2022 Tax Error, and IRS Rant

[TickTock]

We received a letter from the IRS in March, saying that we owe them *much money* in taxes for 2022. Bottom line - I had closed an older Vanguard account that didn't allow individual bond purchases and opened a new account that does. The tax docs had three different 1099 forms, one of which was labeled 'Consolidated 1099'. So I thought that it covered the other two. Wrong; the consolidated form was for the new account and the other two were for the old account.

That was my error and I take full responsibility for it.

Now the rant - while re-doing our taxes to account for the new information, our CPA noted that the IRS ignored several things in our favor and only took into account the things that increased our taxes. All of this information is on the same two forms.

I consider this unethical at best. I'm guessing it's not illegal since the IRS writes the rules in their favor.

So our CPA sent back a letter and we wrote a check for *some money* instead of *much money*.

 

[CaptTom]

At least your story has a happy ending. You beat the IRS at their own game! I did something similar this year, got a 1099 and dutifully entered it. Didn't notice they'd stuck another 1099 at the bottom of the page. I didn't look that closely; you know how they always send you several copies. Had to do an amended return. Ug.

My IRS happy ending story is a little different. Again, I made a small mistake. They have three years to catch it and send me the bill. Which they did. 2 years and 11 months later.

OK, fine, that's how the game is played. I sent them a check for the full amount due, plus interest, which they eventually cashed. End of story, right?

No. Next I get a bill for the interest accrued between the time they sent the first bill, and when they got around to cashing the check. I now owned some small amount, let's say $4.67 (I don't recall exactly.) I wonder how much it cost them to bill that?

I promptly sent another check. For one penny less than I owed.

I did the calculation. I think I'll owe them another penny interest, for the interest on that penny I shorted them, when I'm something like 100 years old. I fully expect them to bill me.

 

[DJRR]

I consider this unethical at best. I'm guessing it's not illegal since the IRS writes the rules in their favor.

You mis-reported your income. They assume that it is all taxable until you tell them otherwise. They don't provide tax advice, your CPA does that. Seems totally ethical and that everything worked as it should once you filed your amended return. Wait until people start getting 1099s for their ebay, vrbo, paypal, etc, payments. That should be really exciting if Congress ever allows it.

 

[jebmke]

The letters are generated by a machine. I don't think machines have ethics of any stripe.

Late in the year, the WOPR shifts from processing returns to the annual matching exercise. Non matches trigger an automatic letter.

 

[EastWest Gal]

To be fair, the IRS took from April to December to send us our large refund. In a way it was my CPA telling me that we would apply our refund partly to 2023 taxes, but on the form, he applied everything to the 2023 taxes. It was a large enough refund to pay taxes for a decade. So we quickly filed an amended return.

The IRS paid us interest. Of course that added to 2023 income. Still it was nice to see the government pay us.

 

[jazz4cash]

Your CPA sent them a letter? Is the CPA authorized to communicate on your behalf? I had a bank contact IRS (to acknowledge responsibility fora mistake they made) without the authorization and it made things worse. I would’ve thought filing an amended return is the smoothest way to resolve, but I guess there are penslties?

 

[Montecfo]

Surely we all tie our financial records to the 1099s to make sure they are correct?

Especially when you have multiple forms covering the same account.

In any event, always great to find an error in your favor.

 

[Dtail]

2 examples for me.
The IRS miscalculated the 1095A forms used for the ACA calculations of subsidies, etc. Since my brother is my dependent, but has his own insurance account, I get sent 2 1095A forms and the IRS insisted the 1040 form was wrong.
A year letter after a few letters sent including copies of how to calculate their own work, they sent me the refund plus interest, No apologies or letter acknowledgement.

2nd case involves Mass Mutual sending me a wrong 1099R for my mom's MYGA interest. I had to explain to their reps how 1035 transactions affect the cost basis, etc. Still an ongoing issue, although the senior manah=ger has agreed with my calculation now.

 

[Sunset]

OP - My experience has been like yours, the tax folks simply look to get more taxes.

Never have they sent me a tax return saying I forgot to claim some exemption.

I think their job is to apply the rules, even if it means lower taxes for a person.