Oops, Forget to Enclose That Tax Document?


Did you forget to enclose that tax document on your tax return? This is the largest source of IRS notices that I see. Taxpayers forget to report income from a 1099 or did not think the income was necessary to report. So, how do you deal with an IRS tax notice when you forgot to enclose the document with the tax return?

1099-DIV & 1099-B: Taxpayers sometimes neglect to report income from non-qualified investment accounts.

stress, forget to enclose that tax document, tax return, IRS notice, IRS tax noticesTaxpayers sometimes neglect to report income from non-qualified investment accounts and then receive an IRS tax notice. The first reason taxpayers give is that they ‘did not take money out of the account.’ While this logic holds true with qualified accounts such as IRAs and 401ks, if the account is non-qualified such as an Individual or Joint account, constructive receipt of interest & dividends makes the income taxable. The second reason taxpayers fail to report income is that they reported the interest & dividends but did not turn the page to and report the stock/mutual fund sales. In this case, the IRS assumes you got all of your stocks, bonds, & funds for free and scare taxpayers with a ridiculously high assessment. Don’t forget to file your Bs & Ds. Don’t forget to amend your State tax return when this happens unless you want to go through the process all over again with the Mass DOR.

Scratch Tickets: People forget to report gambling winnings all the time.

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This is because they often receive their W2G at the time they collect their prize. This means 12 months or more may have gone by between the time they got their tax document and the time they have to file their tax return. Massachusetts usually picks these up first because the information form the Mass Lottery uses is cross referenced with the Mass DOR (Massachusetts Department of Revenue). But wait, your Federal e-file was already accepted so now you have to amend your Federal tax return. Is there an emoji that fits this situation?

1099-R: People forget to report retirement account income all the time.

forget to enclose that tax document,tax return, IRS notices, Form 1099R, irs tax noticeWhy? The logic here is that many people believe that they ‘already paid the tax.’ The more correct statement would be that you estimated how much tax would be owed and hope it would be enough. The tax withholding on a retirement account distribution is the same as tax withholding on your W-2. It is just an estimate. Otherwise you would not be filing a tax return. Once again, you need to amend your Federal and State tax returns. If you don’t amend the state return at this time, you will have to go through the process all over again once the IRS reports the change to Mass DOR. Finally, retirement income is sometimes taxed differently at the state level.

Canceled Debt

forget to enclose that tax document,tax return,IRS notices, dont forget, forgot, canceled debt, cancelled debt, irs tax noticePeople sometimes settle with credit card companies & lenders and then the lender draaagggs their heels in discharging the debt. Sometimes for months or years. The discharged debt becomes taxable in the year they discharge it and report a 1099-C to the IRS. Meanwhile, you have moved on and are back on your feet — you may have a new address, you may have saved a little money. Then WHAM! You receive a letter from the IRS that claims you received ‘cancellation of debt (COD) income.’ In this case, I would highly recommend you speak to a professional as there are multiple ways to report and/or exclude the canceled debt income. Federal & State tax returns would need amending. Keep in mind that Massassachusetts treats Cancellation of Debt income differently than the IRS.

Did you get an IRS Tax Notice? Did you forget to enclose that tax document to your tax return?

forget to enclose that tax document,tax return,IRS notices, dont forget, forgot, irs tax noticeI hope that you avoid these tax potholes and don’t receive an IRS tax notice. But, just in case you happen to find yourself in a jam, please feel free to contact me, Alex Franch, BS EA  at 781.849.7200. I’ll look over your documentation and help you to refile anything that was missing. And, if you need someone to talk to the IRS, just remember, I speak their language.

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For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.

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