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Unusual IRS audit question
Old 05-15-2021, 06:05 AM   #1
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Unusual IRS audit question

Just got a computer IRS audit that has me quite confused. I’ve gotten them before, usually small stuff like a forgotten/lost dividend, or the last one where the sale of my primary residence was incorrectly tagged as income.

This one, for 2018, if I am reading it correctly, is just plain wrong and I only have an inkling where the numbers come from. They said my taxable income (line 10) is exactly $10,000 too low. At first I thought I must have fatfingured a digit, but I used TaxAct, and that would have been flagged. I double checked. Everything entered correctly

Their “explanation” made no sense. They claim that my tax return showed I used the standard deduction of $25,300, AND claimed the $10,000 SALT maximum! Which of course no tax program would ever allow. So they subtracted $10,000 from my deductions, which increased by taxable income the same amount.

Here’s the thing. I didn’t use the standard deduction, and the $25,300they claim that is entered on my 1040, of course, isn’t! Anywhere.

In fact, I itemized and took a smaller deduction ($24,500) than the standard because &@@! Virginia in 2018 required you to either itemized or take the standard deduction in both returns. You could not choose which ever gave you the smallest tax burden! In 2018, itemizing on both Federal & State, I paid the least amount in taxes total, vs standard deduction.

When you itemize, Taxact automatically inserts the $10,000 maximum SALT in Sch A, when actual taxes are greater. In my case they were $14,000. Of course Sch A was included, and the amount on Sch A is the amount in the 1040.

Is it possible that the IRS computer algorithm is so bad that when the Sch A amount was less than the standard, it assumes you took the standard and the $10,000 SALT? It makes no sense because the numbers they claim are no where to be found on my 1040. In fact, under the column marked “IRS changes” they show $0 for deductions and $0 for taxes, as if they were correcting for not itemizing and the SD was taken. But even if the computer was “correcting” a “mistake”, and applied the SD instead of itemizing, I would then be entitled to a refund because of the larger amount deduction. The $10,000 SALT only appears in a Sch A which would not have been used.

Of course, I will disagree with their findings and try to explain it, but I wondered if anyone else had such a blatant mistake forced on them by the IRS. I fully understand that no human actually looked at the return and all of this was computer generated, but surely I am not the only one to have gone with a lower Itemized deduction vs the SD for a reason.

Even crazier, I just noticed, there is actually a box, which is checked, on Sched A which states “If you elect to itemize deductions even though they are less than tour standard deduction, check here”!!!’
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Old 05-15-2021, 06:32 AM   #2
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I think the best that you can do at this point is to write them a letter including a copy of the notice that you received and explaining that the notice is wrong and provide the notice and correct numbers side-by-side and explain same and wait for them to respond.
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Old 05-15-2021, 07:04 AM   #3
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I've had a couple of these computer generated (I think) audit letters over the past ten years.... Never saw them before that... Anyway, I too felt I was correct. So I wrote them letters explaining the situation, they agreed and that was the end of it.... Back then I was surprised that I had it resolved in two or three weeks and that was VIA snail mail.. Not so sure I'd expect such quick action these days.


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Old 05-15-2021, 08:17 AM   #4
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We got one of those from an actual person a few years ago . It cost me $200 to have my CPA explain the IRS rules to him. He then disappeared without apologizing.
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Old 05-15-2021, 11:58 AM   #5
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Maybe the "tax year" is mixed up? They are talking about a different tax year than you are looking at?
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Old 05-15-2021, 01:46 PM   #6
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Oh boy. MD has the same issue. You can only itemize if you have itemized on Federal. I took the lower itemized Federal deduction but it resulted in paying a much lower combined tax. It was a very clunky workaround on TurboTax to use the lower itemized deduction. I also got a 1099 in error that I could not get corrected. I did choose to pay the TT fee for audit defense.
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Old 05-15-2021, 07:43 PM   #7
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Oh boy. MD has the same issue. You can only itemize if you have itemized on Federal. I took the lower itemized Federal deduction but it resulted in paying a much lower combined tax. It was a very clunky workaround on TurboTax to use the lower itemized deduction. I also got a 1099 in error that I could not get corrected. I did choose to pay the TT fee for audit defense.
I did this in 2018 to reduce my Maryland taxes, as well. Though, IIRC the savings was under $1000.
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Old 05-15-2021, 08:18 PM   #8
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I did this in 2018 to reduce my Maryland taxes, as well. Though, IIRC the savings was under $1000.
Same here, paid about $300 extra in Federal taxes to save $1300 in MD, IIRC. Income was almost all capital gains (no special tax treatment at the state level) and the MD standard deduction is only $4,200.
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Old 05-15-2021, 10:33 PM   #9
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I had a goofy letter from the IRS. It was on an amended return and on a Line with no change and was zero was questioned. I wrote back and explained the obvious and asked for clarification. They accepted my explanation.
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Old 05-15-2021, 10:41 PM   #10
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Originally Posted by jazz4cash View Post
Oh boy. MD has the same issue. You can only itemize if you have itemized on Federal. I took the lower itemized Federal deduction but it resulted in paying a much lower combined tax. It was a very clunky workaround on TurboTax to use the lower itemized deduction. I also got a 1099 in error that I could not get corrected. I did choose to pay the TT fee for audit defense.
They charge for that !!
H&R Block software includes it.
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Old 05-16-2021, 05:57 AM   #11
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I think that you will find that H&R Block software (as well as TT) will only defend mathematical errors, and other mechanical errors in the return. The Audit Defense that the poster was referring to is more comprehensive and covers the "garbage in".
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Old 05-16-2021, 10:07 AM   #12
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In my opinion, the IRS made a mistake. Either you take the Standard Deduction or you file a Schedule A and itemize. There are no other options.

Several years ago I did a friends tax return and he qualified for EIC that year. A few months later he received a letter from the IRS stating that he didn't quality for EIC. I called the number on the letter and went over the numbers with the IRS representative. He concluded that the IRS made a mistake and I was right. You should call them.
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Old 05-16-2021, 10:26 AM   #13
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... I called the number on the letter and went over the numbers with the IRS representative. He concluded that the IRS made a mistake and I was right. You should call them.
Good luck with that. I had a minor issue that was easily cleared up, however, I would call, be put on hold for hours with occasional updates on the wait time, and then "All lines are busy, please call back again - click".

I called every few days for weeks, same thing. I finally got in by calling repeatedly right at the start of the day on a Friday.

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Old 05-16-2021, 11:27 AM   #14
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They charge for that !!
H&R Block software includes it.


Rub it in, willya. So fed up with TT nonsense I will definitely go back to block next year. I guess this loophole is well known by others but this is the first time we ever had itemized < standard. According to the TT blog you have to trick the software but there is no extra charge. I thought the software should’ve optimized the choices. It was ~$1100 difference v
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Old 05-16-2021, 11:45 AM   #15
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Did the letter arrive by computer? Are you sure it was not spam? How would the IRS have your email? I am reasonable certain the IRS only corresponds initially by mail- but I could be wrong.
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Old 05-16-2021, 12:16 PM   #16
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Did the letter arrive by computer? Are you sure it was not spam? How would the IRS have your email? I am reasonable certain the IRS only corresponds initially by mail- but I could be wrong.


+1. I had several audit letters from the irs - all by US mail.
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Old 05-16-2021, 01:41 PM   #17
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+1. I had several audit letters from the irs - all by US mail.
No expert, but I understand IRS only uses USPS though YMMV.
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Old 05-16-2021, 05:33 PM   #18
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It was USPS letter. ALL mathematical audits for returns filed by computer online are computer “discovery”. There is no where in the IRS that a person reviews a printed out or even on screen copy of your return, then triggers an audit based on his determination. They have computer algorithms that are applied as your return is processed for that. They look at highest possibilities for fraud or obvious missing income or numbers outside the average based on your income. Of course, paper mailed in returns have a higher chance of review, as they are usually more complex, but I would bet anything, they are scanned and still computer vetted.

Since the lower SALT limit was a new change to the tax law and is applied to itemized returns only, whatever is screwed up in their algorithm that somehow concluded I took the Standard Deduction is the cause if this. It is an error on their part, plain & simple just as jkern said, and is what I explained to them in my cover letter when I faxed in my response yesterday. . No Standard deduction taken, and as return was generated by TaxAct, it is literally impossible to accidentally claim the SALT deduction and the Standard Deduction at the same time. My return is extremely simple. It’s not like there are many lines on many forms to cover.

I was just curious if anyone else that had taken the lower itemized to minimize State & Federal combined had gotten the same “audit”.
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