The only way to discover the error would be to double-check any legal paperwork and how payments had been processed in the past. For example, one simple step would be checking her pay stubs to see whether disability premiums had been included in taxable compensation or not. Employment contracts, insurance policies, etc. might also have clauses that would help to determine it.
I don’t always double-check W-2s at that level of detail, but for certain tax issues, it’s worth it. Another example is when expense reimbursements are involved because employees often know only “the employer paid for it” and not whether the employer excluded it from income under an accountable plan or included it in income for the employee to substantiate on their own return. The W-2 alone might not provide enough information to know the proper tax treatment.
The insurance company is also held to a standard of doing things correctly, but their liability under tax law is primarily to the IRS for any penalties or audit adjustments. “To the best of my knowledge” clause is essentially there to establish intent, since there’s a different between criminal intent to commit tax fraud and an honest mistake. The problem is that honest mistakes are still covered by various statutes of limitations.
Anyway, you also asked about the type of attorney. My recommendation would be to start by looking at people who specialize in employment law.
If the OP’s friend is dealing with Unum Provident (a major disability insurer) then the run-around is no surprise. I had the same issue with them taxing benefits that should have been tax free, but quickly corrected the problem.
Since your recourse is likely to be against the insurer, a general civil attorney (they often style themselves as “civil trial attorneys”) would be your best bet. That attorney will refer your friend to other practitioners if necessary.
I showed this to my Bro who worked with the IRS for 20 years and he sez this makes no sense. The issuer or payer doesnt tax anyone.
Perhaps you mean they over-reported her taxable earnings? As **Q.N. Jones **says?
If so, the IRS hands are tied by the Statue of Limitations, the same things that stops them from auditing your last 20 years of tax returns.
The IRS can do nothing, as Alley Dweller posted.
IANAL, but afaik there is no statue of limitations on what a private company can pay out. They almost certainly can reimburse your friend the difference. True, she can only get back from the IRS the funds still open due to Statue of Limitations, but I cant see why the Insurance company cant pay her the amount the IRS would have paid her otherwise.
A Tax attorney cant help, nor can the IRS.
Have her write them a firm letter, threatening to take them to the State Insurance Commission.
To be fair, **DrDeth ** said there is no statute of limitations on what the the company CAN pay out. Which is true. They can voluntarily pay out as much as they like. The statute of limitations is a restriction on what a court can force them to pay out. But only if they raise the statute as a defense.
Does she plan to file emended returns for the last three years based on the revised W-2s? And this thread is really about pursuing the years before that? Or I am misunderstanding?
“Kiss off the money honey, the Insurance company is going to screw you” also is not very useful. I agree it’s more likely, but the power of negative publicity is high.
One thing your friend can do in the future: decline to have the disability company do the tax withholding for her. She can pay quarterly estimated taxes instead, if she wants to take it out of their hands. But she does need to know exactly what she’s doing, and if the LTD insurer is putting some or all of the non-taxable portion of her benefit into Box 1 (and reporting it as taxable), that won’t solve the problem.