Thompson & McCarty, P.C. CPA

I recently had a client that had an issue with the IRS. This is their story and how it all turned out. The very start of the story began with us making a mistake on their 2006 tax return. We left a zero off of a deduction that cost the taxpayer a substantial deduction. The return had been transmitted before the taxpayer discovered the error. The balance due on the original return had not been paid. In our defense, the deduction was verbally stated and undocumented to us so it was impossible to discover the error with our review process. There is a lesson in that, but I digress.

We filed an amended return and thought all was well. It was not. The IRS processed the check that went in with the amended return but not the amended return. They billed the client for the amount due on the original return. The client promptly called the IRS and was told that they never received the amended return. The client responded by mailing them a second copy. This would have been the appropriate time to discuss the cleared check that went in with the amended return. It was a missed opportunity to actually get good help from the IRS. They are always more helpful when you can prove that they have made an error. So this was an important missed opportunity.

Some time later, I am not sure how long because I was not involved at this point, the client received a second bill for the original return and called the IRS again. The IRS said it still did not have an amended return and suggested that they mail it a third time. They did what they were told and waited. This was a second missed opportunity.

In May 2008 the taxpayer received a notice that the amended return was being audited and requested certain documentation to substantiate the deduction. The taxpayer called the IRS and was told that typically documentation supporting a change should be sent in when amending a return. That just isn't factual. My client was also told that the reason the return was under audit was because the deduction was so big. That may or may not be factual. However, it probably made little to no difference that it was on an amended return versus the original return but that is how the taxpayer perceived it.

The final straw for the taxpayer happened just 33 days later when their employer received a garnishment notice from the IRS for the original tax debt. The garnishment was not within the proper guidelines for collections by the IRS and worse it was attempting to collect a debt on a return that was open for examination. The employer is bound by the garnishment lacking written notice to the contrary. In short, without a written release from the IRS the taxpayer's next paycheck would be garnished. Not to get into the legal stuff here but the IRS was way out of line.

So the taxpayer calls me and is upset because our error has made the IRS audit the return and is at root of all their problems with the IRS. Keep in mind, that the IRS has failed to process a return that has been sent in twice, (even though they cashed the check that was mailed with the first return), misinformed the taxpayer at least three times, and is currently in violation of two of its very own legal processes for collections.

But, I am the bad guy and it is all may fault. Opportunities to get some real help from the service have been blown by the taxpayer. I have not been afforded the opportunity to help resolve the issues but I have messed up the taxpayer's life and I am just the scum of the earth.

Now it is obvious from the facts of this situtation that I am not the problem. To come to that conclusion, one is clearly not focused on the facts. That is exactly why you should not try to resolve things with the IRS on your own. It is an emotional event when you are being pursued for money and you will get angry and do the wrong thing or say the wrong thing and make simple issues very difficult to resolve.

The very first thing that my clients should do when they get a notice from the IRS is bring it to me. Period.  Any other reaction on your part is a bad reaction. The IRS is not on your side. I am on your side and I know things that make it possible to get issues with the IRS resolved. For example: anything the IRS tells you verbally is not binding on them and can not be relied upon.

The only thing you can rely on with the IRS is writings. That may come as a shock to many people but this client learned the hard way. There is little difference between trying to defend yourself in a court of law without an attorney and trying to deal with the IRS on a problem without knowledgeable representation. If the IRS gives me bad information, (technically it isn't lying if you just don't know the correct answer but are too ignorant to know it) which they often do, I usually know it. It is like an attorney questioning a witness on the stand. A good attorney knows the answer before he asks the question.

I typically know more about the tax code and the proper way to do things than the people you and I get to talk with on the telephone at the IRS. Let me be clear. The IRS has some highly trained and technical folks on staff. Just like any major corporation, they don't put their most highly trained and experienced folks on the phones. Many times to get resolution I tell them what I think is correct and they will get manager approval and we come to an agreement. It isn't they don't want to help, often they simply are not sure how to help. When you mix that with a person that doesn't know the right questions or how to properly defend their position and is stressed and emotional about their issue from the start, there is not much chance of getting anything resolved between you. I digress.

Now the good part. The clients came in and sat down in my office and told me the story of their dealings with the IRS. I looked at their papers and called the IRS immediately. I knew the IRS was in violation of its own rules and I knew that we could get some help. We started with the examination office but they could not help us with the collections issue. We did get an extended period to produce the proper documentation for the deduction that was legitimate.

Next we called the collections department and they admitted they had made a mistake and stated that a garnishment release had already been mailed to the employer. Nice verbal statement but don't forget that you can not depend on verbal statements by the IRS or its agents. So I requested a copy of the letter be faxed to my office immediately. The agent denied my request but I was not deterred. The client needed the release to prove to their employer that the garnishment was not legitimate. I knew how to get it. After the agent agreed to fax the letter and did so, the phone call ended. It was 2 hours since our meeting began. The client stated “ordinary people that are not used to dealing with those guys would have never gotten that letter”. That sums it up better than anything I can think of.