IRS Administrative Error

[neilrose]

This pertains to my 2006 federal tax filing: My return was professionally prepared by a Master Tax Advisor at a major CPA firm in downtown Chicago during February & March 2007. It was signed, dated and filed before the deadline in April 2007. The filing was not done electronically - a paper return was sent via Fed Ex to the processing center (a pre addressed envelope was provided for this by my CPA). A check was included with the filing to cover the taxes owed for 2006 tax year. The check was cashed by the IRS and the money debited from my bank account as expected.

Nothing noteworthy, right? Until mid 2010 when I get a notice saying I failed to file a return for 2006 and owe the IRS 56k in failure to file penalties and other statutory charges. The IRS documentation and every conversation with IRS personnel acknowledges timely receipt of my tax payment for 2006.

Here's the kicker, the check I sent with my return and which was cashed by the IRS in 2007 was for $192,400. You read that right. The IRS is asserting that I'm so dumb I sent a check for nearly $200,000 but didn't attach it to a return or payment slip or any form of official documentation!! A return that I spent several thousand dollars having prepared and is signed/dated as of early 2007 processing.

Before any of the IRS insiders say, "oh, don't sweat it, just resubmit the return and it'll be fine". IT WON'T. I've done that to no avail. I've prepared Form 911 and had the Tax Advocacy Service on the the case, also to no avail.

I have a question and a recommendation:

Question: Is there a source of data on IRS administrative and processing errors? What percentage of returns get lost?

Recommendation: File electronically. This situation is like something out of a Kafka novel and has been a living nightmare for nearly a year now. The IRS cannot be trusted with paperwork.

Any general advice would be most appreciated. I'm about to engage an Attorney. I haven't done so yet because I figured this was SO proposterous that an IRS Officer/Supervisor would use some common sense and stop this once it was explained in writing. WRONG.

Regards

 

[tranquility]

Are you saying that you have presented the IRS (after their request) a copy of your return, a letter from the firm saying when it was prepared, a copy of your canceled check and a copy of your Federal Express receipt just after the preparation date and they still claim you failed to file?

Because, before I'd pay for an attorney, that's what I'd do.

 

[LdiJ]

This pertains to my 2006 federal tax filing: My return was professionally prepared by a Master Tax Advisor at a major CPA firm in downtown Chicago during February & March 2007. It was signed, dated and filed before the deadline in April 2007. The filing was not done electronically - a paper return was sent via Fed Ex to the processing center (a pre addressed envelope was provided for this by my CPA). A check was included with the filing to cover the taxes owed for 2006 tax year. The check was cashed by the IRS and the money debited from my bank account as expected.

Nothing noteworthy, right? Until mid 2010 when I get a notice saying I failed to file a return for 2006 and owe the IRS 56k in failure to file penalties and other statutory charges. The IRS documentation and every conversation with IRS personnel acknowledges timely receipt of my tax payment for 2006.

Here's the kicker, the check I sent with my return and which was cashed by the IRS in 2007 was for $192,400. You read that right. The IRS is asserting that I'm so dumb I sent a check for nearly $200,000 but didn't attach it to a return or payment slip or any form of official documentation!! A return that I spent several thousand dollars having prepared and is signed/dated as of early 2007 processing.

Before any of the IRS insiders say, "oh, don't sweat it, just resubmit the return and it'll be fine". IT WON'T. I've done that to no avail. I've prepared Form 911 and had the Tax Advocacy Service on the the case, also to no avail.

I have a question and a recommendation:

Question: Is there a source of data on IRS administrative and processing errors? What percentage of returns get lost?

Recommendation: File electronically. This situation is like something out of a Kafka novel and has been a living nightmare for nearly a year now. The IRS cannot be trusted with paperwork.

Any general advice would be most appreciated. I'm about to engage an Attorney. I haven't done so yet because I figured this was SO proposterous that an IRS Officer/Supervisor would use some common sense and stop this once it was explained in writing. WRONG.

Regards

I agree that hiring a tax attorney is probably wise at this point. Getting the Taxpayer's Advocate involved would probaby be a good idea as well.

I also agree with the advice to file electronically.

However I will also add a piece of advice. NEVER send anything to the IRS via certified mail. Its actually more likely to get lost that way.

I don't believe that there are any published stats out there on this specific issue.

 

[tranquility]

While getting an attorney is never a bad idea, what is the attorney going to do? Are we going to tax court right now? If so, we will need to bring together our facts as this is not going to be a legal issue, but a factual one. Why not take the proof the OP has and present it to the IRS and hope they change their decision? If they don't accept it, then tax court (Or, pay, and then court of claims.) where we present the exact same evidence for a neutral party to decide.

 

[davew128]

I'm with Tranq here. This is an administrative issue and needs to be approached as such. You don't get an attorney involved unless you either expect to litigate the issue or CID is in the mix.

Taxpayer Advocate is a great idea because while they have no authority to force the IRS to act, they are incredibly good at navigating procedural hoops and they take their job very seriously.

Even then, I am astounded that nobody has addressed the real problem here. Form 911 isn't the proper form to deal with this. For whatever reason, IRS doesn't acknowledge the original filing and prepared a SFR. The proper approach here is to file an amended return using the SFR as the original numbers and the prepared return as the amended numbers. Once that is done, everything works itself out and neither side owes money.

 

[tranquility]

Well, except for the failure to file penalties.

 

[davew128]

Well, except for the failure to file penalties.

Which would be zero since the penalty is based on amount due on the return and would most certainly be waived under any circumstance due to reasonable cause.

 

[tranquility]

The amount due on the return was almost $200K.

I'm not seeing how the amended return changes anything.

Thought of something edit:
One change is it would open up the SOL for a closed period.

 

[davew128]

The late filing penalty is based on the tax DUE, not the tax liability. Since OP paid the tax due with the timely mailed check, an amended return returns the liability back to the amount paid. Remember, while the statute is about to expire to claim a refund, it doesn't prevent you from amending to reduce the tax.

 

[tranquility]

The SOL issue I was talking about is reopening the return for audit.

All the OP has to do is prove the check was for the 2006 tax year, which is why we're here.

 

[davew128]

The SOL issue I was talking about is reopening the return for audit.

All the OP has to do is prove the check was for the 2006 tax year, which is why we're here.

Well hopefully the check had a memo stating what it was for as most tax professionals instruct their clients to do. One would think a check received on or about 4/15 of any year would be considered a payment for that year as well.

 

[tranquility]

Or, perhaps, the first quarter estimate?

Yes, one should always put on the check what it is for.

The bottom line is this should be resolvable without a lot of hoop jumping. As to why things have gotten to this point is rather odd. I feel there is a twist somewhere the OP has not told us, but that's my spider sense tingling.

 

[dmcc10880]

Or, perhaps, the first quarter estimate?

Yes, one should always put on the check what it is for.

The bottom line is this should be resolvable without a lot of hoop jumping. As to why things have gotten to this point is rather odd. I feel there is a twist somewhere the OP has not told us, but that's my spider sense tingling.

Excellent point tranquility.

Only neilrose knows how that payment was treated. Could it have offset taxes for 2007?

One who has paid a few thousand dollars for their return to be prepared would think the preparer would attach a payment slip and have everything prepared to send in.

Another question. Why the need to Fed Ex the return and payment in?

One thing's for sure, to have a tax liability of nearly $200,000 is better(?) than not having that liability.

 

[davew128]

Excellent point tranquility.

Only neilrose knows how that payment was treated. Could it have offset taxes for 2007?

One who has paid a few thousand dollars for their return to be prepared would think the preparer would attach a payment slip and have everything prepared to send in.

Form 1040-V was almost assuredly included.

Another question. Why the need to Fed Ex the return and payment in?

Why not? Maybe it was easier to schedule a Fedex pickup or go to a drop box than find a nearby open post office and deal with a line there to get the certified mail postage and paperwork.

 

[tranquility]

Maybe it's just that we have a TON of older clients. But, even though we give forms clipped to envelopes and letters with instructions, there are more screw-ups than you could believe possible. Tax payments to us, 1040-es and 1040-V mixed up, state checks to the fed and fed checks to the state, any combination you can think of. While I believe there may be a proper crediting here (As it seems there is only a fail to file of 25%.), hence a possible 1040-V of the proper year along with the payment, there is still something odd here. Don't you agree?

I'd love to see the return and develop the facts better. There have been times the IRS has misfiled a return, they have always accepted a sent copy. Why not here? Are there elections involved? What? And, how did the IRS develop the tax owed which is close to what the OP claims? SFRs are always high. Especially with so much tax due, unless he did not pay last year's estimates, the OP most probably has a big capital gain or took a retirement payment into his hands in a rollover and the government wouldn't know the basis or if it were a rollover. And, if they had income through 1099s or whatnot, why three years before demanding a return?

Since the OP is not back yet, I assume he's gone and we're just playing among ourselves.