So the IRS says I owe them a lot of $$$, and I really don't

Got an interesting and scary letter from the IRS today claiming I owe them a ton of money. We are talking about buying a pretty good car kind of money. They have claimed I did not pay enough federal tax. Since they claim I've grossly underpaid, they have assessed a penalty, plus I have to pay interest on what I owe. And now they want me to pay this large sum by the end of June.

Naturally, my wife and I found this to be alarming and we quickly located our return. Our copy of the return, says we have paid what was due, and in fact are owed a refund. It appears that the IRS only credited 1% of the taxes we paid. It almost seems like an OCR error. I'm surprised they haven't cross-checked against our W2's. The smallest W2 Fed tax with holding is much greater than what they claim we paid.

So tomorrow I get to visit the IRS to somehow fix this. I'm not trusting a telephone call to settle this. Our W2's support our tax return. Is there anything I should bring besides our tax forms and W2's. Have any (helpful) suggestions?

What I'd like is a statement from the IRS that we 1) do not owe this tax, 2) do not owe the penalty, nor the interest, 3) do not have to make estimated tax payments and 4) The IRS was in error in all of these claims. Does that sound right? Is this reasonable to ask for?

Wish me luck. I intend to be pleasant and matter of fact, but between us kids, this is kind of scary.

Good luck.

Has someone else been using your SS number to file fraudulently? It seems to be an ever increasing problem.

In reply to HappyAndy:

Not that I am aware of. I suppose I'll find out tomorrow.

HappyAndy wrote: Has someone else been using your SS number to file fraudulently? It seems to be an ever increasing problem.

That happened to me this year. Fortunately, the IRS flagged the fraudulent return, but it's been a lot of work to get straightened out.

1) CPA
2) Tax Attorney
3) NOW!

In reply to flexi:

Did you file the taxes your self? If you used tax software or a website they may have a clause somewhere that they will assist you in the event something like this happens. I presume you didn't use an accountant, because they'd be the ones dealing with the IRS if you had...and that's exactly what happened to us last year. That annual payment for them to accept the burden of dealing with the IRS is well worth it!

To be clear - you're sure the letter is legitimate, and not a scam in itself?

I filed the taxes myself using tax software. To me, it seems pretty simple. On line 64 "Federal Taxes Paid" of my copy of the 1040 is: $xyzwr.00. The IRS says line 64 is only $xyz.wr, a factor of 100x less. I say OCR error in the IRS's favor.

My W2s Fed Income Taxes Withheld (plus a 1099 Fed Tax withholding) add up to $xyzwr.00. I just checked it again with a calculator. The IRS is clearly in error. My W2s, 1099 AND my 1040 support my claim. I do not know how they misread lines 64, 71 and 74, which happen to be my payments. But it appears they did and they claim the value was 1% of what is printed on lines 64, 71, and 74 on my 1040 copy.

I hope this will resolve quickly, and in my favor.

In reply to stuart in mn:

Good point. I'll bring it to the IRS office and have them verify it. Looks really convincing to me, terrifyingly so.

It will take at least a year. You will leave the office tomorrow feeling like the whole situation has been rectified, and next month you will get an even meaner letter. Shortly after that, you will visit the office again, and you will feel hopeful, but much less confident that the situation is rectified. Shortly after that, your employer will receive a notification to garnish your wages. This will continue utill you start selling drugs to finance your name change and planned escape to Namibia, thinking that maybe you can get away from them there.

I hear Africa is nice.

Step 1: Contact a tax attorney with experience dealing with those shiny happy people. Step 2: ???? Step 3: PROFIT!

lawyer up.

-J0N

Having lived through an IRS error against me, I can tell you that it is possible to "win" against the IRS without a lawyer. Document everything, follow the process, ask for extra time if necessary (completely legal and allowed). In the end I produced more than enough documents to justify that my TurboTax calculations were correct. They ended up writing me a $200 check when it was done. Took about 6 months.

My wife wanted to write the IRS a nice fat check immediately after we got the notice as she was scared to death of them. Don't be scared.

Good luck. I had a similar problem when the IRS had misread a tax form for an article I'd written for GRM and they thought GRM had paid me 100 times as much for the article as I really got for it. Same decimal point problem.

The IRS has a procedure for disputing things like this. I can't recall the exact details, but I did not use a lawyer - I mailed them a copy of the correct form and some paperwork, and about a month later, got a letter from the IRS saying something along the lines of, "Never mind, you don't owe us any money".

Good luck resolving this issue!

While I don't think it's time to lawyer up, I would recommend to maybe spending some money to talk to an enrolled agent (basically a CPA that does tax and has passed additional IRS exams that allow them to represent tax payers in cases like this) to see what their take on this is.

This would be a really good time to visit your favorite CPA. Knowing the right terminology and IRS procedures can go a long way in resolving an issue like this.

I'm interested to see how this works out. Seems like it may be something that clears up easily if it really is as straightforward as an OCR error. I hope there are no errors or omissions on the rest of the form for them to notice once they take another look at it.

MadScientistMatt wrote: Good luck. I had a similar problem when the IRS had misread a tax form for an article I'd written for GRM and they thought GRM had paid me 100 times as much for the article as I really got for it. Same decimal point problem. The IRS has a procedure for disputing things like this. I can't recall the exact details, but I did not use a lawyer - I mailed them a copy of the correct form and some paperwork, and about a month later, got a letter from the IRS saying something along the lines of, "Never mind, you don't owe us any money".

I had a similar situation and had the same result. I gave them the supporting paperwork and got a similar letter.

Whoever you meet with tomorrow and whatever they say, be sure to write a letter to that person or persons summarizing your discussion and attaching all the forms again. Paper trails matter.

This is one of the reasons I use an accountant to do my taxes. If I ever get a letter it goes directly to him and I wash my hands of the whole thing. I hate dealing with taxes and paying a professional 200$ to take care of everything for me is berkeleying awesome!

OP here. I went in to the IRS with my W2's my 1040 and a 1099 that had taxes withheld. I received a ticket stub with the time I came in and the location. Shortly afterwards, I saw an agent. I stated my case to the agent that the IRS claims of insufficient withholding were incorrect, and produced my paperwork to support my assertion. The agent looked my information over, and said my tax documents supported me, and that it appeared that the IRS had made an error. (Technically there were 3 errors made by the IRS.) He added notes on the computer that there seemed to be an error in the IRS data such that the decimal point was shifted to the left by two places. I asked if I was going to get an unpleasant letter again, and he said it would be unlikely. I wrote his name down, exchanged some pleasantries, and gathered up my things. I then asked if there was anything additional I needed to do. He said no, the information is corrected, and I was all set. He then noted I was due a refund. I asked if I could go, he said yes, and off I went. Total elapsed time 15 minutes.

Seemed too easy. I'm waiting for that second letter - better not be a repeat of the first.

In reply to NY535iManual:

This is an awesome idea. More work for me, but it enters copies of my supporting documents into their records.

In reply to T.J.:

I sure hope there aren't any errors!

It is hard to believe that there were 3 OCR/decimal point "reading" errors made on my form. Any human could read the clear large type. Even more "interesting" is that the IRS allows rounding to the nearest dollar on tax forms, but in this case they divided my withholding line items (rounded to the nearest dollar) by 100, and reported down to the cent. Only those 3 lines had reporting to the cent, and were unlike all other lines on the form.

Oh well, hope this episode is done. Fingers crossed.

The IRS does not make mistakes. Just ask them.