John Bullis: If IRS sends you a notice, check it out before paying up
The U.S. Treasury Inspector General for Tax Administration (TIGTA) reported on the processing of individual income tax returns for year 2009, filed in 2010. The finding included “Improvements are needed to prevent erroneous claims for credits and deductions,” and “IRS could not track and account for the amount of several tax credits in accordance with the 2009 Recovery Act.”
TIGTA found “inadequate controls and incomplete or inaccurate programming allowed approximately 126,000 individuals to receive almost $111 million in erroneous tax benefits.”
About 110,000 taxpayers erroneously received over $29 million in Making Work Pay Credits and government retiree credits.
TIGTA also found that 10,600 taxpayers claimed about $65 million in erroneous first-time homebuyer tax credits.
The Government Accounting Office also checks the IRS every year. For many years, the IRS notices were a problem. On average, two of every five IRS notices were not correct!
Now some of the notices were wrong because IRS did not receive the correct information. But, that is still a lot of wrong notices.
A few months ago, Bob M. came to our office to get a response to the IRS notice he received asking him to file a 2008 return. We prepared a 2008 return for him and his wife (they owed no tax) and answered the IRS notice. That cancelled the notice.
He told us he got a notice for year 2007 that IRS sent him asking him to pay $1,383. He did not file a return for 2007, believing he owed no tax. He paid the IRS.
“I thought IRS must be right,” he told me.
We prepared a 2007 return and explained why the IRS was wrong. IRS figured it for him as a single taxpayer. He and his wife have been married for many years. The married filing a joint return we prepared and they both signed got a refund of the $1,383 he paid and also $97 of interest income from IRS.
Congress should shoulder most of the blame for IRS wrong notices and problems. IRS computers have many problems. Can you imagine trying to write the program to handle all of the complexities of the tax laws Congress passes?
The moral of the story is: “Do not agree to any IRS notice until it has been carefully checked out.” Most IRS employees are just decent folks trying to do a good job.
Did you hear “OK, so what is the speed of dark?”
• John Bullis is a certified public accountant, personal financial specialist and certified senior advisor serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.