14 is and go through a real IRS Notice CP14 that a reader sent to me – understand each section before deciding a future course of action.
A reader sent me the attached asking for my interpretation of the notice. (It is an actual notice that came in today, I have deleted all the PII (Personally identifiable information) – name, address, and social.
What is IRS Notice CP14?
Understanding IRS Notice CP14 is pretty straight forward, as it is with most things when someone tries to explain it in simple English. There are two reasons why ‘some’ professionals do not explain things in a simple manner – sometimes they use arcane esoteric language purposefully so that they can charge you a lot of money or they don’t understand the subject well enough.
IRS Notice CP14 is an automated system notice that one usually gets after about 3 – 4 weeks from the date of filing your tax returns. In this case, the reader filed the taxes for 2014 on 10/15/2015 and the Notice date is 11/16/2015 (so about 4 weeks).
Simply stated – IRS Notice CP14 states that the taxes you owed (per your calculations) have not been paid yet. There is underpayment of taxes – tax reported on your return is more than the payments that have been made to your account. This usually is accompanied by interest and penalty charges too.
Payments that have been made to your account
This is not always the same as the payments that you have made. There is always a small probability of error – you made the payment but it was applied to some other’s account. So it is very important to check your payment history and then reconciling it with IRS.
Interest and Penalty
IRS will charge interest and penalty too if you have received a CP14.
If you agree with IRS Notice CP14 calculations – underpayment amount, applicable interest, and applicable penalty, then just go ahead and pay the amount IRS is asking for.
If you do not agree with the IRS Notice CP14 details, either the underpayment amount or the applicable interest or the applicable penalty, then your future recourse will depend on the reasons for your disagreement.
The only way I think you will disagree with the underpayment is – if your records of payment history differ those from the IRS, in this case it is simple to dispute the IRS Notice CP14, calling them up on the number given in the notice is the best option. Please have your payment details handy with you, find out the missing payment before hand, expect the phone call to take 30 – 45 minutes (including the wait time). Be polite to the agent, they are just doing their job – this money does not go go them.
If you disagree with the interest, then there better be a math error that you made when you prepared your returns. I do not see any other justifiable reason to remove the interest charges.
If you disagree with the penalty, then the only justifiable reason I know of is – you relied on IRS advise.
Now coming to the actual case in point – IRS issued a CP14 notice asking the reader to pay $45.81.
The reader had requested a 6-month extension to file 2014 taxes. She filed the taxes for 2014 on 10/15/2015. The tax liability for the year was $1,317, she had made payments to IRS though the year for $303.
She paid the balance $1,014 (1,317 – 303) and $9 penalty on 10/15. She paid $1,023 to the IRS on 10/15/2015.
This $9 penalty (mentioned on line 79 on Form 1040) was for failure to pay proper estimated tax – her tax withholding and estimated quarterly tax payments made to IRS were $1,014 short of the tax liability.
She paid $1,023 when she filed her return and is wondering why is IRS asking for $45.81?
IRS is asking for $45.81 as interest and penalty. IRS charges interest if you pay late and also a failure to pay penalty.
Interest calculations – IRS charges interest from the tax filing due date till the amount is paid. In this case, $1,014 was due to the IRS by 4/15 but was paid on 10/15. So IRS charge 3% interest for those 183 days. That comes to $15.37. (IRS uses daily compounding, so daily interest rate = 3%/ 365 = 0.0082. For 183 days, it is $1,014 * 0.0082 * 183).
In addition, IRS is saying that $9 of this $15.37 was paid on 10/15 and interest is owed on the remaining $6.37 from 10/15 till the CP14 notice date of 11/16. Hence an additional interest of $0.02 ($6.37 * 0.0082 * 32).
FTP (Failure To Pay) Penalty calculations – For every month (or part of the month) a taxpayer is late after 4/15, IRS charges 0.5% for each month. In this case, the reader was 6 months late in paying $1,014. So the FTP penalty comes to 1014 * 6 * 0.5 = $30.42.
Your Rights as a Taxpayer
I am also attaching Your Rights as a Taxpayer publication of IRS. Read through this and see if any of these is applicable to your situation.
I particularly like the one called “Repeat Examinations” – it says if you were examined by the IRS for the same items in any of the previous 2 years and there was no change in your tax liability, then IRS might discontinue the current examination”.
This is not directly applicable to CP14 as IRS Notice CP14 is not a notice to propose change in tax liability, but still I find this ‘repeat examinations’ right interesting enough to mention it here. It is a pleasant by product of a current examination. If you are right and there is no change in tax liability; then IRS will not examine you for at least 2 more years.
To conclude, IRS CP14 is sent to you if there is an underpayment of taxes – the taxes that you calculated on your tax return exceeds the amount of taxes (plus interest and penalty) IRS has on your account.
IRS is usually justified in sending you the Notice CP14. BUT be sure to reconcile your payment records with theirs before paying up.
Update 11/7/2016: IRS has a phone number where you can call and request waiving the penalty (interest charges cannot be waived). Attached flyer was sent to taxpayers starting this year (2016).