Don’t Believe That IRS Notice You Just Got


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The IRS audit force has been doubled. The fairly new commissioner has been given one prime directive: collect more money! And, just like the feds, they’ve fired up the printing presses.

In the past few weeks, we’ve seen dozens of IRS notices and heard of hundreds more. In almost every case, the IRS is wrong. If you get an IRS notice, first of all, take a deep breath. There is a good chance that they are wrong.

Here are a few of the ones we’ve seen:

– Your tax return was filed late. We’ve seen a handful of these, even though the extensions were accurately filed, on time, and we can prove it. (By a return receipt from the Post Office) And we can prove that the return itself was timely filed, again, by a return receipt from the Post Office.

SOLUTION: Contact your tax preparer ASAP and ask them to write a letter to the IRS, return receipt requested, with copies of the extension and proof of filing for the extension and return.

– Your C Corporation should be a personal service corporation. This is one that seems to be popular with the IRS right now. That’s because the personal service corporation will mean a higher tax rate. It also seems to be based on no proof whatsoever. One of our clients got the letter simply because the term “evaluation” was used in the title of his corporation. It was evident by looking at his return, the expenses and description of what his company did that it had nothing to do with performing evaluations of anything (which could be considered a personal service.)

SOLUTION: Respond with a letter, return receipt requested, that explains what your corporation does. This is an important one to review first with your tax preparer. You don’t want to take a misstep here and trigger an audit.

– We’re changing your W-4 exemptions. First of all, a gasp – never heard of this one before! In this case, the client typically paid some in taxes each year. But it was always paid on time and wasn’t a huge sum.

SOLUTION: Respond to the IRS, return receipt requested, stating why it’s not appropriate to change your W-4. And, maybe it’s finally time to start your own business. As an employee, you’re at the whim of your employer and now, also at the whim of the IRS.

It’s crazy times out there. The IRS is trying all kinds of tactics to raise money. Don’t believe that IRS notice you just got! And don’t ignore it either.

A very big thank you to Tammy Kamp, one of our top USTax Aid Services tax professionals. Tammy has been instrumental in collecting IRS notice data and investigating what is prompting the bad notices. In times like this, you need the best team you can get.



5 Comments

  1. Diane-

    I’m going to post this on my blog for “Tuesday Tax Time” if you don’t mind (I’ll link back to you).

    My clients have gotten some of these! Yikes.

    Jason M Blumer, CPA
    @JasonMBlumer

  2. ditto Jason. I thought they were picking on me. 😉

  3. Same for me – and the letters have changed. They seem to only want calls insted of letters if you disagree. However, we have been able to clear them up with a call and fax of the extension proof.

  4. J. Wayne Watson says:

    Diane,
    My wife teaches 3rd grade and she received a notice about 8 months ago reducing her W-4 deductions. She puts in 12 hours a day now with her kids. Any recommendations for her?
    God bless,
    Wayne

  5. Wayne,

    Your wife can change her W-4 back. In fact, I recommend that she does unless you are seriously underpaying on your taxes.

    I’ve got to say, this is a very strange tactic on the part of the IRS. I guess they are hoping enough people don’t notice and they get to collect money up front. It makes me wonder if there is a Step 2 to this plan to hold up refunds.

    Good luck!

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