State claims I didn't file a return 7 years ago - How to prove I did?

[MCosta1984]

State: Rhode Island

I received a notice in August of this year claiming I did not file a state return in 2011 for my unemployment I was collecting at the time. They claimed in the letter that they came upon new information that shows I did not file a return for the exact amount of my unemployment. I know I did file, that I know, but what I know and what I can prove are two different things. The taxes they claim I owe are 280 and some odd change dollars. I would probably not even balk at this if they didn't also demand that I pay a ton of fees and penalties that have raised the amount owed by over 200% (almost 800.00).

Here is the problem, this was 7 years ago and like most Americans I purge my tax returns on the 4th year, no one had ever told me that Rhode Island has no statue of limitations on these returns (not even Turbo Tax who I used to file online), so I was under the impression that you needed the three most recent years on hand and nothing more (obviously I know different now). The question is how do you prove you filed them when both the IRS and Turbo Tax no longer retain any of this information for you to retrieve. I don't even use the same bank so it has been a fight to try to get statements that old that are apparently now stored on film in some vault somewhere.

I know I filed them, I always file my returns. The thing that vexes me is that I made an error in my 2013 taxes that they caught 3 years ago and I paid without complaint or contest because I know I did indeed make the error and I owed that money. How is it they found and billed me an error for a state return 2 years newer but it took them until 2018 to find this one. How did the state take so long to supposedly find out about unemployment they were sending checks for themselves? To me it sounds like my wonderful state and it's ineptitude and inefficiency just lost my return (seriously look into the RI UHIPP disaster about how horrific our state is with these sort of things). I don't know how to prove this. I have called the IRS, called Turbo Tax, none of them retain the information this long. I filed for an administrative hearing back in August, to which I have received nothing but silence from until today when they sent me a letter stating I have a hearing and only 1 week to prepare for it.

I find this time frame of finding the error to how long it takes for them to respond to one week notice asinine. It's like they went out fishing for money by making claims they know no one can fight.

Please any advice at this point would be appreciated.

 

[Taxing Matters]

Even with the IRS there is no statute of limitations (SOL) for unfiled returns. The SOL for assessment of tax starts to run only when the return is filed, giving the IRS three years (though it can be longer in some circumstances) to examine your returns and assess any additional tax due. Most states with an income tax apply a similar rule: the SOL doesn't start to run until the return is filed. States usually allow a bit more time for assessment in order for them to react to changes that the IRS makes to your return.

As a result of these rules, I advise clients to keep copies of the actual returns and proof of filing forever. I advise them to keep supporting documentation for the returns for at least seven years after they are last relevant on a return. Bear in mind that some information may be relevant for a long time. For example, the closing documents for your purchase of a home you need to keep until some years after you sell the home because you need to support the basis you claim on the house in the sale.

Unfortunately, though, I don't have many good solutions for you with just a week to go for your hearing. Back when you first got the letter and requested the hearing, you should have also requested a copy of everything the state has — a copy of your return, if any, and copies of what the state relied upon in making the proposed assessment. Did you get that information? If not, you might try to get it now, but with just a week left you might not have time.

Did you not save any copy of the returns on your computer? You used turbo tax, so if you have the tax files still from that earlier year you may be able to print out what you filed. Computer storage space is pretty cheap so there is no reason not to at least keep the turbo tax data files and a PDF printed copy of the tax returns for the year. I have my computer tax files going back 20 years both on my computer at home and on a CD-ROM disc in my safe deposit box so that no matter what happens I at least have the returns and proof of filing should I need them.

 

[MCosta1984]

I have requested the information you suggested above, to which the response was that they have have nothing on file to send me. Their information they came across is just the state records of paying out unemployment to me. I do not contest that I collected unemployment for that entire year. Turbo Tax online has purged all my documentation prior to 2012. I did store them on my computer, but that was 2 dead laptops ago. The only thing I have to show I filed anything is my 2011 Wage & Income statement from the IRS which does indeed show I reported the exact amount of unemployment to the Feds for that year.

 

[LdiJ]

I have requested the information you suggested above, to which the response was that they have have nothing on file to send me. Their information they came across is just the state records of paying out unemployment to me. I do not contest that I collected unemployment for that entire year. Turbo Tax online has purged all my documentation prior to 2012. I did store them on my computer, but that was 2 dead laptops ago. The only thing I have to show I filed anything is my 2011 Wage & Income statement from the IRS which does indeed show I reported the exact amount of unemployment to the Feds for that year.

The Wage and Income transcript, unfortunately, does not prove that you did anything. All it proves is that a third party reported the income to the IRS. In this case, your state unemployment compensation agency.

 

[MCosta1984]

The Wage and Income transcript, unfortunately, does not prove that you did anything. All it proves is that a third party reported the income to the IRS. In this case, your state unemployment compensation agency.

Wouldn't the fact that the IRS is not claiming I didn't file for that year prove I filed with them if they have this information on file?

 

[PayrollHRGuy]

Wouldn't the fact that the IRS is not claiming I didn't file for that year prove I filed with them if they have this information on file?

No, it is very easy to not file state while filing federal.

 

[MCosta1984]

No, it is very easy to not file state while filing federal.

That's not what I am saying, the person I quoted said that it didn't prove I filed federal.

 

[Taxing Matters]

Wouldn't the fact that the IRS is not claiming I didn't file for that year prove I filed with them if they have this information on file?

Unfortunately, no. The IRS often will not have pursue you for a return you have not filed if it appears from the information it has that you would not have owed any tax. For example, if the IRS computed that the withholding you had for that year was enough to cover the tax that it figures would be due then it has little incentive to go out and track you down for a return.

 

[LdiJ]

That's not what I am saying, the person I quoted said that it didn't prove I filed federal.

Correct. The Wage and Income Transcript only proves that you had income. It doesn't prove that you filed a tax return. An account transcript or a tax return transcript would prove that you filed a federal return.

 

[xylene]

I find this time frame of finding the error to how long it takes for them to respond to one week notice asinine. It's like they went out fishing for money by making claims they know no one can fight.

BINGO! This is exactly what they are doing!

Fishing for zombie debt / misplaced assets is literally public policy.

Perfectly understandable really given the chronic underfunding of state governments and endemic corruption.

 

[PayrollHRGuy]

That's not what I am saying, the person I quoted said that it didn't prove I filed federal.

That is exactly what you wrote. It may not be what you meant to write.

 

[not2cleverRed]

That's not what I am saying, the person I quoted said that it didn't prove I filed federal.

You need a copy of your Federal Tax Return transcript. This is a line by line print out from the IRS of what you entered on your 1040 and supporting documents. However, it has been years since I've done this, and I don't know how far back you can currently go. https://www.irs.gov/individuals/tax-return-transcript-types-and-ways-to-order-them

Even if you still had your copies of your 1040s on file, that would be insufficient to satisfy the state of Rhode Island.
My experience* has been when a state has an issue with what you filed, unless you send a copy of your IRS 1040 transcript, they will assume that you didn't file your federal taxes.

Ldij may counter that this never happens in the state where Ldij works.

*I can only comment based on my personal experience when my (now ex) didn't follow my advice (repeatedly), and what I had to do to unravel it.
In his case, he had lived in 2 different states that tax year, both with state income taxes. He could not find the form/type of income he earned in state B explicitly listed in the instruction booklet for state A, so did not list it in state A forms (rather than follow my advice and... ask?), but reported it correctly on the federal forms. (The income information was only needed for calculating the tax rate for the income earned in state A.)
State A noted the discrepancy, sought to penalize him. He filed an amended return for state A, but refused to follow the directions; he did not include a copy of his federal return "because they already should have it", they don't need it twice. (Why listen to me?)
State A proceeded to act as though he'd never filed federal taxes, never had federal taxes withheld, yadda yadda. Ordered the transcripts, straightened it out.
(State B's tax form instructions were simpler: enter the amount you put on your IRS 1040 line x.)

 

[LdiJ]

You need a copy of your Federal Tax Return transcript. This is a line by line print out from the IRS of what you entered on your 1040 and supporting documents. However, it has been years since I've done this, and I don't know how far back you can currently go. https://www.irs.gov/individuals/tax-return-transcript-types-and-ways-to-order-them

Even if you still had your copies of your 1040s on file, that would be insufficient to satisfy the state of Rhode Island.
My experience* has been when a state has an issue with what you filed, unless you send a copy of your IRS 1040 transcript, they will assume that you didn't file your federal taxes.

Ldij may counter that this never happens in the state where Ldij works.

*I can only comment based on my personal experience when my (now ex) didn't follow my advice (repeatedly), and what I had to do to unravel it.
In his case, he had lived in 2 different states that tax year, both with state income taxes. He could not find the form/type of income he earned in state B explicitly listed in the instruction booklet for state A, so did not list it in state A forms (rather than follow my advice and... ask?), but reported it correctly on the federal forms. (The income information was only needed for calculating the tax rate for the income earned in state A.)
State A noted the discrepancy, sought to penalize him. He filed an amended return for state A, but refused to follow the directions; he did not include a copy of his federal return "because they already should have it", they don't need it twice. (Why listen to me?)
State A proceeded to act as though he'd never filed federal taxes, never had federal taxes withheld, yadda yadda. Ordered the transcripts, straightened it out.
(State B's tax form instructions were simpler: enter the amount you put on your IRS 1040 line x.)

Its not the federal tax return transcript that the states normally want, its the account transcript. The account transcript provides a summary of the original federal return, as well as any changes that may have happened after the fact (amendments, audits, CP-2000 letters etc.)

However, that is not going to prove that he filed a state return, it will just confirm to him that he definitely filed a federal return. He is going to have to find some other way to prove he filed a state return or confirm to himself that he did not.

And by the way Red, this kind of thing happens ALL the time in my state.

 

[MCosta1984]

So what you are basically saying is the state could have lost my return and I have to pay a ridiculous amount of fees and penalties and have no recourse?