Previously I asked "Where is payment for failure-to-file and failure-to-pay penalties included on Form 1040?" There I found out that the failure-to-file and failure-to-pay penalties should not be included on line 79.
I made the mistake of placing my failure-to-file and failure-to-pay penalties on line 79, so that the IRS decided to calculate penalties on the amount that already included the penalties. In other words, call my total tax owed X (i.e. what should have been on line 78) and the penalty for this Y (what should have been on the bottom margin). Then I already paid X + Y to the IRS, but the IRS calculated penalties on the amount X + Y rather than on just X, so it is requesting more money. In other words, once the error is resolved, the amount I should pay already matches the amount I did pay (so no net exchange of money is required).
My question is, how should I inform the IRS of this? I spoke to an IRS representative on the phone, who said they had to honor my initial filing.
I also tried filling in Form 1040X; details of this follow.
- 1040X line 11 = amount I should have paid = X
- 1040X line 19 = amount I did pay = X + Y
But 1040X line 19 inherits (eventually) from 1040X line 16. The example given for line 16 (page 11) clarifies that penalties paid should not be included there:
Dillon is filing Form 1040X to amend his 2014 tax return. He sent a check for $1,500 with his original return, reflecting a payment of $1,400 in taxes and a $100 estimated tax penalty. When completing Form 1040X, Dillon enters $1,400 on line 16 (the check sent with the original return minus the $100 penalty).
So even though, intuitively, I should enter a higher amount on line 19, the instructions explicitly say I should just enter in the lower amount. This causes everything to go wrong, because lines 20-23 now all have to be 0.
Form 1040X also only covers two cases of comparing two numbers: when line 11 column C is more than or less than line 19. But in my case the two amounts are equal.
In other words, the final lines end up being all 0s, even though intuitively they shouldn't be.
Form 1040X also says under "Purpose of Form":
Change amounts previously adjusted by the IRS. However, do not include any interest or penalties on Form 1040X; they will be adjusted accordingly.