MS and the IRS

Old Feb 1, 19, 8:40 am
  #1  
Original Poster
 
Join Date: Feb 2019
Posts: 9
MS and the IRS

I am new to MS but I am a 35 year experienced tax practitioner. I have seen several posts about using MS to pay taxes, and the credit card issuers allow this. Most of the posts deal with paying the current year's estimated taxes, and any overpayment would be refunded to you after you file that year's tax return. All well and good.

BUT... you can accelerate the accumulation of points. The payusa web site and by extension the IRS) allows you to pay PRIOR YEAR taxes. If you do not owe the IRS any taxes from prior years, and there are no Child Support, Student Loans, Alimony or other offsets against your refunds, by using a points-accumulating credit card to pay a PRIOR year's taxes which are fully paid, the IRS will refund the overpayment to you, usually within 2 months. As a matter of safety I suggest restricting this to only the 3 prior years' taxes (there is a possibility that the IRS will refuse to refund the overpayment under IRC Section 6511. Do this often and in large amounts (Estimated tax payments can easily be $1,000 or more, and tax payments due are typically up to $2,500 even if all Estimated taxes have been paid).
Flyingifr is offline  
Old Feb 1, 19, 3:09 pm
  #2  
 
Join Date: Feb 2015
Posts: 447
The fee usually kills this for any cost effective MS. If you need a quick infusion of points for something, perhaps, but not for recurring MS. IMO anyway.
shadow520 is online now  
Old Feb 1, 19, 3:30 pm
  #3  
 
Join Date: Feb 2015
Posts: 164
The IRS =/ Geico
golfr is offline  
Old Feb 1, 19, 4:41 pm
  #4  
 
Join Date: Oct 2013
Posts: 1,111
Originally Posted by shadow520 View Post
The fee usually kills this for any cost effective MS. If you need a quick infusion of points for something, perhaps, but not for recurring MS. IMO anyway.
This.

Also, as to "do this often" -- The payment processing companies limit you to 2 quarterly ES payments per processor. There's probably a similar limit on prior year "tax due" payments.

Finally: If all you are trying to do is a few thousand, there are much easier ways to accomplish, without involving or relying on the IRS. As a tax adviser, you should know the limitations/shortcomings of IRS systems in general, and also the possible flags raised when overpaying CURRENTLY for a tax year for which the return has already been filed.
tuphat is offline  
Old Feb 1, 19, 6:18 pm
  #5  
Original Poster
 
Join Date: Feb 2019
Posts: 9
Actually, there are no "red flags" - you are assuming the IRS computers actually think like people and get suspicious. They don't. All they do is add and subtract, like add up payments against a tax liability and then subtract it from the tax liability. An overpayment generates a check to the taxpayer and an underpayment generates a bill.
Flyingifr is offline  
Old Feb 3, 19, 10:01 pm
  #6  
 
Join Date: Dec 2014
Location: New York City
Programs: American Airlines Executive Platinum, Marriott Rewards Platinum Premier Elite
Posts: 1,195
Originally Posted by Flyingifr View Post
Actually, there are no "red flags" - you are assuming the IRS computers actually think like people and get suspicious. They don't. All they do is add and subtract, like add up payments against a tax liability and then subtract it from the tax liability. An overpayment generates a check to the taxpayer and an underpayment generates a bill.
The computers don't need to "think like people" they just need to compute standard deviation and or percent change year over year to flag you for audit.
donotblink is offline  
Old Feb 4, 19, 1:17 am
  #7  
 
Join Date: May 2008
Location: PHL (kinda, no airport is really close)
Programs: AA PPro. Enterprise Platinum woo-hoo!
Posts: 3,047
I've done this by accident (not paying with a card, just paying tax I thought I owed and having the IRS credit it to the wrong year and refund it). I think it took much longer than 2 months. I did get interest on the refund at a nice rate (like 4%). But keep in mind you'll be out the principal for however long it takes. I'd only use this method if I was really desperate for some spend.
redtop43 is offline  
Old Feb 6, 19, 1:37 pm
  #8  
 
Join Date: Oct 2013
Posts: 1,111
Originally Posted by Flyingifr View Post
Actually, there are no "red flags" - you are assuming the IRS computers actually think like people and get suspicious. They don't. All they do is add and subtract, like add up payments against a tax liability and then subtract it from the tax liability. An overpayment generates a check to the taxpayer and an underpayment generates a bill.
So, as a tax practitioner, you'd write your client a "will" opinion that a payment in February 2019 on a tax year 2016 return would have no effect on the likelihood that the 2016 return would be selected for examination by the IRS, and that the resulting overpayment would be refunded to the client within XX days?
tuphat is offline  
Old Feb 7, 19, 9:42 pm
  #9  
 
Join Date: Jun 2014
Posts: 177
Originally Posted by redtop43 View Post
I've done this by accident (not paying with a card, just paying tax I thought I owed and having the IRS credit it to the wrong year and refund it). I think it took much longer than 2 months. I did get interest on the refund at a nice rate (like 4%). But keep in mind you'll be out the principal for however long it takes. I'd only use this method if I was really desperate for some spend.
They IRS will issue a 1099-INT for interest paid to you. It would be ironic to get audited by the IRS for failing to report a 1099-INT for interest received from the IRS.
dealhunter32 is offline  
Old Feb 8, 19, 4:14 am
  #10  
 
Join Date: Feb 2012
Location: The place where it gets so hot in the summer some planes can't take off.
Programs: Marriott LT Titanium, WoH Globalist, National EE, United Platinum
Posts: 1,115
Originally Posted by shadow520 View Post
The fee usually kills this for any cost effective MS. If you need a quick infusion of points for something, perhaps, but not for recurring MS. IMO anyway.
Great way to meet min spend though. I MS @~1% normally, but will pay the extra 1-1.5% for min spend convenience. Still come out ahead on certain cards as well (my quickly running out FU 3%)
TyPo311 likes this.
bigshooter is offline  
Old Feb 12, 19, 8:22 am
  #11  
Original Poster
 
Join Date: Feb 2019
Posts: 9
Originally Posted by tuphat View Post
So, as a tax practitioner, you'd write your client a "will" opinion that a payment in February 2019 on a tax year 2016 return would have no effect on the likelihood that the 2016 return would be selected for examination by the IRS, and that the resulting overpayment would be refunded to the client within XX days?
No one can promise that an return will be audited or not, but as a practitioner I have a pretty good "nose" for it. Payments do NOT cause audits - I have 35 years of experience to back that up. What causes audits is what is in the return already. You mention 2016 as the year to go back to - good choice - because the Assessment Statute Expiration Date for a 2016 is 4/15/20 and the 2016 returns to be audited have already been chosen and are in the audit pipeline. I would never even consider advising a client on MS because (a) I am a newbie to it myself and (b) it is way outside my field of professional knowledge.
Flyingifr is offline  
Old Feb 12, 19, 8:23 am
  #12  
Original Poster
 
Join Date: Feb 2019
Posts: 9
Originally Posted by dealhunter32 View Post
They IRS will issue a 1099-INT for interest paid to you. It would be ironic to get audited by the IRS for failing to report a 1099-INT for interest received from the IRS.
The 1099INT if any would be for the current tax year, not retroactive.
Flyingifr is offline  
Old Feb 12, 19, 12:01 pm
  #13  
 
Join Date: Jun 2014
Posts: 177
Originally Posted by Flyingifr View Post
The 1099INT if any would be for the current tax year, not retroactive.
Yes, I know this.
dealhunter32 is offline  
Old Mar 2, 19, 10:43 am
  #14  
 
Join Date: Nov 2012
Location: SYD, SFO
Programs: Hyatt Globalist, Marriott Platinum, Hilton Gold, AA GLD, former DL DM
Posts: 1,944
Originally Posted by Flyingifr
If you do not owe the IRS any taxes from prior years, and there are no Child Support, Student Loans, Alimony or other offsets against your refunds, by using a points-accumulating credit card to pay a PRIOR year's taxes which are fully paid, the IRS will refund the overpayment to you, usually within 2 months.
How does the IRS send the refund for a prior year? Do they use the same method as indicated in your tax filing for that year? E.g., a mailed check to the address used in that year, or a direct deposit to the bank account provided in that year?
lamont2718 is offline  
Old Mar 2, 19, 10:52 am
  #15  
Original Poster
 
Join Date: Feb 2019
Posts: 9
That is exactly how they send it - check in the mail.
Flyingifr is offline  

Thread Tools
Search this Thread