Tax Return Adjustment

[tmil]

I received a letter from the state of Colorado indicating they adjusted my return because their record of payments doesn't match my tax returns. Now I owe an additional amount.  I paid quarterly estimated taxes in 2021, and can provide proof of payment.  However, I noticed that on both the Federal return and the state return there is an "Overpayments applied to 2021" for state tax payments of $202.  On the federal return it is on the Tax Payments Worksheet, line 6.  On the Colo state return it is line 19 - Prior Year Estimated Tax Carryover.  I cannot figure out where this came from.  Any ideas on where to look for this, so that I can provide some type of proof of payment?

[SweetieJean]

When you filed your 2020 return, did you ask to have some or all of your refund applied to 2021?

[SweetieJean]

Line 19 Prior-year Estimated Tax Carryforward
Enter the amount, if any, from your 2020 Colorado DR 0104 line 31

104 Book 2021 (colorado.gov)

[Hal_Al]

Look at line 31 of your 2020 CO return.  That is where you would have told CO Dept. of Revenue (DOR) that you wanted your 2020  refund applied to your 2021 taxes.

But, it's unlikely that DOR would make a mistake like that. The most likely explanation is that you erroneously told TurboTax (TT), in the 2021 interview, that you applied your 2020 refund to 2021 taxes. 

Also check your bank records to verify whether you received a 2020 state refund (around April 2021). 

[tmil]

Thank you all for your feedback. So it looks like in 2020 I had Turbo Tax apply my state tax overpayment toward 2021 estimated taxes.  Looking at the 2021 Colo Estimated Tax worksheet that Turbo Tax generated, it reduced the amount of one of the payments by the amount of the 2020 amount.  I paid the adjusted amount - full estimated amount minus the 2020 overpayment applied.  

So I'm wondering if I have a leg to stand on to file a protest?  If not, should I have not applied the overpayment? It seemed like a good idea at the time.

[SweetieJean]

Not sure what exactly you want to protest.  Did the state not give you credit for the amount you applied from 2020?

[tmil]

That's right.  Here is what the letter from the state says... Prepayments (Lines 19-22, Form 104) " The amount has been adjusted to match the total payments credited to your account. Please check your payment record, and submit proof of payment for any missing amount."

Based on that, they recalculated and now I have an amount due and a small penalty.  On the Colorado form 104, line 19 is the Prior Year Estimated Tax Carryover, which the amount I carried over from the 2020 return.  Line 20 was the sum of the quarterly estimated payments I made in 2021.  Lines 21 and 22 don't apply and are blank.  From what I can tell, lines 19 and 20 are accurate and there aren't any missing amounts.  Because of that, I don't know why they adjusted the amount of the payments I made.  

[Hal_Al]

You say " I paid the adjusted amount - full estimated amount minus the 2020 overpayment applied. "

You may not have made that same adjustment when you entered your estimated payments in 2021 TurboTax.  Verify that you entered what you actually paid. 

[TomD8]

Did you perhaps make your 4th estimated payment for 2021 in January 2022?  If so, did you indicate that it was a payment for the 2021 tax year?

[tmil]

I've looked back over all my records, and my return accurately reflects the quarterly estimated payments I made in 2021. As I dig deeper into the amount that the state has adjusted to (vs. my total on the return), it is the exact amount of one of my estimated payments - the first one that I made in April. It appears they aren't giving me credit for that payment. But I have a copy of the cleared check.  More and more I think they have made a mistake.

[TomD8]

@tmil 

There's a good chance you're right since the amounts match exactly.  I would appeal their adjustment and enclose your proof of payment.  Tell them that you believe they failed to credit your first quarter estimated payment, and enclose the check copy.  The instructions for appealing should be in the letter you received.

[tmil]

I went forward with submitting a protest. The confirmation said it could take several months.  I'll come back and post if there is any resolution.