Certified Public Accountants

INCOME TAX NOTICES

TAXING TIMES, JULY 2015 EDITION

By Rick Torkelson, CPA and principal of Torkelson & Associates, LLP in Petaluma, CA

Sooner or later nearly all of us taxpayers get a tax notice. After the initial panic – “I’m being audited” or “my accountant must have messed up” or “I’m going to jail”, the best procedure is to carefully read it – or, as soon as possible, get it to your tax preparer.

The English street version of what this notice really says is: Our IRS computer thinks you might have made a mistake. Here’s what our computer doesn’t understand. Here’s how much tax we think you might owe based on our computer’s interpretation of the problem. If you think we’re right, please pay us. If you think we’re wrong, explain why and we’ll see if we agree. And oh by the way, please let us know within 30 days.

Some people ignore the notice thinking the IRS is wrong and someone there will enlighten them. The problem will disappear maybe with a nice little letter of apology and a public notice in the local newspaper – Big mistake. This method seems to work at first because the 30 day deadline passes and nothing happens. The IRS gears grind slow, but they do not go away.

In about three months, you get another letter. This time the English street version reads more like: We gave you a proposed adjustment a while back and we haven’t heard from you. Real soon now we’re going to assess the tax (you now owe it!) and send you to our collection department who is very powerful and not always patient and nice.

I’ve responded to scores, possibly hundreds of these notices over the years and most of the time the IRS is wrong – or partially wrong. They must collect a fortune with these notices paid by taxpayers who just assume the IRS must know what they’re doing.

These notices are generated by IRS computers. No human is aware of the notice until you respond (or don’t respond). These notices are a direct result of over a billion forms 1099 that are scattered around the taxpayers every year. The IRS computer “reads” the 1099 and goes to the part of the return where the computer believes the 1099 should be reported. If the computer doesn’t find it on the return, you get mailed a notice.

The message here is: Read it. Understand it. Deal with it. Or get it to someone who can. Odds are the notice is at least partly in error but waiting will never make it go away.

Being a “glass is half full” kind of guy, these notices are kind of a blessing. If the 1099 “matching program” wasn’t collecting lots of money from a computer generated letter – I think Congress would give the IRS a bigger budget and we’d have a lot more audits.

SCAMMERS!

BEWARE! The scammers are still out in force. Many innocent citizens are receiving threatening calls from scammers pretending to represent the IRS demanding cash to satisfy taxes due.

The IRS does not initiate audits by phone and you will always have a chance to resolve any issues the IRS has with your tax return. The IRS faithfully follows a slow methodical procedure from initiation of an audit through the collection process.

Do not respond to cold calls claiming to be IRS agents demanding money. If you have been audited with adjustments made and sent to collection, you would know it. This process takes weeks and usually months to slowly resolve.

 

 

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