Moving can be fun—or stressful. Yeah, usually it’s stressful. In fact, during our first few years of marriage, my husband and I moved our residence three times and my office two or three more times. My husband said that if I wanted to move again, I could count him out (or something like that…). But we maintained a P.O. box for several years after the last move to ensure we didn’t miss any important mail.
What happens to all your tax correspondence when you move? Typically, by the time the IRS or your state tax authority gets around to writing to you, it’s more than six months after you have moved. By then, your mail forwarding service will have either expired or gotten a little spotty. And, naturally, you don’t ever get the mail.
Usually, the IRS correspondence starts out with something small, like a notice that there may be some omissions on your tax return. Typically, those notices are wrong; the information is somewhere on your return, but not where the IRS computer expects to find it. People who get those letters and respond on time generally make the proposed assessment go away.
But if you never get the letter? The proposed assessment turns into an assessed tax. As time goes by, and you seemingly ignore subsequent IRS letters, that assessment grows as penalties and interest are added to the tax. Pretty soon, it turns into a lien—and messes up your credit.
Worse, it can eventually turn into a levy. That means that the IRS sends a letter your employer with instructions to take money out of your paycheck and a letter to your bank telling it to freeze the money in your bank account and send all funds, up to the balance due, to the IRS. And the IRS also notifies your clients, if anyone has sent you 1099s, capturing your accounts receivable. It becomes a horrid nightmare. Usually, this is the point at which you learn of the problem for the first time.
You probably don’t even owe the tax! But the time you find out about it, it may be too late to contest the additional charges or to go to Tax Court. Although there are ways to convince the IRS that it was wrong, the process can be expensive and time-consuming. By the time you convince the IRS of its mistake, it may be too late to recover funds it has levied or tax refunds it has grabbed. (You can only file a claim for refund within two years after the IRS takes the money.)
Oh, you say that you filed tax returns in the intervening years, so the IRS should know your new address? That argument doesn’t work.
How can you avoid all this trouble, the ruined credit, the embarrassment at work, and the potential loss of clients? Simple. Whenever you move, file a change of address form with the IRS (Form 8822) and a similar one with your state.
See how easy that is?
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.