My wife and I received a notice from the IRS yesterday regarding our 2006 income tax return. At first glance, I thought it said we underpaid by $107, which would be no big deal and I’d go ahead and pay.


Then I looked closer at the calculations the notice showed:


Total Tax On Return: $xx,242.00


Total Payments and Credits: $xx,241.63


Underpaid Tax: $0.37


Penalty: $106.65


Interest: $0.01


Total Amount You Owe: $107.03


You’ve got to be kidding–we underpaid our taxes by 37 cents and the IRS is dinging us with a $107 penalty?!


Page 22 of the 1040 instruction book clearly says that rounding to the nearest whole dollar is OK. I think this needs more investigation.