The Moral of this Story. . . Don’t Do Nothing!

If a state or federal agency contacts you to repay a benefit or pay an additional tax or fee you can’t afford or don’t agree with, do not simply ignore the notice.Do something.Here’s an example why: the Tax Court recently decided (Yoklic v. Commissioner, TC Memo. 2017-143) if you receive an overpayment of unemployment benefits, which you subsequently repay, you must still declare those funds as income in the year received.While that decision may sound unfair, the taxpayer didn’t help himself by failing to act quickly.In the case of Michael Yoklic, (http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11340), the jobless taxpayer received unemployment benefits for several weeks over late spring and summer.After paying $3,360, however, the state agency concluded Mr. Yoklic didn’t meet the eligibility criteria as previously determined. The agency sent him a letter notifying him the funds must be repaid, and he could also request a review of the agency’s ruling by late November of that year.Mr. Yoklic responded by doing the one thing you must never do when receiving a notice such as this: nothing!Never ignore state or federal agencies when you receive a legitimate notification requesting money. Mr. Yoklic’s situation only grew worse. Ultimately, he repaid the money . . . but not until September of the following year.In this case, the Tax Court determined a taxpayer is not required to declare unemployment funds as income provided they’re reimbursed within the same year.Additionally, if he had simply recognized his obligation to repay the money (by contacting the agency) and made appropriate provisions for repayment within the same year, he could still have avoided showing it as income on his tax return. Since he didn’t take either action, the unemployment benefit was taxable for that year.If you receive an official notice to pay from a state or federal agency:

• Don’t panic.
• Respond as soon as possible. Even if you can’t pay the amount due, make contact; you won’t know what repayment or review options are available until you talk to an agent.
• Seek assistance from a CPA if you feel overwhelmed or intimidated.

The tax accounting professionals at Patrick & Robinson CPAs advise many clients who receive notices from the IRS or state agencies. Some issues are easily resolved while others prove more difficult and time consuming—and even minor issues will grow into big ones if not addressed promptly.Contact us if you need help:  Office@CPAsite.com or 904-396-5400.