Received a letter on Saturday from the IRS. They claim I under-reported 2017 income substantially, and thus owe considerable additional tax, plus interest & penalties, to be paid by Jan 2 or else.
Checking the details, at issue is the sale of a security by my bank (money was shifted to a different account). The essential problem is that the IRS letter shows no “cost basis” for the security - they thus regard the entire proceeds of the sale as income.
Bank promptly provided a copy of the relevant 1099 form: it clearly shows a cost basis that exceeds the sale amount (IOW, transaction was a loss, producing no net income). IRS has apparently entered the 1099 info incorrectly.
The IRS letter includes a phone number to call. But about 10 minutes of rummaging around in multiply layers of the automated phone menu fails to produce any pertinent option, nor any opportunity to talk to a live person.
An IRS “customer” service toll-free number was my next call. Another several minutes of menu-rummaging at last produces the “talk to an agent” option. (Yay.) Of course, this includes a warning that “call volumes are heavy” and long waits are possible (right - I expected that). The (unpleasant) hold music is frequently interrupted by suggestions that visiting the IRS website may be more efficient.
After 18 minutes, a live person comes on the line! But she immediately launches into a message about how their computer system is down, no specific help can be given, and I should call back in two hours (for the fun of fighting my way through a backlog of callers, no doubt).
I ask is there any direct number I can call ? (No, there isn’t.) Any way to go straight to the “hold for a live agent” queue? (Dream on.) I will certainly call back, but with no strong expectation that I’ll get through, or that the person I reach will be able to help.
We had our fun with the IRS several months ago. It was also a “bank thingie,” so we went to the bank!
I had used a debit card to pay thr tax we owed, and the money did not get credited to us. The Customer Service rep at the bank offered to call IRS for usto verify the payment was made. IRS said wait time was thirty minutes. Unfortunately, the CSR had to go wear a teller hat, so he could not stay on the call. The solution was to have Mr VOW call IRS, while we were in the bank waiting area, so the CSR could step in to do the verification.
30 minutes, HA! We ended up with paralyzed tailbones from sitting in those Gawd-awful chairs for over two freakin’ hours! When the IRS representative finally answered, Mr VOW gave a Reader’s Digest condensed version of the problem.
She said, “…Oh. Please hold.”
Ten minutes passed.
She comes back on the line and says, “Oops. Heh heh.”
We got a letter ten days later, essentially saying, “Oops. Heh heh.”
Persevere with the phone call. Get the name of the person you talk to. If the conversation goes nowhere, ask for a supervisor. Also get a name. Keep bumping up the Chain of Command as needed.
Do NOT agree to anything that sounds like, “Just go ahead and pay the tax now. When we figure it out, we can refund the money.” Tell them upfront, “That is unacceptible. We will figure this out NOW.”
See if there is a field office in your area. I went a few years back to straighten out some withholding mess regarding joint custody and walked out nearly $20 grand ahead thanks to a sharp and helpful IRS employee. It’s kind of amazing what smiling and being prepared can get you in person.
I’m not quite sure I understand. Did you report the income and cost basis on your 1040? Or did not not report anything because it was a loss? I’m guessing the latter.
Doesn’t the letter ask you to respond by mail? Letters I’ve received said things like respond and pay by [date] or additional interest will be charged. They’ve never threatened anything dire or even minor in a first correspondence.
I’d suggest copying the 1099 and sending it back along with the form and a letter. That’s always worked for me on minor errors even if it took more than one round. They expect you to respond by mail in any case, so do so.
I had a similar situation a last year ago. I closed one 401K and consolidated it with another. The transaction happened near the end of the year and the IRS didn’t get the 1099 from the move. They wanted $8K in taxes, interest and penalties.
I made copies of everything and sent them return receipt requested to the IRS. They came back and said that was sufficient and it was no longer due.
Field Office may or may not work. One office Mr VOW called said, “Make an appointment,. People who show up without an appointment will not be seen.” Another field office had a recorded message with the number she has in her letter.
~VOW
Write a letter back, include the cost basis, redo the 1040 required with the cost basis if the form was wrong. If it wasn’t, include a copy of the original 1040
Pursuant to your letter of XXXX, #XXXXX, where you claim I have under reported income, attached please find a corrected form 1040 and the 1099 that shows the cost basis for XXX stock at XXX and the sales price at XXXX which shows that I did not under report the income. If you have any questions, I can be reached during the daytime at phone number …blah blah blah.
I did this once with a $50k “underpayment” - after my former tax professor peeled me off the ceiling and gave me the advice I just gave you, I wrote the letter and in six months heard back “you are in the clear.”
I, too, have received a letter from the IRS indicating I overlooked to report a 1099. I knew I had reported it, so I spent an afternoon writing a nice letter explaining where exactly in my return it was reported, copied the worksheet supporting my assertion, used highlighter pens to drive home the point and mailed the whole thing off using a certificate of mailing to prove I had responded timely.
A few weeks later, I received confirmation that my records were correct and I did not owe any additional tax.
A PITA to be sure, but worth the end result. I’d guess a lot of people just pay what they’re told to pay.
I say persist, but do it in writing if possible. Good luck!
It does - and I will do so, calling attention to the 1099 and its full information about that transaction.
A complication is that I soon depart for 45 days in Australia, making snail mail correspondence a problem. Had this letter arrived after I left, I imagine things would have been a bit grim for me on my return.
I had a similar incident, when I closed out one IRA and rolled it all over into a new one at another bank. I handled it entirely by mailing back their letter (a copy actually) along with my own letter and copies of all the relevant documents.
Important point #1: Forget about making telephone calls or visits to the IRS office. Do it all by mail.
Important point #2: SAVE EVERY DOCUMENT YOU CAN IMAGINE EVER NEEDING AGAIN IN THE NEXT HUNDRED YEARS.
Those IRS notices can happen long after the year to which they apply. I have various documents from all my accounts for the past 30 years. They fill several cardboard cartons. In all those years, that was the ONLY case where I had to dig out old docs to prove something. But you NEVER KNOW ahead of time which document you are going to need. So you have to save just about everything.
I’ve improved my performance in the phone menu system, and can now get into the “hold for an agent” queue in about 2 minutes. This time I got a message estimating my hold time as 9 minutes, which I thought a helpful touch. I didn’t really believe it, and the actual time proved to be 14 minutes - still better than my previous 18.
And the computer system was not down, so the agent was willing to talk to me. Unfortunately, she couldn’t provide much help. Her general advice matched Senegoid’s: do things by mail. She did claim to have made a note in my file to the effect that I’d called, which I believe (hope?) makes me less likely to be classed as unresponsive.
I now must assemble documents and send these off. She indicated that the response time is typically several months - so maybe my Australia trip fits in rather well.
For matters related to income tax, it appears you only need to keep records for 7 years at most. The exceptions are if you don’t file a return, in which case you should keep your records indefinitely - or, amusingly, if you file a fraudulent return, in which case you should also keep records indefinitely.
Rules are different when it comes to real property, as you need to be able to document your basis at sale time. (including the basis of previously owned property the sale of which helped pay for currently held property).
I had something like this happen regarding capital gains taxes. They sent me a notice that I had underreported gains. What actually had happened was that the auditor was an idiot and reversed the cost basis vs. sale price when he did his analysis, so he thought losses were actually gains. I wrote a response of several pages of explanation, mailed it, and got a one-line letter back that said I did not actually owe anything, thank you very much. I never made one phone call.
Sometimes phone is better, but sometimes responding with a letter complete with relevant documentation is better. And I see now that’s where you ended up.
I’m also going through this. I got a letter from the IRS saying I under-reported my income in 2017 and owe a very large amount of taxes and penalties.
It’s pretty unlikely. My taxes are very simple. I have one source of income (my pension) so I report the amount of income on my 1099R and claim the standard deduction. My tax returns are too simple for me to cheat on them.
Can anyone imagine that an unexpected notice from IRS can ever be good news? Far-fetched, yes?
It happened to me once! Wha’da imagined it?
I got a notice from IRS once, advising me that it looked like I might have been able to claim the Earned Income Credit. I had never paid any attention to that, having assumed that the amount of money I could get would be trivial, if I was ever eligible at all.
So I worked it all out, and it turned out I could have claimed a fairly substantial amount. IIRC it was in the very-low four digits.
I don’t recall if I had to file an amended 1040 or just check a box on their notice and mail it back. (As suggested above, of course I still have ALL the documents, buried away somewhere.)