You are certain your taxes were paid in full. Then why is the IRS claiming you owe more? The majority of taxpayers who receive tax error notices from the IRS just shake their heads and pay the amount claimed to be in error. But consider this: most IRS notices are generated by computer. These computers are meant to speed up claim and form processing, and they do a great job – most of the time. What if your tax return is correct and the IRS is wrong? What can you do?
Taxpayers Have Rights
As a taxpaying citizen or business owner, you have every right to question or contest any IRS decision you believe is in error. In fact, the IRS recently published the IRS Taxpayer Bill of Rights which lists and explains citizen rights and how to raise objections. Among the ten rights listed, number four is The Right to Challenge the IRS’s Position and Be Heard. It states, in part:
“Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.”
Seven Common IRS Mistakes
The following list contains common mistakes that trigger error notices from the IRS, causing a demand for more money than is actually due.
- IRS Computer Errors – Computers operating at incredible speeds can make mistakes, especially when reading or scanning documents. Numbers can easily be misread, decimal points can be missed, or zeros can be added or deleted. A simple error can turn $10,000 into $100.
- Duplicate Forms – If two W-2 forms are inadvertently filed, or two 1099 forms, this will cause confusion. The IRS computer will not be confused – it will simply read the forms and add them together, concluding that you earned two times or more your normal salary.
- Investment Errors – Investments usually involve complex computations and it is not uncommon for the IRS computers to make mistakes when calculating such items as cost basis.
- Confusion Concerning Personal and Business Income – Self-employed individuals may see this error more frequently. If a client sends a 1099 to you personally, and not to your business, IRS computers can mistakenly claim you failed to report income. Also, if payments are sent in December but received in January, this could also cause confusion.
- Alternative Minimum Tax – The AMT is complicated and anyone can make mistakes, IRS and taxpayer alike. If you receive an error notice concerning your AMT payment, always check the IRS’s calculations, and your own, before taking any further steps.
- Complicated Tax Credits – Many tax credits follow a complicated formula for eligibility and computing rates of discount. Many times, the IRS refuses the credit when a taxpayer is actually eligible.
- Taxes on State Tax Refunds – Under certain conditions, a state tax refund is not taxable. Confusion is possible here and you could be billed for unpaid taxes on this refund.
How Do I Fight an IRS Notice I Believe to be in Error?
Before just paying the claimed tax shortfall, follow these steps to ensure you are not charged extra taxes in error.
- Recheck all your forms and figures. Just as it is possible for the IRS to make mistakes, you can, too. Before disputing any claim, take steps to ensure that you haven’t truly made a mistake.
- Check the notice for instructions on how to file a dispute. This is often all that is needed. If the matter is fairly simple, a short note of explanation with copies of the pertinent forms should clear up the matter easily. Be sure to follow the instructions exactly and return everything necessary by registered mail with return receipt requested.
- Request a supervisor become involved. If the IRS returns your challenge with a rejection, contact the agent listed on the rejection notice and ask to speak to their supervisor. You do not have to list reasons or be antagonistic. Everyone wants a settled case without resorting to the appeals process; there are simply differences of opinion. When speaking with the supervisor, be ready to explain why the previous agent’s rejection was in error with specific data. If you receive a notice that does not list an agent by name, send a certified letter to the address listed and request someone at the supervisory level review your case.
- Take your case to the Office of Appeals. If you do not settle the issue to your satisfaction with a supervisor, it is time to take your case to the Office of Appeals. The notices you received from the IRS should contain information on how to begin this process. Don’t lose heart; if you are in the right, it is simply a matter of presenting your case over and over until the right IRS representative recognizes the error and corrects it. If you cannot find information in the notice about the Office of Appeals, go to the IRS website for information.
- United States Tax Court. If other avenues of negotiation have failed, you have the right to present your case in U.S. Tax Court. If $50,000 or less is in dispute, you may choose to represent yourself and not retain the services of a tax attorney. The notices you received from the IRS should contain information about how to bring your case to the tax court, or you can download the necessary form at the U.S. Tax Court website.
Fighting back when the IRS claims you owe more taxes can quickly become a complicated process. At Reliance Tax Group, we are your answer for IRS and tax issues. Our tax professionals can answer your tax questions and help with the appeals and settlement process. Give us a call today at (720) 452-2915 or contact us online. We pride ourselves on being a flat fee company with no hidden charges. Contact us today for your free consultation.