Worst IRS stories

[dory36]

What are your worst IRS horror stories? (Just those that happened to you or to someone you know, not "I heard about...")

Mine:  I flew my own plane for work for a former employer. (This was Steve Jobs' old company, between his Apple stints.)  They went out of business. Shortly afterwards, I went to work in Saudi Arabia.

While there, I got an IRS letter, postmarked about 45 days earlier, saying they were challenging the use of the plane as a business expense, and I needed to respond within 30 days (15 days before I even got the letter) or else I would be deemed to have accepted their position. I responded with documentation within a few days, but obviously beyond their 30 day requirement. They refused to even look at my documentation, because it was late.

$200 or so in overseas phone calls were useless, as was a request to deal with the matter in the local embassy (which is customary), as my "failure" to respond within 30 days put the issue into some bizarre category where no one seemed to be able to do anything. I had to file for a tax court appearance in the USA to contest their position.

$3000 or so in travel costs later, I am in the USA waiting for court, when I get a call from the clerk for the IRS attorney, who said that the information I had submitted (in response to the original letter) was sufficient, and they were dropping the case.

So I was off the hook . . . and out some $3200 in phone and travel costs for an issue that could have been dealt with had they allowed their own employee in the embassy 2 miles from my house to deal with the matter.

 

[dory36]

And the worst case from a friend... although I am not quite sure who gets the blame here...

He was hired by the Saudi company while working for a different company in Egypt.

His Egypt employer was obligated to ship his furniture back to Texas upon his termination.

His new Saudi employer was obligated to ship his furniture from Texas to Saudi when he was hired.

He tried to get both companies to cooperate and ship his stuff  from Egypt to Saudi, perhaps 1000 miles total, instead of Egypt to Texas and then Texas to Saudi, something like 20,000 miles.

As anyone who ever worked there (or perhaps for any huge company) can testify, common sense lost out, and the Egyptian company would not ship to Saudi and the Saudi company would not pick up from Egypt, so the Egyptian company shipped everything to the USA, and the Saudi company shipped it all back to Saudi.  Not only that, but the shippers had to unpack everything in Texas to insure nothing was broken, and then the shipper for Texas to Saudi had to repack everything, or else they wouldn't take responsibility for breakage.

Now, all that seems like just a big "ha ha" about big business.

But, the IRS treats expenses paid by an employer in relation to a move to be taxable -- usually offset dollar for dollar with the deduction for "reasonable costs" associated with such a relocation.

In this case, they deemed the extra 19,000 miles, or 95% or so of the expense, to be unreasonable expenses for a move from Egypt to Saudi, and therefore not deductible.

So he had to pay taxes on something like $25-30,000 in "income" based on the costs paid by the employers in shipping the stuff halfway around the world -- twice -- because their bureaucracies could not deal with the situations.

 

[LOL!]

My worst case also occured while I was working overseas. I did some consulting work back in the States, so I filled out a Schedule C and SE to pay FICA on my stateside income. I excluded all my foreign income. So a few months later I get this letter from the IRS. In it, they said I paid too much tax and refunded me the amount of my FICA tax associated with my stateside income.

 

[yakers]

Well, I think of it as a sad story and I can't really make the IRS out to be jerks but I have one Posse C type uncle in Wisconsin who just refused to pay taxes. Lost his house. Actually he is an interesting guy and not totally dumb but maybe lacking in common sense.

 

[retire@40]

This one happened down the road from me and I remember it well.  It doesn't say it in this article, but one of his victims was a pregnant woman whose head was blown off her body by a close range shot.  This was one sick bastard who could have easily resolved his problem by calling an accountant instead of murdering them.

Excerpted from: ERRI EMERGENCY SERVICES REPORT-Wednesday, December 27, 2000-Vol. 4, NO.  363

Man Slays Seven In Computer Office

An employee of an Internet company, apparently angry over plans to garnish his wages to pay back taxes, methodically gunned down seven co-workers who had just returned from their Christmas holiday in Wakefield, Massachusetts, on Tuesday. The carnage ended when 42-year-old Michael (Mucko) McDermott was wrestled to the floor by police after he slaughtered four women and three men at Edgewater Technology in suburban Boston's high-tech corridor.

McDermott -- a computer software technician -- apparently targeted members of the firm's accounting department for execution with his arsenal of an AK-47 assault rifle, a shotgun and a semiautomatic pistol. The 6-foot-2, 260-pound McDermott is a U.S. Navy veteran who once served aboard a nuclear submarine and ran the entire ship's electrical system -- including the nuclear reactor.

McDermott arrived at work as usual on Tuesday morning and chatted with co-workers. He then walked through the office, in a renovated factory building, shooting colleagues at close range. There was an apparent motive behind McDermott's shooting. Authorities said the IRS recently had asked the firm to begin withholding McDermott's wages to pay back taxes. The company agreed with McDermott not to start until after Christmas.

Authorities said that at about 1100 EST, McDermott talked with several co-workers in the reception area, then fatally shot two of them. He moved through a wing of the first-floor office, gunning down workers as they sat in their cubicles. Several of the victims worked in accounting, and officials said McDermott apparently spared other workers during his rampage.

Seconds after the shootings, police officers found McDermott sitting in a chair in the lobby, his weapons nearby. A SWAT team tackled him and then discovered the grisly death toll.

 

[Outtahere]

(sigh) Retire@40 I remember that one, very sad, I work in Boston and it really shook up friends I have that live near there.

C___

 

[Sheryl]

That was a very sad one, I recall the news stories.

My IRS story is more humorous than expensive or sad. 

One day I got a letter from the IRS  stating that I had failed to pay tax on about $25,000 worth of alimony that I had collected.   I've never been married, and hence never divorced, so of course I assumed they had mixed me up with someone else.  They didn't provide any enlightening details such as who might have allegedly paid me this alimony.

I fired off a reply letting them know that they were confused and left it at that.   A few days later in my weekend phone chat with dad I mentioned the incident - he does tax returns for his friends and relatives for "fun."  He said, "Isn't that a funny coincidence, I had a weird letter from them this week too."   Hmm.  Coincidence?  I think NOT. 

HIS letter accused him of DEDUCTING alimony that he did NOT pay.  Well, to make a long story short, we finally put 2 + 2 together.  Since dad keeps a lot of records on little scraps of paper, he had inadvertently put MY SS# instead of my mom's on his return.

He wrote them a letter and just six short months later they responded with a brief,  "Your case has been dropped."  I guess we got off easy - but the thing that amused us was they didn't try to figure out the mistake, just thought they should collect from both of us - one for not reporting income and the other for over-deducting.....   Your tax dollars at work!

 

[REWahoo]

McDermott -- a computer software technician -- apparently targeted members of the firm's accounting department for execution with his arsenal of an AK-47 assault rifle, a shotgun and a semiautomatic pistol. The 6-foot-2, 260-pound McDermott is a U.S. Navy veteran who once served aboard a nuclear submarine and ran the entire ship's electrical system -- including the nuclear reactor.

Nords, I thought the USN had a sophisticated, tried-and-true, foolproof screening process to keep these post office types out of the sub fleet. Did you know this guy?

 

[Texas Proud]

In this case, they deemed the extra 19,000 miles, or 95% or so of the expense, to be unreasonable expenses for a move from Egypt to Saudi, and therefore not deductible.

So he had to pay taxes on something like $25-30,000 in "income" based on the costs paid by the employers in shipping the stuff halfway around the world -- twice -- because their bureaucracies could not deal with the situations.

He should have gotten a better tax accountant... this seems like something you could get out of with a bit of pushing... and I was a former tax accountant

 

[Nords]

Nords, I thought the USN had a sophisticated, tried-and-true, foolproof screening process to keep these post office types out of the sub fleet.  Did you know this guy?

I don't think so (big nukes named Mucko are not easily forgotten), but I knew a lot of nuke electricians just like him.

And a lot of nuke electronics technicians.

And a lot of nuclear machinist's mates.

And not a few officers.  And radiomen, sonar techs, torpedomen, and even cooks.

The newspaper's description of the electrician's submarine duties is accurate, and the Navy probably taught him how to use those firearms.

I'm pretty bitter & cynical about screening processes.  At my last command I was either the investigating officer or in the chain of command for three different murder-suicide cases in four years.  One of them took place two days after the CO had endorsed the Navy psychiatrist's approval of the sailor's screening.  

You would expect that Hawaii shore duty at a sleepy little Navy submarine training command would be a pretty happy time for nukes after sea duty, but I think it also tends to give overstressed hyperactive overachievers too much free time on their hands to ponder a backlog of suppressed family & personal problems.  You haven't really experienced life until you've been in a room with a grief counselor and fifteen steely-eyed killers of the deep pounding the furniture & bawling their heads off over a shipmate's suicide.  Six years and you can see that I'm still carrying the baggage, but I'm getting through it.

Change the subject! Let's talk about something more cheerful-- the IRS.

My grandfather stopped opening his mail (senile dementia) about four years before he entered a full-care facility. During that four years, of course, he didn't file any federal, state, or local (Cincinnati) tax returns. The first year he didn't do so he was entitled to a small federal refund (a couple hundred bucks) but of course there are penalties for failing to file. The second year he owed a small amount and that's when the fun started. Even though tax payments continued to be withheld and he was owed small refunds for each of the final two years, the penalties accumulated into five figures (more when you pile on the state & local numbers). You would think that the IRS's alert staffers would be curious (or at least take offense) at not having any of their letters answered for FOUR YEARS but they weren't even really aware of the case until our lawyer contacted them to settle. IOW the entire thing had been orchestrated by a computer and not assigned to a human until a lawyer called. Of course the IRS sided with their computer. Gramps' lawyer patiently pursued the case (he was being paid to do so) for five years before the IRS did a cost-time benefits study and decided to forgive all charges.

But they didn't pay that first year's refund, either.

 

[REWahoo]

Not really a horror story by the standards I'm seeing here, but my first real experience with the IRS was many years ago when they audited my employer and found the company had not been reporting "incentive trips" as income (no bonuses, but we got a one week cruise for making our annual goal). The IRS audited everyone in the company who had received an incentive trip for the past three years and charged tax, penalties and interest. No big deal but I always felt a little paranoid since I was serving on jury duty when I got the IRS notice of audit.

 

[MJ]

I got a letter this year showing that I had additonal investment sales of $25k, $50K and other similar amounts. After I got through giving myself the 3rd degree (under harsh lights), if figured out that I omited sales of tax free 7 day muni funds which were sold in increments of $25k which I bought and sold for several months. I made my call to the IRS, mailed a revised sched D and got it resolved toute suite.
I hope this is the worst story most of us experience.

 

[dory36]

In this case, they deemed the extra 19,000 miles, or 95% or so of the expense, to be unreasonable expenses for a move from Egypt to Saudi, and therefore not deductible.

So he had to pay taxes on something like $25-30,000 in "income" based on the costs paid by the employers in shipping the stuff halfway around the world -- twice -- because their bureaucracies could not deal with the situations.

He should have gotten a better tax accountant... this seems like something you could get out of with a bit of pushing...  and I was a former tax accountant

Not sure what the final resolution was -- I learned this when it was first determined he had to pay. These things tend to go on for a long time before resolution, and maybe there was a good ending.

But ever try to find a good US tax accountant in Saudi Arabia?

 

[Michael]

My biggest horror story is that the politicians made me pay oceans of money in taxes over the course of my life time.  Wouldn't it be nice to have that money back plus earnings on it.

I should have worked overseas like you smart people, and been exempt from taxes.  Unfortunately, I was too stupid, and got hammered.  It wouldn't have been so bad if the politicians had just spent the money prudently on stuff I believed in, but they wasted so much of it on silliness.

The rest of my complaints pale in comparison to the central fact of so much of my money being extracted, and then wasted.

 

[Brat]

I should have worked overseas like you smart people, and been exempt from taxes. 

Not true, ask any Expat.

 

[Mr._johngalt]

I was in the middle of a tax audit and was kind of "crossways"
with the IRS guy. One night on TV they were interviewing
the IRS Commissioner and asked him about the specific issue
under dispute in my case (I forget the issue). He confirmed that I had handled it properly. Armed with this information I was pretty confident
going into the next meeting. I told the IRS
auditor that his boss backed me up. His response? "He
doesn't have to come down here and do the audits!"

JG