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CP504 levy notice for old IRA excess contrib

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cantare

Member
What is the name of your state? California

For tax year 2014, wife and I mistakenly contributed the double the max amount to a nondeductible TIRA in her name, instead of the max allowable for each of us. Custodian error or ours, we're not sure. (EDIT: I made a mistake in posting initially, the IRA was NON-deductible, so the excess never cost the IRS anything)

I discovered this when filing 2018 taxes and tracing the histories of our retirement accounts. Since we'd also contributed the max in 2015-7, we determined the way to resolve was to skip her 2018 contribution and let the 2014 excess roll forward.

In April 2019, together with my 2018 return, I filed a Form 5329 for the four years 2014-2017, calculating the penalty for each, and mailed IRS a sizable check. It sucked, but I figured I should do the right thing.

Today I got two CP504s levying additional amounts for 2015 and 2016. I assume two more are enroute for the remaining years. They allege an amount owed, interest and failure to pay penalty, implying they've told me before. I received no such demands, only some very cryptic letters acknowledging receipt of my 5329's. This was a sleeping dog before I kicked it. Anyone familiar with this situation and have advice?
 
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LdiJ

Senior Member
What is the name of your state? California

For tax year 2014, wife and I mistakenly contributed the double the max amount to a deductible TIRA in her name, instead of the max allowable for each of us. Custodian error or ours, we're not sure.

I discovered this when filing 2018 taxes and tracing the histories of our retirement accounts. Since we'd also contributed the max in 2015-7, we determined the way to resolve was to skip her 2018 contribution and let the 2014 excess roll forward.

In April 2019, together with my 2018 return, I filed a Form 5329 for the four years 2014-2017, calculating the penalty for each, and mailed IRS a sizable check. It sucked, but I figured I should do the right thing.

Today I got two CP504s levying additional amounts for 2015 and 2016. I assume two more are enroute for the remaining years. They allege an amount owed, interest and failure to pay penalty, implying they've told me before. I received no such demands, only some very cryptic letters acknowledging receipt of my 5329's. This was a sleeping dog before I kicked it. Anyone familiar with this situation and have advice?
I think that it would be in your best interest to consult a local tax professional, particularly someone experienced in dealing with problems with the IRS. I am not sure that what you did to try to resolve the problem was actually the best solution. You need a tax professional to review everything and help you formulate a plan to deal with the issue.
 

cantare

Member
I think that it would be in your best interest to consult a local tax professional, particularly someone experienced in dealing with problems with the IRS. I am not sure that what you did to try to resolve the problem was actually the best solution. You need a tax professional to review everything and help you formulate a plan to deal with the issue.
:confused: FWIW, that was professional advice... I'm curious what alternatives you see for resolving a belatedly-discovered excess contribution, given that there were no under-contributions in any intervening year.

The only other thing suggested at the time, half-jokingly, was to "leave it be". Now I'm thinking I should've listened to that. I filed the four 5329's & paid before 4/15/19, and the instructions and calculation were straightforward, so I don't get what went wrong, why they think there's still more owed, or what happened to the other notices they supposedly mailed.
 
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LdiJ

Senior Member
:confused: FWIW, that was professional advice... The only other thing suggested at the time, half-jokingly, was to "leave it be". Now I'm thinking I should've listened to that. I filed the four 5329's & paid before 4/15/19, and the instructions and calculation were straightforward, so I don't get what went wrong, why they think there's still more owed, or what happened to the other notices they supposedly mailed.
I am concerned that you may have done the four 5329's wrong and that that might be contributing to the IRS letters now. I cannot see whatever you did and you need to let someone review it.
 

cantare

Member
I am concerned that you may have done the four 5329's wrong and that that might be contributing to the IRS letters now. I cannot see whatever you did and you need to let someone review it.
What I did is simple to relate, and seemed unambiguous (as did the advice I got):

On 2014 F5329 Part 3 Line 15, I entered the 5500 excess contribution, for a L16 total of 5500 and a L17 penalty of $330 (6% tax).
The subsequent forms for 2015-7 each showed the 5500 as a "prior year excess" on L14, with zero current-year excess on L15, and the same calculated $330 6% penalty each time. I sent them a check for 4 x $330, or $1320, which they cashed. Was this incorrect?
 

Taxing Matters

Overtaxed Member
Today I got two CP504s levying additional amounts for 2015 and 2016.
Ok. That means that the IRS sent at least one prior bill to you for these assessments. The CP 504 is never the first notice sent. The CP 504 is the Notice of Intent to Levy, which IRS officers also call the final notice. It tells you that you have 30 day to pay or the IRS will begin to collect what is by levying upon your income or property, which may include a levy on your bank account, levy on your wages, seizure of property, etc. If this is the first such notice sent to you for the liability the letter will also include information about your right to a collection due process (CDP) hearing. You have four choices to deal with this:
1. Pay the amount the IRS is demanding in full. If the amount the IRS is seeking is wrong, you can still submit a request for a refund of the overpaid tax.
2. Contact the IRS at the phone number or address shown, or go into a local office, and make arrangements to pay off the liability in installments if you can't pay it in full. You might also be able to set up payments online.
3. Request the CDP hearing. At the CDP hearing you can contest that collection by levy is not appropriate and offer collection alternatives, again that can include an installment agreement. If you have not previously had the opportunity to contest the liability and believe the IRS computations are wrong, you can do that in the CDP hearing process too.
4. Do nothing and face the prospect one day of finding your bank account has been hit by the IRS or your employer telling you that your wages are levied.

You need to do any of the options one through three within 30 days of the date on the CP 504 to avoid the prospect of the levy. You can still do option one and two after 30 days, too, but there's always the risk of the levy going out before you get around to it. Option 3 must be done within 30 days or you lose the right to the CDP hearing. This is important because once you lose the right to the CDP hearing you'll also lose any chance to go to Tax Court to contest the IRS action.
 

LdiJ

Senior Member
Ok. That means that the IRS sent at least one prior bill to you for these assessments. The CP 504 is never the first notice sent. The CP 504 is the Notice of Intent to Levy, which IRS officers also call the final notice. It tells you that you have 30 day to pay or the IRS will begin to collect what is by levying upon your income or property, which may include a levy on your bank account, levy on your wages, seizure of property, etc. If this is the first such notice sent to you for the liability the letter will also include information about your right to a collection due process (CDP) hearing. You have four choices to deal with this:
1. Pay the amount the IRS is demanding in full. If the amount the IRS is seeking is wrong, you can still submit a request for a refund of the overpaid tax.
2. Contact the IRS at the phone number or address shown, or go into a local office, and make arrangements to pay off the liability in installments if you can't pay it in full. You might also be able to set up payments online.
3. Request the CDP hearing. At the CDP hearing you can contest that collection by levy is not appropriate and offer collection alternatives, again that can include an installment agreement. If you have not previously had the opportunity to contest the liability and believe the IRS computations are wrong, you can do that in the CDP hearing process too.
4. Do nothing and face the prospect one day of finding your bank account has been hit by the IRS or your employer telling you that your wages are levied.

You need to do any of the options one through three within 30 days of the date on the CP 504 to avoid the prospect of the levy. You can still do option one and two after 30 days, too, but there's always the risk of the levy going out before you get around to it. Option 3 must be done within 30 days or you lose the right to the CDP hearing. This is important because once you lose the right to the CDP hearing you'll also lose any chance to go to Tax Court to contest the IRS action.
TM, will you please re-read the OP's original post? It appears that he edited it to add additional information instead of mentioning it further in the thread. I don't know if you read it before or after he added the additional information, but it might matter and you might know off the top of your head. I don't have time right now to research it.
 

Taxing Matters

Overtaxed Member
TM, will you please re-read the OP's original post? It appears that he edited it to add additional information instead of mentioning it further in the thread. I don't know if you read it before or after he added the additional information, but it might matter and you might know off the top of your head. I don't have time right now to research it.
The changes were there when I posted. I have no opinion if what the IRS is demanding the OP pay in the CP 504 notices is correct because to do that I'd need to see what the OP filed with the IRS and what was paid. But the critical problem for the OP at the moment is the CP 504. He has just 30 days to act to deal with that before risking a levy that might attach a bank account, his wages or his spouse's wages, or some other asset or income. So that is why I focused on dealing with the CP 504.
 

cantare

Member
Hi, back from some traveling. Appreciate the responses already received here. The only info I added to my OP was a correction to indicate that the IRA overcontributed to in TY2014 was non-deductible. I don't know that this matters for the purposes of calculating the penalty, but it certainly stings all the more, because it's not as if we'd deprived the IRS of any owed tax via undeserved deductions, as would've been true of a deductible TIRA.

I did lay out the exact nature of my 5329 filings in another response. If anyone knowledgeable has time & inclination, it would be nice to learn what I should've done differently, if anything. The 504 notices were dated Oct 21, and I received no prior bill that I'm aware of...I'm not in the habit of ignoring IRS mailings! Curiously, I only got them for 2015 and 2016, not the two other years (not yet, at least). I'll definitely be addressing them this month before the deadline!
 

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