Comments on: Letter From the IRS – We Got Audited

By: Funny about Money

Funny about Money — Mon, 01 Jun 2009 14:05:48 +0000

Terrifying! The IRS scares the bejabbers out of me, mostly because I’m practically innumerate and can’t even begin to understand a tax return form–it looks like a foreign language to me.

I hire a tax lawyer, who (believe it or not) charges less than the accountant who used to do my tax returns. The one time the IRS pestered me with a frightening letter, she knew what they were talking about (I hadn’t a clue) and also knew it was an error they had been making repeatedly and how to explain in their language what the issue was. That lady earns her pay every time I have to file a tax return… But isn’t it ridiculous that we have to hire professionals to pay our taxes?

I don’t object to paying the taxes we need to keep our country running. Most of the services the government provides are crucial to the operation of a civil society. But I do object to being tortured over it. The system needs to be decomplicated enough that the average moron like myself can understand how to pay up.

By: SimplyForties

SimplyForties — Sun, 31 May 2009 19:34:00 +0000

Thank goodness you’re in the right and have your documentation!

By: Chris

Chris — Wed, 27 May 2009 04:37:09 +0000

Never had an issue with IRS. I got one of these letters when I took a deduction I was not entitled to. They corrected it and just reduced my return by the 20 bucks.

Now State of California on the other hand is a nightmare. I made a mistake on my 2005 taxes as it was partial year, and there is a schedule S that needs to be filled out. A year later after I corrected the return, which shows that they owe me even more money, they still haven’t filed the ammendment right and I have to follow up with my accountant about every 3 months.

By: Cheap Like Me

Cheap Like Me — Thu, 21 May 2009 19:07:12 +0000

Glad it worked out for you. I second the recommendation to take good notes. I had a mix-up this spring with estimated taxes as well. I got a letter charging me penalties for a late payment, but it said I could write back if I disagreed, and if I had a good enough reason, the IRS might agree with me and waive the penalties. I could respond with specific details regarding the person I had spoken to in January at the IRS, when I called to ask why my check had not yet cleared, and the IRS did in fact waive my penalties — $100 or so.

By: Kathy

Kathy — Thu, 21 May 2009 16:22:40 +0000

I agree, a bigger govt. is not a good thing. And yes the IRS is hiring like crazy (my husband is a recruiter for the IRS). Then again, the IRS is the only part of the govt. that contributes to the bottom line. And they are hiring because there are many people and businesses that either don’t pay their taxes or have lousy bookkeeping or use what they think are “gray” areas or loopholes to evade taxes.

That’s why straightening out the tax code to something like Fairtax is such a great idea. Not only is it tax neutral but it would save the govt. so much money by not having to hire Revenue Agents, Tax Compliance Officers and Revenue Officers.

By: Jonathan

Jonathan — Thu, 21 May 2009 02:26:16 +0000

Increasing the size of the IRS or any other Federal agency is not the solution. Smaller gov’t and less spending is. Pretty soon, the number of people employed by the gov’t will outnumber the people who are employed by the private sector and that is not a good thing.

Plus, who’s auditing the auditors? No one.

By: Kirk

Kirk — Thu, 21 May 2009 02:02:51 +0000

It is important not to panic although it is hard to when you get that letter. Also, remember that the IRS does not want to throw people in jail. They are not there to harass you. They just want to ensure everyone pays their taxes.

It sounds like you did a great job of handling the situation and your advice about keeping records is great.

As taxpayers, we should expect more scrutiny. In fact, the IRS is hiring like mad. With the government needing every penny (so they can spend 10 cents), they are hiring more enforcers.

By: RD @ money blog

RD @ money blog — Wed, 20 May 2009 19:09:22 +0000

I would hit the panic button and contact a CPA but seems like you handled it pretty well.

By: Jonathan

Jonathan — Wed, 20 May 2009 18:00:52 +0000

Fairtax or some combination thereof and be done with it. It’s ridiculous that you did the right thing and followed all the rules yet YOU still had to waste your time and PROVE your innocence.

Please, please let’s give the Fed gov’t more power and make them even bigger. They’re so efficient.

By: Kathy

Kathy — Wed, 20 May 2009 15:11:19 +0000

I was a Revenue Agent with the IRS. One thing you may not know, contrary to one comment made, the burden of proof for expenses is on always on the taxpayer (within limits, the Cohen rule allows for approximation in some cases). However, the burden of proof for income is on the IRS. So the 1099 is their “proof” and you have to refute it.

Yes, the IRS does make mistakes…oh yes, there have been some real eye-rollers. But think about how much paperwork that has to be processed. Pretty much ever person and entity in the U.S. and then some!

So, honestly, they do a pretty good job with the resources they have. And the resources that they have are limited. I ended up having to purchase some of my own research material…

Just a bit of trivia. Thought I’d share.

By: Sabrina

Sabrina — Wed, 20 May 2009 14:00:47 +0000

I’ve gotten three of those letters for each of the last three years. First one was instant headache and darn near panic attack until we found the paperwork to prove we were in the right. (Husband got 1099 for $900 but it was reported as $90,000). Second one wasn’t as upsetting since we’d been through it before (issue with him and his mother selling co-owned stock). Third one was actually in my favor, H&R Block messed up and I was owed more of a refund than they calculated. Oh and their “maximum refund guarantee” turns out doesn’t mean diddly squat. Still, I hope to never see another letter from the IRS ever again.

By: OblivousInvestor

OblivousInvestor — Wed, 20 May 2009 13:24:50 +0000

Rachel brings up a good point: They mess up less frequently if you submit electronically. But please please please remember that they still make mistakes, and that you need to keep records.

By: Rachel

Rachel — Wed, 20 May 2009 13:22:25 +0000

I highly suggest submitting everything you can to the IRS electronically. I was controller for a restaurant with 60+ employees for 4 years. When we first opened we submitted everything to the IRS on paper and there were numerous mistakes/issues. Eventually I changed over to EFTPS and I do not think we had one issue after that point. The less paper the IRS has to handle the better things seem to go. Luckily even simple accounting programs like QuickBooks allow you to submit your 941 and 940 reports electronically (GA allows their reports and payments to be submitted as well). Now if QuickBooks would allow 1099 to be submitted electronically I would never have to send in paper reports to the IRS.

By: ObliviousInvestor

ObliviousInvestor — Wed, 20 May 2009 12:04:00 +0000

Yeah, stuff like this happens all the time. During my time as a tax accountant, roughly 50% of IRS correspondence was the result of an error on their end. State taxing agencies are worse (especially California).

Luckily the IRS is generally pretty reasonable. The people there know that mistakes get made, so as long as you have documentation to back up your claim, you’re fine.

What I’ve always found particularly interesting, however, is that–in contrast to our criminal justice system–when dealing with the IRS, you’re guilty until proven innocent. The burden of proof is on you.

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Wed, 20 May 2009 11:11:58 +0000

I hope you dodge this bullet brother . . . I have heard many horror stories.