A client comes in to finish his 2017 tax return (an extension was timely filed) and he has a stack of papers from the Illinois Dept. of Revenue. I ask about it and he suggests finishing 2017 taxes first and we do so.
Turning to his paperwork, he explains that he has been getting letters “for a while” and they claim he owes money for his 2012 state tax return, done by H&R. He went back to H&R and it seems they did his Federal return, but not his state (or at least there was nothing in the folder given to him by H&R).
Looking over the IL documents (beginning in late April of this year), Illinois showed the correct revenue and tax calculation but none of his withholding or any credits for his property taxes. This is very common with Illinois and there was a copy of his W2 in the paperwork as well as property taxes paid.
This is a simple Unfiled Tax Return case (presuming H&R didn’t file the return) and it pays to look over the paperwork carefully to make sure all payments and credits were calculated by the taxing agency.
My client will still owe something but significantly less than what Illinois proposed.
So, how did Illinois find out that my client had filed a tax return for 2012? The answer – the IRS and some states share tax information. Illinois reached out to the IRS and requested a copy of his 2012 tax return, then took the numbers off the IRS paperwork and came up with a Substitute Return. Internal Revenue Code section 6102(d) specifically states the IRS will comply with data requests from states (although not all states an in their program, YET!).
Illinois would also comply with a request from the IRS and send any information they have on a specific taxpayer.
This cooperation between the IRS and State agencies almost assuredly will result in more errors being discovered and more notices from the IRS and State Agencies.
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