Tax Time

Tuesday, April 13, 1999

Dom LaPonzina, Chief of Communications for Delaware, Maryland and D.C. district of the IRS, was my guest for a live discussion on taxes and the upcoming deadline. (Albert B. Crenshaw of The Post, our previously-scheduled guest, was called away.)

For background, read Washingtonpost.com's special report on taxes – including calculators, planners, Post advice columns, tax software and a Web guide – and browse an archive of my past columns and live discussions.

Please note: We cannot offer specific personal financial advice or answer detailed questions about individual situations.

Michelle Singletary: Well, welcome again to this week's discussion. I'm sorry to report that Al Crenshaw was called away on reporting assignment and won't be able to join us today. However, in the spirit of a kinder IRS, Dom LaPonzina, chief of communications for Delaware, Maryland and D.C. district of the IRS, will sub for Al. Dom was great to do this at the last minute and I'm sure he will be very helpful in answering many of your questions. In fact, even before Al was sent to cover some breaking IRS story, Dom posted some last minute filing information many of you will find helpful. And here it is:

Please let readers know that our IRS offices at 500 N. Capitol St. in the district; at Metro-plex 1 -8401 Corporate Drive- in Landover; and at 11510 Georgia Ave in Wheaton are open tonight, tomorrow and Thursday till 6:30 pm.
Also our phone service is available 24 hours a day at 1-800-829-1040. Finally, don't forget that forms may be downloaded -even the Form 4868 Extension- at our website www.irs.ustreas.gov

Dom LaPonzina, IRS: Nice to be with you, Michelle. I don't look anything like Al Crenshaw, but I'll try my best to fill in for him. Who knows...maybe someday, Al can fill in for me and get to answer some of the questions he asks me.

D.C.: I have friends who have been in graduate school for years and have skipped filing taxes for all that time. They claim there's nearly no chance of being audited because they make no more than $15,000 annually. I think this is actually a pretty common practice. Does the IRS care?

Dom LaPonzina, IRS: Yes, the IRS cares and so should they. Many students who earn income during college get refunds, but they have to file their returns to claim those refunds. No Return --- No Refund. So they are really hurting themselves by not filing. This year's average refund was nearly $1600. Plus this year there are several new TAX CREDITS than can mean as much as $1500 back to you if you pay college tuition. So my advice is file unless you had no taxes withheld and didn't earn enough to be required to file.

Arlington, VA: I switched from a traditional IRA to a Roth IRA before the end of last year, which apparently exempts me from paying taxes on the sum for four years. Am I supposed to a) divide the sum up into four lumps and claim lump one this year, lump two next year and so on or b) figure out when, in the next four years, I want to claim the full sum?

Dom LaPonzina, IRS: Your first impression is correct. You divide the reportable income from the distribution over four years. In other words, you claim 1/4 of the income on this year's, 1/4 on next year's and so on until the end of the 4th year.

Arlington, VA: I mailed my tax return today -- about how long will it take to get my refund? I filed a 1040 with a 2555EX -- Foreign Income Exclusion form.

Dom LaPonzina, IRS: Most returns being filed during this week will be those that owe tax. Most refund filers have already filed. BUT for some who are due refunds and are filing now, they can expect a wait of approx. 5-6 weeks for their refund. HOWEVER, if a taxpayer files electronically "e-file" as it is known, they will receive their refund in half that time or about 2 weeks -- even faster if they elect to have their refund direct deposited into their checking or savings account.

Silver Spring MD: In reality, what are the chances that I will be audited if I mis-represent my income (under 50k) by 3 or 4 thousand dollars?

Dom LaPonzina, IRS: I can't give you a "in reality" answer that will tell you definitely whether or not YOU will be audited. You'll know when you receive that "Dear Taxpayer" letter sometime during the next 3 years.
However, overall audit coverage in this district has been roughly 1/2 % or nearly 19,000 returns audited this past year.
Audit selection is based on several factors, including an overall score for your return which may indicate missing income or inflated deductions. You can also be selected for audit based on your occupation or based on the tax return preparer you used. The IRS has several projects that are the basis for selecting returns for audit. Income alone is not the only factor.
Hope this helps give you a better perspective on your chances for audit. My advice: Prepare as if you were going to be audited and you'll be sure to have all of the records and documentation you'll need if you do receive that "Dear Taxpayer" letter.

Michelle Singletary: It's funny how tax time often brings out the cheat gene in us all. I know I hate the idea of filing and paying taxes but why take the risk of knowingly submitting false information whether you are going to be audited or not. Why not try to find legit ways to save on your taxes? I believe that every time you try to cheat in life, life comes right back to bite you in your return.

DC: I'm about to pay my federal taxes and this may be a stupid question. Who do I make the check out to? Internal Revenue Service? Department of the Treasury?

Dom LaPonzina, IRS: This year we are asking taxpayers who owe to make their check out to:
U. S. TREASURY DEPARTMENT
Also be sure to include your social security number on your check.

Washington DC: I live in Washington DC and I am still trying to find out if I have to file for state tax.

Dom LaPonzina, IRS: Residents of the District of Columbia, assuming sufficient income, would file a tax return with the Office of Tax and Revenue for D.C. This would be in addition to filing their federal return. Normally you file a return where you live, NOT, where you work.

Washington, DC: I mailed my tax return with a check last week. How long until the check is deposited?

Dom LaPonzina, IRS: Usually within a day of the processing center receiving your envelope.

Fairfax, VA: I have started doing some freelance work and I was told that I need to pay estimated taxes on my earnings. What does that mean and how do I do it?

Dom LaPonzina, IRS: We have a "pay as you go" tax system in this country which means that we pay tax in installments throughout the year. Most wage earners do this by having taxes withheld from their salary each week by their employer. Those who are self-employed, like a freelancer, would instead, file quarterly estimated taxes. This takes the place of weekly withholding from the employer. Ultimately you want to have 90% of your tax liability paid in by the time you file your return (or 100% of the liability for the taxes you paid the previous year).
If you do both, meaning you're a wage earner and also have a side job, you can avoid filing quarterly returns if you have more tax withheld from your salaried job to compensate for the additional income you earn from your side job. You do this by filling out a new Form W-4 which should be available from your payroll office.

Michelle Singletary: We are more than half way though this tax discussion. There are some great questions coming in and Dom is trying to get to many of them. And, let me say again thanks to Dom for subbing at the last minute for Al. Who says the IRS isn't taxpayer friendly :)

Arlington, VA: I'm about to change jobs, and my new company doesn't offer a 401(k). Instead they have some sort of "pension plan" where the company contributes 5% of my annual salary, but only after I've been there a year.
Two questions: It's my understanding that I can contribute only $2,000 tax free per year to an IRA if I don't have a 401K. I don't understand the logic of this, as I can -and do- contribute up to 14% -I know the legal limit is 15%, but for some reason my company has a 14% limit- of my salary tax free to a 401K -- which far exceeds $2,000. I feel like I'm being penalized for working for a smaller company. Is there any way I can contribute more than $2,000 tax free a year to a retirement fund?
Second question: I start my new job in May -- is that $2,000 limit affected by the contributions I've already made this year to my 401(k) -which is nearing $2,000-?
The third question is: Once I'm eligible for my new employer's pension plan, does that in any way effect the tax-free status of my $2,000 IRA contribution?

Dom LaPonzina, IRS: You are confusing limits between 401(k) contributions and IRA contributions. The $2000 limit you refer to relates to the IRA and has nothing to do with your 401(k). As far as what you can do to raise the $2,000 limit. Write your congressional representatives, because it's the law and only a change in the law will raise the limit.
Your 401(k) contributions will not affect your IRA contribution limit. They are separate.
The answer to your third question depends on your income and the type of IRA. Is it going to be a traditional IRA or a Roth IRA. Roths are not deductible anyway. Traditional IRA deductibility depends on your pension coverage and income. Consult your tax booklet or call us at 1-800-829-1040 for specific information about your specific situation. Hope this helps you.

Michelle Singletary: I have a relative who found out recently that her tax preparer may have filed her taxes for several years but then may have cashed her refund without her knowledge? It seems she didn't follow up on the preparer's work or why it was taking so long to straighten out some problems she had with her daughter's Social Security No. What should she do? Does she have to go after the preparer for her money if in fact he filed and signed false returns in her name?

Dom LaPonzina, IRS: Good question - tough situation. Let me start by saying that taxpayers should use the same care in choosing their tax preparer as they use when they choose their doctor or lawyer. If they don't, they may soon be needing a doctor or lawyer due to the problems poor tax preparation can cause.
There are some red flags to stay clear of. Among them: never sign a blank return or a return prepared in pencil. Avoid any preparer who encourages you to inflate your deduction above what they really were or deflate your income below what you know it to really be. NEVER have your refund sent to the preparer. Always have it sent to your address. Always double check your return, no matter who prepares it, before sending it to the IRS. Finally, remember that no matter who you hire nor how much or little you pay, YOU THE TAXPAYER ARE ULTIMATELY RESPONSIBLE FOR THE RETURN AND THE INFORMATION IT CONTAINS. That's why YOU sign it.
You may have some legal recourse against the preparer. I suggest you contact a lawyer. (Remember what I said at the beginning of this answer about needing a lawyer?)

Michelle Singletary: Is there a time limit on which you can file for a refund if you haven't owed taxes?

Dom LaPonzina, IRS: You have 3 years in which to file an amended return to change or correct a previously filed return. You can also file for back refunds within a 3 year period.

Greenbelt, MD: In the questions dealing with IRA contributions, am I allowed to deduct contributions to a 401(k) account?

Dom LaPonzina, IRS: I'm a bit puzzled by your question. Contributions to 40l(k) accounts are automatically deducted on your W-2. Usually, they are pre tax and not included as taxable income on your employer W-2 form. You may want to check yours to see. Also, if your employer matches your contributions, that match is also not includible as income to you. However, once you start withdrawing from your 40l(k) those withdrawals will be taxable.

Washington DC: Since I live in Washington DC, and therefore have no voting representation in Congress, why do I have to pay Federal income taxes? Didn't we fight a revolution over taxation without representation?

Dom LaPonzina, IRS: Delegate Eleanor Holmes Norton is the D.C. representative in Congress and D.C. residents do receive federal services for which they benefit. However, the issue of whether D.C. should get a vote on Capitol Hill is not one for me to address. I suggest you lobby Congress.

Michelle Singletary: I totally agree with the last questioner. It's one of the reasons why I don't live in the District. I wonder if it has anything to do with the fact that if District residents did have true representation in Congress there would be more elected black officials, especially and probably two new black Senators?

Arlington, VA: I know you guys don't make policy, but ... any idea when the marriage penalty is going to be done away with?

Dom LaPonzina, IRS: A lot of discussion about it right now on capitol hill, but your guess is as good as mine. Keep in mind that at the present time, as the current law is written, MORE couples benefit from the present system than those who are penalized. So the problem facing legislators is to come up with a revision that will please all sides. That may be tough.

NoVa: Mr. LaPonzina, would you care to comment on the recent series of horror stories concerning citizens in the hands of the IRS.
Also, why does the burden of proof in income tax cases seem to fall on the accused suspect, as opposed to on the government as in any other criminal investigation and prosecution.

Dom LaPonzina, IRS: I'd be happy to comment on the "alleged horror stories" you mention. Keep in mind that last year nearly 121 million individual tax returns were filed. The vast majority of them had no contact with IRS other than to receive their refund.
The stories you mention were somewhat sensational and received heavy media coverage. But taken in context of the total number of taxpayers we deal with day in and day out, the horror stories are very, very, rare. If and when the IRS errs, it should correct the situation. We are determined to provide fair, and courteous service to each taxpayer and yet we must provide service to ALL taxpayers who pay their taxes each year and expect us to ensure that those taxpayers who choose not to pay do face legal penalties.
Don't paint the IRS with a broad brush as a result of a few media stories.
Remember, our job is to enforce the LAWS. If you don't like those laws, then you need to lobby congress to change them.

Prince George's, MD: All due respect, Michelle, but it appears frequently that these chats are a forum for your moralizing. This is a financial discussion, I thought. Please save the opinions for your column.

Thank you,
Faithful Reader

Dom LaPonzina, IRS: Michelle, I think this one's for you.

Michelle Singletary: I'm glad you respect me but frankly, my dear, these are my chats and I don't separate my finances from my morals. These discussions are intended to be an extension of my columns and a chance for me and like today a guest to communicate directly with readers. So I'm afraid you will have to put up with my moralizing if you want to play.

Arlington, VA: The only couples that currently benefit are those with children. There are a lot of the rest of us out there, subsidizing everyone else. I don't mind paying my fair share, but I do mind paying more simply because I'm married and don't have children.

Dom LaPonzina, IRS: You may say the "only couples that currently benefit are those with children......" but they happen to represent over 55% percent of total couples. And last time I checked 55% was a majority or in my original answer "most."

Washington DC: I understand we have a DELEGATE in DC. But what is her impact? Zippo. Nada. Plus we get no representation in the Senate.

Dom LaPonzina, IRS: I hear ya, but do think there's anything else that I can say that will make you feel any better?

Arlington, VA: When does your tax season end? My accountant husband will be swilling tequila on Thursday night, but I'm assuming you're busy season extends on for a few months.

Dom LaPonzina, IRS: My tax season NEVER ends. There's a lot of other tax issues that we are involved with throughout the year not just during the Filing Season. Starting new business, prosecuting tax cheats, answering media questions from Michelle and others, etc.

Rockville, MD: One of the best things the IRS has done has been to post forms and publications on the internet. While the turbo tax people may squawk, is there a possibility that IRS could make the forms interactive -you enter data, figures are calculated and you print out the form-? Right now, since I am too cheap to buy the software, I have a spreadsheet that calculates the figures which I transfer to the forms.
I think the IRS gets a bad rap; you're just trying to translate the laws congress has passed. If we have a problem, we should blame our representatives -and probably ourselves-.

Dom LaPonzina, IRS: All I can tell you is that our tech folks are constantly looking at modernization and innovation as it relates to electronic filing. We've come a long way and we no doubt will continue to introduce upgrades.. Stay tuned.
Now I gotta leave, but let me say that I thought we got some really good questions and I hope I provided you with some equally good answers. Take care and many happy returns!! Dom LaPonzina

Michelle Singletary: Well, it's time to go. Thanks a bunch to Dom for coming on at the last minute. He was a doll to help me out. As always this has been fun and despite my fan from Prince George's, I didn't get a chance to moralize enough about all these hot tax issues. I look forward to chatting with you soon and I hope your filing goes well.
Thankfully, I have a well-organized hubby who sent our taxes off weeks ago (and yes I checked everything before signing).