Tax mistake

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Docc
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Tax mistake

Post by Docc » Tue Feb 19, 2019 11:33 pm

I just received a letter from the IRS stating I owe them taxes. The effective tax rate would be 64% of my taxable income per their calculation of my income, which was lower than my calculation. Is there anyway to come up with a tax rate of 64%? Has anyone had the IRS make this kind of mistake? My only deductions are the standard deduction,personal exemptions as head of household, my 401K and my 457B. I did owe the ATM, which caused me to redo my taxes, but that rate was a third of what they calculated as my tax rate.

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Epsilon Delta
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Re: Tax mistake

Post by Epsilon Delta » Tue Feb 19, 2019 11:38 pm

The IRS tends to make worse case assumptions (from your point of view). For example if you fail to report a sale they assume the gross proceeds are capital gains. It is then up to you to tell them about your basis.

Much more information would be needed to hazard a guess about what is actually going on.

lstone19
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Re: Tax mistake

Post by lstone19 » Tue Feb 19, 2019 11:43 pm

Docc wrote:
Tue Feb 19, 2019 11:33 pm
I just received a letter from the IRS stating I owe them taxes. The effective tax rate would be 64% of my taxable income per their calculation of my income, which was lower than my calculation. Is there anyway to come up with a tax rate of 64%? Has anyone had the IRS make this kind of mistake? My only deductions are the standard deduction,personal exemptions as head of household, my 401K and my 457B. I did owe the ATM, which caused me to redo my taxes, but that rate was a third of what they calculated as my tax rate.
Slow down. You've provided no useful information for us to provide any help. The IRS does not just tell you you $X or say your rate is X%. The letter would provide information on why they want to change your return and you've provided nothing along those lines.

I'd suggest you provide some details of what you filed and what changes the IRS is proposing and why you believe what they're proposing is incorrect.

When you say "ATM", I assume you mean AMT (Alternative Minimum Tax). If AMT is in play, then you presumably have a high income (but unless you're in a no state income tax state, I then can't see how you're taking the standard deduction). You also mentioned filing as "head of household" - that is a filing status for single people with dependents. Also, you do not deduct a 401k (unless it's related to self-employment) on your tax return as it's already deducted from your W-2.

Topic Author
Docc
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Re: Tax mistake

Post by Docc » Wed Feb 20, 2019 2:51 pm

You guys are tough. I was trying to be brief. I did not itemize; even though, I pay state taxes. I see no point given the AMT. Don’t care if this is foolish, not my concern at this time. I have a 457 and 401 k that reduced my income, so I did not itemize them on my tax return; you are correct. Net taxable income about $200000. I only took a standard deduction and two exemptions (one child). Filed as head of household. I paid my required taxes of about 24% with the AMT. Yesterday, I got a bill stating another 30+% was due. They gave a number. I am calculating the percentages due to my never experiencing anyone having a marginal tax rate this high. I owe no back taxes. My taxable income has been pretty steady for the last three years when I paid approximately 24% of my taxable income in taxes.This year they want $118000 on taxable income of about $200000. I am a doctor, not a salesman. It has to be a mistake because nothing has changed in the last few years in regard to my source of income. I do have rental properties, but they are a net loss, which I can’t take due to my high income.

jebmke
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Re: Tax mistake

Post by jebmke » Wed Feb 20, 2019 2:59 pm

Docc wrote:
Wed Feb 20, 2019 2:51 pm
You guys are tough. I was trying to be brief. I did not itemize; even though, I pay state taxes. I see no point given the AMT. Don’t care if this is foolish, not my concern at this time. I have a 457 and 401 k that reduced my income, so I did not itemize them on my tax return; you are correct. Net taxable income about $200000. I only took a standard deduction and two exemptions (one child). Filed as head of household. I paid my required taxes of about 24% with the AMT. Yesterday, I got a bill stating another 30+% was due. They gave a number. I am calculating the percentages due to my never experiencing anyone having a marginal tax rate this high. I owe no back taxes. My taxable income has been pretty steady for the last three years when I paid approximately 24% of my taxable income in taxes.This year they want $118000 on taxable income of about $200000. I am a doctor, not a salesman. It has to be a mistake because nothing has changed in the last few years in regard to my source of income. I do have rental properties, but they are a net loss, which I can’t take due to my high income.
Normally the letter from the IRS states where on your return they are taking exception to the filing. I have never seen a letter that simply put out an alternate number and a demand to pay.
When you discover that you are riding a dead horse, the best strategy is to dismount.

lstone19
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Re: Tax mistake

Post by lstone19 » Wed Feb 20, 2019 3:06 pm

Are you sure this letter is actually from the IRS and not some sort of scam? To the best of my knowledge, the IRS does not send out letters that say you owe them $X without explaining what they're changing. You said you paid them - are you sure they properly credited that payment and that this isn't them billing you for what you already paid.

Also, stop focusing on how much this and what you've already paid result in an insanely high tax rate. Instead, focus on what they're changing about your tax return and how they're getting to how much they say you owe. I think I can reasonably assure you that you are not being asked to pay $118,000 in income tax on $200,000 of income - there is something else going on and your focus on tax rate is getting in the way of seeing what else is going on. Either they have reason to think your income is a lot more than $200K or they are missing a payment you made.

gobigrad
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Re: Tax mistake

Post by gobigrad » Wed Feb 20, 2019 3:11 pm

Sounds like a scam. Maybe call the IRS directly (find phone number on IRS.gov not on the letter "they" sent). They did target a bunch of doctors last year and filed false returns.

MarkNYC
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Re: Tax mistake

Post by MarkNYC » Wed Feb 20, 2019 5:29 pm

Docc wrote:
Tue Feb 19, 2019 11:33 pm
I just received a letter from the IRS stating I owe them taxes. The effective tax rate would be 64% of my taxable income per their calculation of my income, which was lower than my calculation... I did owe the ATM, which caused me to redo my taxes...
Can you clarify what you mean by:

"their calculation of my income, which was lower than my calculation "? and

"I did owe AMT, which caused me to redo my taxes" ?

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ginmqi
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Re: Tax mistake

Post by ginmqi » Wed Feb 20, 2019 5:45 pm

Docc wrote:
Wed Feb 20, 2019 2:51 pm
Yesterday, I got a bill stating another 30+% was due. They gave a number. I am calculating the percentages due to my never experiencing anyone having a marginal tax rate this high... It has to be a mistake because nothing has changed in the last few years in regard to my source of income.
Or a scam.

Look at the letter, do they have any phone numbers printed on the letter? Google those numbers, DO NOT call what's on the letter you got, and see if other people have gotten similar letters.

Again do NOT call or contact anyone that is written on that letter.

If anything, you can call the IRS directly from the .gov website.

Sounds like this may be a scam.

scrabbler1
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Re: Tax mistake

Post by scrabbler1 » Wed Feb 20, 2019 6:10 pm

I smell a scam, too. The letters from the IRS I have seen (and, sometimes, received), always showed a few key lines from the return which differ from what was originally filed. Depending on where the first different appears, it may be difficult to figure out the source of the difference (or mistake).

Sometimes, the IRS was right and I (or one of my friends) was wrong, and I paid the difference or accepted their reduced refund. But, sometimes, I filed an amended return and explain what was wrong in the original return. The amended return was always accepted and not contested although my friend kept receiving those threatening notices while the amended return worked its way through the system. I was a third party designee on some of the returns, so I was able to act on his behalf on a limited basis.

SoAnyway
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Re: Tax mistake

Post by SoAnyway » Thu Feb 21, 2019 12:20 am

lstone19 wrote:
Wed Feb 20, 2019 3:06 pm
Are you sure this letter is actually from the IRS and not some sort of scam? To the best of my knowledge, the IRS does not send out letters that say you owe them $X without explaining what they're changing. You said you paid them - are you sure they properly credited that payment and that this isn't them billing you for what you already paid.

Also, stop focusing on how much this and what you've already paid result in an insanely high tax rate. Instead, focus on what they're changing about your tax return and how they're getting to how much they say you owe. I think I can reasonably assure you that you are not being asked to pay $118,000 in income tax on $200,000 of income - there is something else going on and your focus on tax rate is getting in the way of seeing what else is going on. Either they have reason to think your income is a lot more than $200K or they are missing a payment you made.
+1.

OP, you're a doctor. You well know how to take your emotions/outrage out of a situation and focus on the data/facts. As you know, that's what's necessary to produce a good outcome. Sooo...

Do that now w/r/t this mailing you received. As others have suggested, the letter you received might be a scam. Others have provided good guidance on how to figure that out. If you determine that it's a scam, ignore it.

If you determine it to be legitimate correspondence from the IRS, you need to focus on the specifics in the letter that you've (understandably) not shared here as to which portion of your return the IRS has taken issue with, and then address the IRS's concerns (however well- or ill-founded you believe them to be) with facts/data/back-up documentation/etc. - not based on emotions about what you believe to be "fair" taxation or consistency with your past returns and tax rates, but rather based on the tax laws/regs as they are. Indeed, if you REALLY get on your high horse/push the "consistency with your past returns" angle/make a nuisance of yourself, they might just open up those past returns for further audit/inspection/dissection.... (Just sayin'.)

SoAnyway... The tax laws are what they are, and we don't get to make them. The IRS enforces those laws, and we don't get to choose how they go about doing so.

FWIW, my experience with IRS inquiries - despite the hours of my life that I'll never get back - has been excellent. Much of that was due to adopting the attitude from the get-go that (1) the Service is in control of interpreting what our scholars in Congress and the President sign into law, and (2) the IRS personnel I've dealt with are good hard-working human beings who are just trying to do a good job, earn a living, and provide for their families - just like the rest of us. Understanding and accepting those two facts (admittedly, a bit begrudgingly at first) - plus keeping excellent records (see my post here) - was 90+% of the battle.

Please forgive my riff on the serenity prayer: Accept what's not in your control, OP, and get laser-focused on the things that ARE within your control. And exercise good judgment in understanding which is which. Good luck, doc.
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.

Topic Author
Docc
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Re: Tax mistake

Post by Docc » Thu Feb 21, 2019 7:28 am

Not a scam. They calculated my taxable income as $185k versus my calculation of $187K.They don’t think I am hiding income. I have the money to pay this absurd amount, but I was just curious if anyone had a similar experience. In talking to a representative, I believe it is related to the AMT form I sent in per their request. I did not originally fill out the form because per my calculation, I did not owe it. Either they did not get the form; even though, it was attached to a check which they cashed, or they or I put something on the wrong line, resulting in this huge tax number. I have to send the form back and ask them to recalculate everything. In looking at the form, it looks no different than my previous AMT forms, but something is obviously amiss for the computer to come up with this number. A human has yet to look at the form other than the representative I talked to yesterday, who quickly looked to see if she could spot the issue.

spectec
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Re: Tax mistake

Post by spectec » Thu Feb 21, 2019 7:40 am

What do you want people on this forum to do, since you won't provide specifics about the problem? Everyone agrees there's something wrong, but you're asking for a diagnosis while at the same time withholding key information.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

Silk McCue
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Re: Tax mistake

Post by Silk McCue » Thu Feb 21, 2019 8:50 am

Docc wrote:
Thu Feb 21, 2019 7:28 am
Not a scam. They calculated my taxable income as $185k versus my calculation of $187K.They don’t think I am hiding income. I have the money to pay this absurd amount, but I was just curious if anyone had a similar experience. In talking to a representative, I believe it is related to the AMT form I sent in per their request. I did not originally fill out the form because per my calculation, I did not owe it. Either they did not get the form; even though, it was attached to a check which they cashed, or they or I put something on the wrong line, resulting in this huge tax number. I have to send the form back and ask them to recalculate everything. In looking at the form, it looks no different than my previous AMT forms, but something is obviously amiss for the computer to come up with this number. A human has yet to look at the form other than the representative I talked to yesterday, who quickly looked to see if she could spot the issue.
Not telling us in the original post that you were already in contact with the IRS yesterday to discuss this wasted peoples time in responding. In the future when you post, please provide all critically pertinent information if you want folks to spend their time trying to help you with an issue or a question.

Cheers

The Wizard
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Re: Tax mistake

Post by The Wizard » Thu Feb 21, 2019 9:12 am

IRS will tell you what they think you did wrong, specifically.
For example, one year I did a rollover of $35k from my tIRA to my tax-deferred 403(b).
IRS somehow thought I took the $35k as additional taxable income that year and requested additional tax, interest and penalty.
I corrected their misunderstanding and paid nothing.

So what did the IRS say you did wrong?
And what tax year is involved?
Attempted new signature...

lstone19
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Re: Tax mistake

Post by lstone19 » Thu Feb 21, 2019 9:31 am

Docc wrote:
Thu Feb 21, 2019 7:28 am
Not a scam. They calculated my taxable income as $185k versus my calculation of $187K.They don’t think I am hiding income.
Then you need to look at payments. Just because you sent them a check and they cashed it doesn't mean it was properly credited to your account. It's very possible that a payment you made was not properly credited (particularly since it sounds like you sent them a bare 6251 (AMT form) with a check - as 6251 is not designed to be filed alone, unless the check was accompanied by a payment voucher, they may have had no idea what the check was for by the time it reached the payment processor).

MarkNYC
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Re: Tax mistake

Post by MarkNYC » Thu Feb 21, 2019 9:38 am

Docc wrote:
Thu Feb 21, 2019 7:28 am
I believe it is related to the AMT form I sent in per their request. I did not originally fill out the form because per my calculation, I did not owe it. Either they did not get the form; even though, it was attached to a check which they cashed, or they or I put something on the wrong line, resulting in this huge tax number. I have to send the form back and ask them to recalculate everything. In looking at the form, it looks no different than my previous AMT forms, but something is obviously amiss for the computer to come up with this number. A human has yet to look at the form other than the representative I talked to yesterday, who quickly looked to see if she could spot the issue.
The problem seems likely to be the AMT, which was not shown on the original tax return. Did you prepare your return (or just the AMT form) by hand? Since the AMT Form 6251 was sent in and processed separate from the original return, it's likely there is an input error on the Form, either due to IRS input mistake or your form preparation mistake.

You should not pay this additional assessment. Since you have been unable to recognize the discrepancy based on the IRS correspondence you've received, there is enough at stake that it makes sense to engage a tax professional to review the situation and make sure the IRS corrects any specific error, and makes the correction properly.
Last edited by MarkNYC on Thu Feb 21, 2019 10:05 am, edited 1 time in total.

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mhadden1
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Re: Tax mistake

Post by mhadden1 » Thu Feb 21, 2019 9:43 am

Docc wrote:
Wed Feb 20, 2019 2:51 pm
I did not itemize; even though, I pay state taxes. I see no point given the AMT. Don’t care if this is foolish, not my concern at this time.
You lost my interest here.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

dknightd
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Re: Tax mistake

Post by dknightd » Thu Feb 21, 2019 10:02 am

I have received this type of letter before. It could be an IRS mistake, or it could be your mistake.
I had to read the letter over and over to figure out what the problem was, or might be.
Then I had to redo my taxes to see if the mistake was mine, or theirs.
Once it was mine. Once it was theirs.
When the mistake was mine I sent them the money.
When the mistake was theirs I sent a very detailed letter explaining their mistake.
You need to figure out who made the mistake.

aristotelian
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Re: Tax mistake

Post by aristotelian » Thu Feb 21, 2019 10:09 am

Is it possible that this is for multiple years of taxes, perhaps related to AMT?

I would call the IRS and try to get a straight answer. Get a number from irs.gov website. Don't call the number on the letter in case it is a scam. You don't want to be giving out your SSN.

Topic Author
Docc
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Re: Tax mistake

Post by Docc » Thu Jun 27, 2019 11:22 pm

F/U: The IRS can make a mistake. They did an AMT form for me and placed my taxable income on line 4 of the 2017 AMT form (mortgage interest). They thereby doubled my income. I made an appointment with my local
IRS consumer office after the IRS agent I talked to requested I refill my AMT and request a human look at my firm. I did this and about two months later the sent another notice stating I owed the same $67,000. At this point, I made the appointment. The appointment was a month later, and I arrived prepare to fight, only to be told
my balance was $0 and I had been sent a refund check of $5500.
The story doesn’t end there. Two days later the check arrives followed by a letter from the IRS saying they did not have my schedule B. Luckily, I had previously requested a copy of my transcript to figure out where the
screw up was that led to the $67,000 bill. That transcript showed the numbers from my schedule B. I called the IRS again, and an agent pulled my file, found my schedule
B and told me they probably owed me a dollar or two. She left a note in the file to this affect. This was three weeks
ago, so I am sitting on the refund check until I get a letter verifying that everything is fine. The good thing is even if the schedule B is missing, even with penalties, the owed amount is much less than the refund check. I just want to know my 2017 taxes are finalized, so I can move on to 2018.

Luckywon
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Re: Tax mistake

Post by Luckywon » Fri Jun 28, 2019 12:49 am

Sounds to me like it may be worth your hiring an accountant to prepare your taxes going forward. Your time is valuable, and would likely save a lot of hassle.

Cuzz35
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Re: Tax mistake

Post by Cuzz35 » Fri Jun 28, 2019 8:08 am

Luckywon wrote:
Fri Jun 28, 2019 12:49 am
Sounds to me like it may be worth your hiring an accountant to prepare your taxes going forward. Your time is valuable, and would likely save a lot of hassle.
This is my vote too. I could probably help you but I'd need to see your return and the notice. I'm sure many of us in this thread would really need to see the same to get to the bottom of it.

Did you file on time? If after 4/15 did you file an extension? When did you pay your taxes? What types of penalties did they assess? Underpayment of estimated tax, late payment, late payment interest, late filing penalty? Is your income from self-employment? If they are adding most of these penalties and SE tax that would ratchet the balance due up quite quickly. Not sure why you would owe a bunch of AMT unless you had maybe some Incentive Stock Options that you exercised but held on too.

simas
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Re: Tax mistake

Post by simas » Fri Jun 28, 2019 8:42 am

1. Get a (good) accountant and let them do their job
2. if you cant do this, get a cheap tax filling program (HR Block, etc), fill out the numbers as instructed and let it complete the forms for you

Please leave any emotions ('crazy', 'insane', etc) out of it, it makes zero sense to do so and does not serve you in any way. Follow instructions.

The process is simple
- you file, they take the tax due or refund you depending on the numbers
- 18-24 months later then run comparison numbers and if there is a discrepancy send you a CP notice. Hey, looks like you did not report income (but someone else did for your tax id) or hey , you reported something as non-taxable but we have no record of it.
- they give you 6 MONTHS to respond. collect documentation supporting your version of the return and send it. They confirm receipt and typically within few months respond with matter is closed.
- if you still disagree with their conclusion there is a re-consideration process (please take a look at this again due to this/new evidence)
- if you still disagree there are taxpayer advocates system.

it is very fair system which gives you plenty of time and opportunity to respond.


We had many dealings with IRS over the years, one year the payroll for my wife double reported the wages for everyone in her small company to IRS so they came for differences (payroll issued a letter through HR and we sent the letter, matter closed). Another case was the timing of retirement distributions (send note of explanations, matter closed). Third one had to do with complex withdrawal from small business account, basic and timing - send documentation, waiting.

so relax, breath out, stick to the facts, have accountant review it if needed.

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