Can You Rely On the IRS to Give You the Right Answer?

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Each year the GAO (Government Accountability Office) does a study on IRS’s ability to give right answers. Interestingly enough, the latest study doesn’t talk about the quality of the answer, just the decline in even getting an answer.  Over 40% of written inquiries and responses to the IRS are not answered within the mandated 45 days.  A third of the phone call questions are never answered.

We’re hearing more and more about IRS answers such as “Ask your accountant” or simply hanging up the phone.  That’s the 1/3 of the calls that never get an answer. But there is no study this year on how many of the answers are wrong. I’m sure we’ll see some independent groups conducting their own tests. Usually those results show the IRS is wrong about half the time.

So, let’s summarize:

The IRS doesn’t respond to their own deadlines about 40% of the time.

About 1/3 of the time, they don’t even give you an answer.

And, when they do give you an answer, you’ve got a 50/50 chance on it being right.

I’m a CPA with 30 years of experience working with the IRS. I’ve never seen chaos like this. Here’s my own personal story:

I am still cleaning up a payroll tax mess caused by a bookkeeper I fired back in May 2009. He had mixed up the payroll, reporting employees on Company A, when they really were employed by Company B. The quarterly reports he had prepared, and signed himself, did not match the accounting records and so when the W-2s were prepared they didn’t match his quarterly reports.  I fixed Company B records and paid the extra tax a couple of years ago.  I’ve now gotten hit with a fine for Company A because the payroll reports (which I didn’t have a copy of) didn’t match the annual reports.  The annual reports were correct. The quarterly were not.

After a couple miss-starts I was finally able to get an IRS agent who was very helpful. She gave me the info from the reports I didn’t have so that I could file an amendment on those wrong 2009 quarterly reports.

I sent them in using return receipt requested so I have proof that they were received by the IRS. I got the notice back that they were received.  Thirty days later, I got a notice from the IRS saying they were about to levy my account (ie, take money out) because I hadn’t responded.   About a week after that I got a letter saying they did have my response, but due to an overwhelming amount of mail it would take 6 months before they could get to it.

Realistically, then, it could be over 7 years later before a payroll tax mistake gets cleared up.

I followed the rules:

• Responded quickly
• Kept calling until I got an agent who would help me
• Replied in writing, using return receipt requested
• Followed up when it appeared they didn’t log in my response

And still, it will take months to get it resolved. It’s no wonder that so many people get into trouble, through no fault of their own, with the IRS.

Bottomline, you have to have a tax professional helping you. Don’t rely on the IRS for giving you the right answers or responding in a timely manner. And for goodness sakes don’t ignore notices you get from them. Failure to act can mean a bank account drain.

Here is a link to the original article with the GAO report:

One Comment

  1. B Gray says:

    Hi Diane,
    Here’s an another example that may support your point. 3 yrs ago my wife was paid by a 3 different LLCs as an independent contractor. 2 yrs ago I formed a S corp (I am sole shareholder), hired my wife as an employee and began billing the LLCs for her services as my sole employee. I pay her a salary that is around 10% of what I bill for her services and take a small salary (15% of what I bill) for my responsibilities in the corp. Maybe I spend 5 hrs a week reviewing her time card, forwarding accounting info to a paid accountant etc. So 75% is flow through income. I check with the IRS about comparative ownership and other potential problems with scenario and was assured there were none. But after reviewing info on your excellent website, I am now having second thoughts. Do you think I got the wrong response from the IRS.

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