Notice of Deficiency from IRS

[dandan14]

It may be time to call your congressman and see if he/she could help.

Really? You think that is something they could help with?

[archbish99]

I have no idea what to do at this point.

Does anyone know what my next step is? I think if I were to go in front of the judge, not only could I prove that I am right, but it seems like they have admitted that in their response.

IANAL, but I have to agree -- they've agreed with your statement that everything's correct. I'm curious to see how this plays out, and whether they try to fix this, or just show up in court.

[Epsilon Delta]

It may be time to call your congressman and see if he/she could help.

Really? You think that is something they could help with?

Certainly worth a try.

[sscritic]

I moved, but my former Congresswoman says this:

Serving you is my top priority which I do with great honor. My staff and I are always pleased to assist you with questions or problems that you might have with federal agencies such as the U.S. Department of Veterans Affairs, U.S. Bureau of Citizenship and Immigration Services, the Social Security Administration, or the Internal Revenue Service.
...
Although we cannot order a federal agency to decide a matter in your favor, we can help you get a prompt response.

Her office helped me get a problem with social security solved. One result of going through her office was that I was assigned a SS supervisor to help me. There is nothing an agency manager wants more than to get a Congressman or woman off his(her) back.

The SS office mailed her a letter stating what they had done, and her office sent me copies (I already had my own).

[scrabbler1]

It may be time to call your congressman and see if he/she could help.

Really? You think that is something they could help with?

Certainly worth a try.

I agree. A few years ago, my ladyfriend made a silly mistake in her income tax form, one which had no impact on the large refund which was due her. However, the IRS used this obviously incorrect number to reduce her refund by $500. After several months of phone calls and filing an amended return (1040X), she was still getting nowhere even though a few of the phone reps told her they agreed she was claiming a correct refund and that the IRS was wrong in cutting it back.

Having a long-standing relationship with my member of congress, we enlisted her office's help. It took another 6-8 weeks but my ladyfriend got her money due, with interest, and with no further effort after she sent the congresswoman's office a copy of the amended return and subsequent letters we had sent the IRS.

[dandan14]

Very interesting. I'm going to see if the assigned attorney returns my call. If not, I may be calling my rep.

And btw, folks did suggest calling the taxpayer advocate earlier in this thread. I left them 3 messages (there is no option to talk with anyone) and no one from that office ever called me.

[GoldenPuppy]

You need to relax. Your case will be forwarded to IRS Appeals and the case will almost certainly be resolved with the assigned Appeals Officer. It is extremely rare for a stock case to end up going before a judge.

Just wait and work with the Appeals Officer when he or she writes/calls. Relax, relax, relax. No need to contact Congress or anyone else. Everything you've described is normal.

[johnny72]

You need to relax. Your case will be forwarded to IRS Appeals and the case will almost certainly be resolved with the assigned Appeals Officer. It is extremely rare for a stock case to end up going before a judge.

Just wait and work with the Appeals Officer when he or she writes/calls. Relax, relax, relax. No need to contact Congress or anyone else. Everything you've described is normal.

It may be SOP but it is not normal. Any other organization using IRS tactics would be shut down.

[dziuniek]

Interesting case.

It doesn't bode well for me. My fiancee just received a letter stating she owes IRS $2500 (education credit)! The letter stated that the University, which she attended at the time did not report the same amount / couldn't confirm the tuition amount we put down on her return.

I just dug through the old returns and yup, we put the correct amount down and still have the tuition form the university sent us.

So...

This will be fun.

[Mudpuppy]

Interesting case.

It doesn't bode well for me. My fiancee just received a letter stating she owes IRS $2500 (education credit)! The letter stated that the University, which she attended at the time did not report the same amount / couldn't confirm the tuition amount we put down on her return.

I just dug through the old returns and yup, we put the correct amount down and still have the tuition form the university sent us.

So...

This will be fun.

1098-T forms have been known to have mistakes. One year, my university accidentally applied a fee 3x to my account (then removed the extra charges a few days later). My 1098-T form that year had that triple amount on it, but that didn't entitle me to claim the triple fee. I claimed only the actual fee I was charged. I hope you used the actual tuition bills and amounts paid for your taxes, not the amounts listed on the 1098-T form, otherwise things could be "fun" indeed.

[dziuniek]

Actually, here's what I figured out so far:

The university messed up, which isn't really surprising. Turns out that they released an updated form, which we somehow missed, maybe because I did her taxes as early as possible.

So, I have the reason for why there's a problem.
We'll see if I can explain this situation to IRS.

[archbish99]

If the updated (presumably correct) form matches what you reported, no problem. If you filed according to the original (incorrect) form, you'll need to file an amended return.

[sscritic]

If the updated (presumably correct) form matches what you reported, no problem. If you filed according to the original (incorrect) form, you'll need to file an amended return.

Most letters from the IRS tell you not to file an amended return. He should do what the IRS tells him to do. Or rather his financee should.

because I did her taxes as early as possible.

And next time let her do her own taxes. Otherwise, 40 years down the road you will be posting in one of the inevitable "my wife knows nothing financial after a lifetime of doing nothing financial, what instructions should I leave for her after I die?" threads.

[dziuniek]

Haha, that's possible.

I think the alternative involves her paying someone to do them so I would rather step in.

That being said, we looked through her old college e-mail and there was no communication regarding the update/change to the form.

$80,000 later and they can't even send an email. bah!

[dandan14]

Latest update:
I have received correspondence from someone in the appeals office who says this has been assigned to them. They gave me a phone number and a fax number.
In the letter it says she would like to see the cost basis printouts from my broker on all the sales listed. I've tried to reach this person by phone, left 2 voicemails, and after a week, no return call.

My main issue is that some of the stocks in my Long term gains section had been held for 10 years or more. I called E-trade, and they don't have records going back that far. I found the original emails they sent me when I made the transaction, but it doesn't list anything. It just says "click here for your trade confirmation" -- which of course no longer works. I'm a little miffed because cost basis has never even come up in the letters from the IRS. It has always been the sale. (I know my cost basis, but I doubt I could prove it.)

On a side note, I've decided to appeal only 5 of the 16 line items. The others are either in my favor (so honestly why should I continue to point out there mistakes after a year) and the others are so small -- literally $1 to $5 -- that I think it is worth it to simplify.

[sscritic]

My main issue is that some of the stocks in my Long term gains section had been held for 10 years or more. I called E-trade, and they don't have records going back that far. I found the original emails they sent me when I made the transaction, but it doesn't list anything. It just says "click here for your trade confirmation" -- which of course no longer works.

That's why I like paper; it still works. I get paper from Vanguard, and if I had a brokerage account, I would get paper as well. If they didn't offer paper but just "click here for your trade confirmation," I would print out the confirmation on paper. I still have paper from 1974 in a 3 ring binder. Now if I had been a day trader, I might have needed a few more binders.

[555]

You must have calculated cost basis yourself when you filed your taxes. How did you do that? Did you know the exact number?

Also, it seems like you could at least make a good (justifiable) estimate by finding a historical record of what each security cost when you bought it.

[Mudpuppy]

My main issue is that some of the stocks in my Long term gains section had been held for 10 years or more. I called E-trade, and they don't have records going back that far. I found the original emails they sent me when I made the transaction, but it doesn't list anything. It just says "click here for your trade confirmation" -- which of course no longer works.

That's why I like paper; it still works. I get paper from Vanguard, and if I had a brokerage account, I would get paper as well. If they didn't offer paper but just "click here for your trade confirmation," I would print out the confirmation on paper. I still have paper from 1974 in a 3 ring binder. Now if I had been a day trader, I might have needed a few more binders.

Paper can be stolen or lost in a house fire. For the most redundancy, one should keep both paper and electronic copies. Additionally, encrypted backup should be used for the electronic copies, with at least one encrypted backup stored off-site or via "cloud" storage (so the electronic backup doesn't burn up in a house fire too). With scanners and cloud storage, there's really no reason to lose copies of important documents these days.

[dandan14]

You must have calculated cost basis yourself when you filed your taxes. How did you do that? Did you know the exact number?

Also, it seems like you could at least make a good (justifiable) estimate by finding a historical record of what each security cost when you bought it.

I know what I paid. I have a record of that. But I have it in a spreadsheet, not on an official brokerage report.

[MarkNYC]

Latest update:
I have received correspondence from someone in the appeals office who says this has been assigned to them. They gave me a phone number and a fax number.
In the letter it says she would like to see the cost basis printouts from my broker on all the sales listed. I've tried to reach this person by phone, left 2 voicemails, and after a week, no return call.

... I'm a little miffed because cost basis has never even come up in the letters from the IRS. It has always been the sale. (I know my cost basis, but I doubt I could prove it.)

On a side note, I've decided to appeal only 5 of the 16 line items. The others are either in my favor (so honestly why should I continue to point out there mistakes after a year) and the others are so small -- literally $1 to $5 -- that I think it is worth it to simplify.

The agent assigned to your case has sent you a letter requesting specific documentation, and provided you with her fax number. I suggest you fax to her the information requested, along with any other relevant documents that would help her to understand and resolve your case.

The good news is you finally have a specific individual at the IRS to communicate with to get the matter settled. The bad news is that while she's at it, she'd like you to substantiate the basis amounts you listed on Schedule D and you evidently did not keep adequate documentation for some items sold.

I'm a little curious about certain items "in your favor"? It sounds like you want to point out and have rectified certain errors the IRS made in their original notice that would improperly increase your tax, and conceal from them certain subsequent errors they made in response to your follow-up letters, that would improperly decrease your tax? If my inference is correct, you might want to reconsider.

[dandan14]

Latest update:
I have received correspondence from someone in the appeals office who says this has been assigned to them. They gave me a phone number and a fax number.
In the letter it says she would like to see the cost basis printouts from my broker on all the sales listed. I've tried to reach this person by phone, left 2 voicemails, and after a week, no return call.

... I'm a little miffed because cost basis has never even come up in the letters from the IRS. It has always been the sale. (I know my cost basis, but I doubt I could prove it.)

On a side note, I've decided to appeal only 5 of the 16 line items. The others are either in my favor (so honestly why should I continue to point out there mistakes after a year) and the others are so small -- literally $1 to $5 -- that I think it is worth it to simplify.

The agent assigned to your case has sent you a letter requesting specific documentation, and provided you with her fax number. I suggest you fax to her the information requested, along with any other relevant documents that would help her to understand and resolve your case.

The good news is you finally have a specific individual at the IRS to communicate with to get the matter settled. The bad news is that while she's at it, she'd like you to substantiate the basis amounts you listed on Schedule D and you evidently did not keep adequate documentation for some items sold.

I'm a little curious about certain items "in your favor"? It sounds like you want to point out and have rectified certain errors the IRS made in their original notice that would improperly increase your tax, and conceal from them certain subsequent errors they made in response to your follow-up letters, that would improperly decrease your tax? If my inference is correct, you might want to reconsider.

Interesting points. I am planning to fax if I don't hear from her in the next day or two.
Several of the items in question were ETFs that were dollar cost averaged through Sharebuilder. There are literally hundreds of weekly purchase transactions. If I fax to her, it will likely be 100+ pages. I'm sure she will love that.

On your other point, yes you are correct. For over a year now, the IRS has been claiming I did not file correctly on 16 line items. 8 they say I underpaid, and 8 they say I overpaid. I've been a contentious citizen and have shown them their error on all 16 items in 4 official communications (via certified mail), a court case filing, and many phone calls. At some point, I believe I'm within reason to say I'm only going to simplify this case and only argue the 3 biggest ones. What is the opinion of the board?

[Jerilynn]

There are literally hundreds of weekly purchase transactions. If I fax to her, it will likely be 100+ pages. I'm sure she will love that.

I'd fax the first 4 or 5 pages and then a memo stating that you have 100 more pages that you can fax if needed.

[btenny]

Be very very careful how you talk to this agent or what you send out. IRS agents have NO sense of humor or patience with people who make fun of US tax law or procedures. They are the classic difficult bureaucratic agents that hold your life in their hands. Remember they can crush you if they want to with the flick of a pen and have way more power than any Cop. They just want the facts and details they ask for and for you to be quiet while they review your records and details. And since you have a pile of records to send I would send at least 20 pages to start so they know you have a good deal of detail and then tell them the rest is available on further request. I would also make sure that say 8 of the lines to the checked can be verified to the penny with those 20 pages. Thus you have built some trust for not sending the remaining 80 pages needed to verify the remaining 8 items. But be very careful.

Also be aware that this auditor will most likely review your ENTIRE return as well. Not just the 16 items and if they find anything else wrong or not to their liking they will call you on those issues as well. IF they find a single error that goes in their favor they can open your tax returns for several years and make you jump through many many hoops to prove every single tax deduction that you made. Plus if they feel like it they can add you to the audit list for the next 3 future years or so. Then your taxes will be examined with a microscope like this for many years in the future.

So proceed very carefully.
Bill

[dandan14]

I sent my packet via FedEx yesterday. It contained the cost basis documentation for the 8 items the IRS is flagging as under-reported. In the letter, I stated that I no longer wished to dispute the other 8 items -- which combined they say I have over reported by 8k.
I was able to get a "rolled up" view of my cost basis on the few that had hundreds of small dollar-cost-averaged transactions, so the entire packet was only about 15-20 pages.

The ball is in their court now.

[rocket]

Be aware a Enrolled Agent (EA) can handle the same as a lawyer or CPA, but the EA probably charges less.
Go to the IRS (walk in the IRSs doors) with an enrolled agent and talk to them. Talk instead of writing letters.

[umfundi]

dd14,

I wish you the best of luck with this.

My experience with the IRS was not nearly as dire as others seem to have experienced. Once I got to real people (which was not very difficult) it was very reasonable, except they defined the entire process. They make the rules as to how their game is played.

Keith

[dandan14]

Be aware a Enrolled Agent (EA) can handle the same as a lawyer or CPA, but the EA probably charges less.
Go to the IRS (walk in the IRSs doors) with an enrolled agent and talk to them. Talk instead of writing letters.

I would absolutely LOVE to talk to a real person. When I talked to the IRS help line early in this process, they assured me it was a clerical error and they would fix. However, letters continued to come.
I was hopeful when I learned about the IRS Taxpayer advocacy service. I left several messages and never got a return call.
When I received the letter from the Tax Court, it was signed by a tax attorney who listed his phone number. I left messages, and got no return call.
When I received the letter from the appeals office, it listed a real person's name and number. I got her voice mail repeatedly. I left 2 messages and got no return.

[umfundi]

I would absolutely LOVE to talk to a real person.

Dan,

I called the toll-free number on the robo-notice and then got a real person, after perhaps 30 minutes on hold.

I suppose we need to observe the IRS probably has a disclaimer: "Your experience may vary".

Keith

[indiaj0nes]

HI,

What was the outcome of this?

[dandan14]

It was a long painful year of me appealing, appealing, and appealing again. No one would use 10 seconds of common sense to discover that the numbers couldn't possibly be right.
Finally it was set to go to court. I said great.
It was assigned to an attorney on their side who actually listened to what I said, confirmed the error, and threw it out literally in about 2 minutes.

However, I didn't recoup the CPA and small amount of legal expenses on my side. I was out about $2000, but that's better that the big numbers the IRS kept throwing around.

[TIAX]

It was a long painful year of me appealing, appealing, and appealing again. No one would use 10 seconds of common sense to discover that the numbers couldn't possibly be right.
Finally it was set to go to court. I said great.
It was assigned to an attorney on their side who actually listened to what I said, confirmed the error, and threw it out literally in about 2 minutes.

However, I didn't recoup the CPA and small amount of legal expenses on my side. I was out about $2000, but that's better that the big numbers the IRS kept throwing around.

Congratulations on the win. Weren't you entitled to legal fees?

[dandan14]

Good question. I don't know. But it's been 5 years ago. As I recall, most of my expense was in the CPA that I paid to audit the whole thing and confirm that I wasn't crazy.