IRS the accuracy-related penalty and interest charges

[Spanky]

Has anyone refute the accuracy-related penalty or interests charges from the IRS?

We received a letter from the IRS stating that we did not include income from a 1099-B from the brokerage house (CitiCorp). It was a honest mistake since they never send us any statements or 1099-B. The income that IRS claimed was incorrect. The amount was the gross proceeds from sales of company stocks, which were sold at the same year I left the company in 2006.

Anyway, the IRS wants to charge 10% interest on the amount owned and 20% for accuracy-related penalty. I am pretty sure that the IRS will not be lenient -- bummer.

 

[Texas Proud]

I have a few times for friends and family...

Since they are still wrong... putting the proceeds and not the cap gains as income.... (they take the worst case when they do it)..

You will need to do a 1040X and determine the true amount of tax... then send a letter saying it was a mistake and ask that the penalties be waived... all the time I have done it they have waived the penalty and sent a revised bill for the interest.... you can not get out of that...

 

[Spanky]

I have a few times for friends and family...

Since they are still wrong... putting the proceeds and not the cap gains as income.... (they take the worst case when they do it)..

You will need to do a 1040X and determine the true amount of tax... then send a letter saying it was a mistake and ask that the penalties be waived... all the time I have done it they have waived the penalty and sent a revised bill for the interest.... you can not get out of that...

Texas Proud,

Thanks for the comforting thoughts. I plan to call them on Monday to see what I suppose to do.

Spanky

 

[megacorp-firee]

I have had a few cases where either I made an error, or I overlooked a stock transaction or some other item.
The IRS would, as Texas Proud said, take the worst case. For example, in the overlooked stock transaction, they taxed me as though the initial value of the stock was zero. A huge gain. I wrote them back and enclosed a copy of the statement where I bought the stock and stated that in light of this documentation, the transacation was actually a loss and they could recalculate my tax and send me a refund check. They wrote me back telling me that I had taken the max capital loss that year and should add it into my carry over. End of J*b.
In another case, they disallowed an exemption and I wrote them back quoting the page number and line number of the sentence I used to make my decision to include the exemption. They wrote me back and said they agreed.
So the moral to the story is to stick to your guns and use their convoluted tax laws and documentation to help verify your INTERPRETATION of the tax laws. Given that we take a common sense approach to this exercise, we should (except where we make math or omission errors) be in good shape. The IRS guys are FAR FROM infallable.
Good luck to you.

 

[OAG]

I have had a few cases where either I made an error, or I overlooked a stock transaction or some other item.
The IRS would, as Texas Proud said, take the worst case. For example, in the overlooked stock transaction, they taxed me as though the initial value of the stock was zero. A huge gain. I wrote them back and enclosed a copy of the statement where I bought the stock and stated that in light of this documentation, the transacation was actually a loss and they could recalculate my tax and send me a refund check. They wrote me back telling me that I had taken the max capital loss that year and should add it into my carry over. End of J*b.
In another case, they disallowed an exemption and I wrote them back quoting the page number and line number of the sentence I used to make my decision to include the exemption. They wrote me back and said they agreed.
So the moral to the story is to stick to your guns and use their convoluted tax laws and documentation to help verify your INTERPRETATION of the tax laws. Given that we take a common sense approach to this exercise, we should (except where we make math or omission errors) be in good shape. The IRS guys are FAR FROM infallable.
Good luck to you.

While true that they are not infallible, as we too are not. I have always found that dealing with them they are always fair as long as you do the same with them (actual "cheating" excluded).

 

[youbet]

While I'm no fan of the IRS, they do seem to be in a pickle regarding omitted investment income information. Even if we accidentally omit an item, we look exactly the same to them as someone who purposefully omitted the item. If they don't apply some sort of penalty, everyone could simply omit an item or two and wait to see if they're caught.....

 

[megacorp-firee]

For 2007, because of a certain investment, I got 3 'corrected' statements from one of my brokerage accounts. The last was as late as the end of March. By that time, I had filed, filed an x return and was in no mood to file another. Since it just corrected the classification of some of the investment dividends to 'ordinary', I will let the IRS 'fix' this. The hassle of doing another x is not worth the couple of dollars.

I am having mixed emotions. Part of me screams for a national sales tax (with exclusions for staples, basic medical and clothing, ... yatty, yatty, yatty...) while now that I am retired and in a lower tax bracket, I hate to think that I won't be able to take advantage of deferring paying taxes while in this lower tax bracket.
... oh well.. just musing, not complaining...

 

[Spanky]

While I'm no fan of the IRS, they do seem to be in a pickle regarding omitted investment income information. Even if we accidentally omit an item, we look exactly the same to them as someone who purposefully omitted the item. If they don't apply some sort of penalty, everyone could simply omit an item or two and wait to see if they're caught.....

They also applies 10% interest + 20% or 75% penalty.

I don't see how IRS thinks that one would omit an item on purpose when knowingly the payer always reports it to the IRS -- the chance of getting caught is almost 100%.

 

[tryan]

Man ... this is why I PAY $320 for a CPA. At least I know his signature is on the return too.

 

[Brat]

Yes, but the CPA can only work on the information provided. A missing 1099 would not have been reported either way.

 

[tryan]

Yes, but the CPA can only work on the information provided. A missing 1099 would not have been reported either way.

Agree ... had a similar incident when my partner and I were splitting rental income and deductions. So each had to claim 1/2 of a 1099 that was not in our name. A pompous GS-7 started harrassing me with IRS letters basically telling me to mail them $5k. The IRS was unable/unwilling to figure out where and how the other half was being reported.

Let my CPA handle all correspondence ... issue resolved (and no bill from the IRS or my CPA!).

What's good about these IRS exercises is that once resolved, the IRS uses the incident as a benchmark and will not look "back" any further (should an audit be needed in the future). This according to my CPA.

 

[youbet]

I don't see how IRS thinks that one would omit an item on purpose when knowingly the payer always reports it to the IRS -- the chance of getting caught is almost 100%.

Yeah..... it's a tough situation. Say you don't receive a 1099, you forget about the transaction and therefore aren't contacting the brokerage to find out where it is. And you file with the info missing...... All quite innocent on your part.

I get a 1099, walk over to the shredder and run it through. Gosh, no 1099 for me, must have been lost in the mail. I file with the info missing, quite guilty of deceit/fraud.

Unfortunately, to the IRS, the events look exactly the same. Not knowing us personally they have nothing to base a character judgment on. They don't know you're a honest person and I'm a theiving scoundral.

So we both get chagred interest and penalty. I don't know what else they can do other than perhaps give folks a pass on the first violation and start charging after that maybe.......

If the transaction you forgot to report is small (and how could you forget about a large transaction?), the interest and penalty isn't going to break the bank anyway.

Again, not an IRS fan here, but what are they supposed to do?

 

[Spanky]

Yeah..... it's a tough situation. Say you don't receive a 1099, you forget about the transaction and therefore aren't contacting the brokerage to find out where it is. And you file with the info missing...... All quite innocent on your part.

I get a 1099, walk over to the shredder and run it through. Gosh, no 1099 for me, must have been lost in the mail. I file with the info missing, quite guilty of deceit/fraud.

Unfortunately, to the IRS, the events look exactly the same. Not knowing us personally they have nothing to base a character judgment on. They don't know you're a honest person and I'm a theiving scoundral.

So we both get chagred interest and penalty. I don't know what else they can do other than perhaps give folks a pass on the first violation and start charging after that maybe.......

If the transaction you forgot to report is small (and how could you forget about a large transaction?), the interest and penalty isn't going to break the bank anyway.

Again, not an IRS fan here, but what are they supposed to do?

Make you pay the tax owed plus interest -- but not the penalty. A 10% interest for amount owed for a year is a very, very good return.

The IRS should assume people are innocent before proven guilty. That's how our justice system are based. Why would I exclude this particular 1099 when I have included all others that are of equal or great amounts?

 

[Martha]

With the IRS, it is up to you to prove you DON'T owe the money.

Pay what you owe and ask them to waive the penalty. They probably will.

 

[Nords]

Why would I exclude this particular 1099 when I have included all others that are of equal or great amounts?

I think Martha Stewart already tried that defense...

With the IRS, it is up to you to prove you DON'T owe the money.
Pay what you owe and ask them to waive the penalty. They probably will.

... and then you can use that to deal with your state & locality.

 

[ERD50]

The IRS should assume people are innocent before proven guilty. That's how our justice system are based. Why would I exclude this particular 1099 when I have included all others that are of equal or great amounts?

The fact that they received a 1099, and that you did not report it is enough to assume guilt, in my view.

And in fact, you *are* guilty, right? I understand it was not intentional on your part, but it is your responsibility to report transactions, and something getting lost in the mail does not relieve you of that responsibility. The IRS really does need to make this assumption, or just about everyone would be 'forgetting' to list transactions and just waiting to get caught.

Do you really think the 10% interest is going to cover the administrative expense of tracking these things down? They need to make it a bit painful - I think ti's justified.

-ERD50

 

[free4now]

It's true that accidentally leaving it off is indistinguishable to the IRS from fraudulently leaving it off, but you'd have to be a pretty amateur fraudster to try getting away with that when there are so many undetectable ways of cheating on your taxes that the IRS would never discover. Perhaps it's best to think of it as a collection fee rather than a penalty.

 

[Spanky]

Latest update: I went to the local IRS office today since the 1-800 number told me that I needed to call back another day since they are completely booked. The local IRS representative was nice and helpful. He told me to update my schedule D, pay the tax owed, and request the interest and penalty be waived. I am keeping my fingers crossed that they would accept my request and the payment.