In 2006 our 20 year old live at home daughter filled her own taxes and claimed herself as a deduction(she didn't know better, first time doing it herself) so when we filed online for ours it was rejected. We have a very good income with very few itemizations, simple and straight forward and we were fully paid in for the year with exception of oweing approx $500.00. We sent our daughters ammendment in about 6 weeks ago and are awaiting verification by the IRS so we can refile for 2006. In the meantime we got a letter from the IRS giving us 30 days to file and accessing MAJOR penalties, not just on what we owe for the year(500.00) but on the entire paid in amount. My question is this....... if we were paid up(taxes taken out of paycheck every month) on our 2006 taxes with the exception of oweing 500.00(according to our return) can the irs fine us based on the total amount for the entire year or should we be assessed fines and penalties based on what we owed as of April 15,2007. We are freaked out by what they are saying we owe in penalties. I might also add that we filed for 2007 and are actually owed a 5300.00 refund (which we dont expect to see) The Irs is saying we owe 31,000.00 in penalties based on an estimated return that they sent us. Based on our previous years of filing. But the amount is based on the total paid in for the year. How can that be if they have had our money all along, on schedule with the exception of the 500.00. Would appreciate any help on what we might be able to expect in the matter.

Let me understand your situation fully! Your daugther filed her 2006 tax return herself and then you tried to file a 2006 Tax return online and it was rejected! Since then, how did you file the 2006 tax return? Did you include her as a dependent on the paper filed tax return?

You paid taxes on your bi-weekly pay check and the only way you would have owed federal taxes is if you your combined household income results in the imposition of AMT taxes, or your federal withholding was very low based on your W-4.

Please clarify the above and then I will be in a better position to answer your question.

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