Estimated Tax Payments

Yes, they should have credited the payment even though it was not reported on the tax return. This assumes that the payment when sent clearly identified it as a 2010 estimated tax payment.

If the payment was not credited against her 2010 taxes, you would first have to find out what the IRS did with the Jan. 2011 payment. If for some reason the IRS just missed it when her return was processed (i.e., the IRS agrees that it is a 2010 payment), then an amended return should be filed.

Absolutely.

Have you seen the return and a transcript of the 2010 account? If the January ES payment was properly applied it would have been credited to the return whether it was claimed on the return or not, and she would have received an error notice (plus a refund). You may be getting a garbled story from the client, whose preparer could have been talking about Schedule A treatment of state ES payments.

If the January Federal ES payment wasn't properly applied you need to find out what happened to it.

It's no big whoop if she makes her final 2011 payment in December. As for the January 2011 payment, as noted above you need to find out what happened. She may want to claim it on her 2011 return, but if that's not where it was applied that's only going to generate problems. Also, just throwing an amended return into the mix isn't going to fix anything regarding 2010.

Phil Marti Retired IRS Collection Clarksburg, MD

I'm not completely sure I understand the position, so I'll outline my assumptions - A) your new client has a SMLLC;

B) your new client made estimated tax payment, presumably on 04.15.10,

06.15.10, 09.15.10 & 01.15.11 - all for 2010 tax liabilities. You didn't say whether you're talking about Federal or State estimated tax payments, it matters.

The preparer is quite correct IF, and only if, we're talking about the state estimated tax payments. Taxpayers get a deduction on the Federal Schedule A for tax paid to states for the year in which the taxes were actually paid. So if she made 4 estimated payments to Texas (I know TX has no state tax, but I don't know what state is involved so while I'm 6'5" and 250lbs I am trying to be cute) based on the payment schedule she would get a deduction only for the three that were made DURING 2010. The 4th payment, made in

2011 will get deducted on her 2011 return.

On the other hand, if we're talking about Federal estimated tax payments then the preparer is quite assuredly INCORRECT. On the Form 1040 taxpayers get credit for all taxes paid that were earmarked for the year in question. It doesn't really matter when they were paid.

Take the preparer's position to the next logical step - are payments made with an extension request, usually around April of the following year, NOT allowed to be credited to the taxpayer's return? Of course not.

But, like Phil, I think there may be more here than you're aware of - perhaps even more than the client is aware of. For example, if she erroneously marked the check for 2011 the IRS won't give her credit on her

2010 return. Phil's also quite correct in suggesting you get a POA and pull the taxpayer's transcripts. These will show you what credited towards her account for a particular year. In fact, I'd pull transcripts for the year before, the year in question and the year after. YES, I know the 2011 hasn't been filed yet, but the IRS still records payments made and these would be on a transcript.

I'd also suggest you have the client obtain copies of the canceled checks for all three years. You can compare these to the IRS transcripts and see what happened. And you'll need these if you decide the IRS has done something wrong and it needs to be fixed.

Gene E. Utterback, EA, RFC, ABA