So You Screwed Up Your Taxes
July 6, 2022 4:29 AM Subscribe
IRS claims I owe upwards of $10,000. What now?
-I was honest while doing my taxes. This is the first time I'm hearing about anything unsatisfactory.
-The account referenced in the letter I received is one that I briefly opened as part of receiving an inheritance. The account is now empty; two weeks after it was created, I deliberately moved all the money to my primary account (which was definitely present in my tax returns that year). 10 grand is more than a quarter of the money that it ever contained.
-Supposing I have enough to pay the balance out of pocket. Is this the wisest course of action?
-Is this a scam? The letter seems surprisingly legitimate. What should I look for?
-If the answer is to "get a lawyer", I would need something more specific. (What kind of lawyer? What to look for, to ensure I don't get scammed on that end?)
-I was honest while doing my taxes. This is the first time I'm hearing about anything unsatisfactory.
-The account referenced in the letter I received is one that I briefly opened as part of receiving an inheritance. The account is now empty; two weeks after it was created, I deliberately moved all the money to my primary account (which was definitely present in my tax returns that year). 10 grand is more than a quarter of the money that it ever contained.
-Supposing I have enough to pay the balance out of pocket. Is this the wisest course of action?
-Is this a scam? The letter seems surprisingly legitimate. What should I look for?
-If the answer is to "get a lawyer", I would need something more specific. (What kind of lawyer? What to look for, to ensure I don't get scammed on that end?)
Hey, I got a letter from the IRS this year saying I owed them $$$, which I wasn't actually hugely surprised about because I had received a large payment documented with what I was pretty sure was the wrong kind of 1099, which made it look like earned income (which it was not), which would have required me to pay self-employment tax.
If you are pretty sure you don't owe taxes on this money (in most cases you wouldn't owe taxes on an inheritance, but if it was e.g. an inherited IRA you might), I would write a short message explaining why you think you don't owe the money and either reply to the letter (confirm that it's a real IRS address, obviously) or go set up an account on the IRS secure messaging website (have all your forms of ID available, because they will want to confirm your identity by having you take a photo of yourself and one of your license/passport/whatever).
In my case I wrote something like, "In 2020 I received a payment for [$x] from [company] for [reason]. Since this was not earned income I do not believe I owe any self-employment taxes on this money. My discussions with [company] about this payment were mostly conducted over the phone, so I do not have written documentation. [Company] has since been purchased by [Other Company] but I can reach out to them to try to get documentation if you tell me what you would like to see." Within a week or two I got a message from the IRS saying we were all good and I didn't owe them money.
Basically for me the hardest part was setting up the ID.me account - either I took too long to find stuff or they didn't like my driver's license photo (which is like 15 years old at this point) or I don't know what, but I ended up having to do a live tele-interview with my webcam on in order to get the account set up.
I wouldn't bother hiring a professional until you've at least replied to the initial message and see what they say.
posted by mskyle at 4:54 AM on July 6, 2022 [5 favorites]
If you are pretty sure you don't owe taxes on this money (in most cases you wouldn't owe taxes on an inheritance, but if it was e.g. an inherited IRA you might), I would write a short message explaining why you think you don't owe the money and either reply to the letter (confirm that it's a real IRS address, obviously) or go set up an account on the IRS secure messaging website (have all your forms of ID available, because they will want to confirm your identity by having you take a photo of yourself and one of your license/passport/whatever).
In my case I wrote something like, "In 2020 I received a payment for [$x] from [company] for [reason]. Since this was not earned income I do not believe I owe any self-employment taxes on this money. My discussions with [company] about this payment were mostly conducted over the phone, so I do not have written documentation. [Company] has since been purchased by [Other Company] but I can reach out to them to try to get documentation if you tell me what you would like to see." Within a week or two I got a message from the IRS saying we were all good and I didn't owe them money.
Basically for me the hardest part was setting up the ID.me account - either I took too long to find stuff or they didn't like my driver's license photo (which is like 15 years old at this point) or I don't know what, but I ended up having to do a live tele-interview with my webcam on in order to get the account set up.
I wouldn't bother hiring a professional until you've at least replied to the initial message and see what they say.
posted by mskyle at 4:54 AM on July 6, 2022 [5 favorites]
So apparently you filed your tax returns yourself. It's possible you did something wrong. Or possibly, the bank reported income to the IRS that they didn't report to you. Or something.
To check whether the IRS notice is right, it should be routine for any tax preparer (accountant, commercial operation like H&R Block ...) to check your returns, for not much money. Then if you decide you owe some money, you can ask for a payment plan if you need one.
posted by JimN2TAW at 4:57 AM on July 6, 2022 [1 favorite]
To check whether the IRS notice is right, it should be routine for any tax preparer (accountant, commercial operation like H&R Block ...) to check your returns, for not much money. Then if you decide you owe some money, you can ask for a payment plan if you need one.
posted by JimN2TAW at 4:57 AM on July 6, 2022 [1 favorite]
1. Don't panic. The IRS is not going to throw you in IRS jail. If the worst happens and you do owe them money, they will work out a reasonable payment plan with low interest.
2. The IRS does make mistakes, and is willing to correct them if you can show documentation that you're right.
3. Prepare to be patient. More patient than that. Starting in 2020 I've had a single request and reply from the IRS take four months.
4. As others have said, verify the notice is legitimate. Beyond calling the IRS directly (which, see #3) the letter should have have tax year, the tax form you filed, and the last 4 of your social.
5. If it is legitimate, do not lawyer up. Find a personal tax accountant. Since it's not personal tax season any more you should be able to get an appointment quickly. Bring the letter, your taxes, and all your documentation. They will guide you through the rest of the process. Expect to pay a couple hundred dollars. It will be well worth it.
posted by Ookseer at 5:22 AM on July 6, 2022 [8 favorites]
2. The IRS does make mistakes, and is willing to correct them if you can show documentation that you're right.
3. Prepare to be patient. More patient than that. Starting in 2020 I've had a single request and reply from the IRS take four months.
4. As others have said, verify the notice is legitimate. Beyond calling the IRS directly (which, see #3) the letter should have have tax year, the tax form you filed, and the last 4 of your social.
5. If it is legitimate, do not lawyer up. Find a personal tax accountant. Since it's not personal tax season any more you should be able to get an appointment quickly. Bring the letter, your taxes, and all your documentation. They will guide you through the rest of the process. Expect to pay a couple hundred dollars. It will be well worth it.
posted by Ookseer at 5:22 AM on July 6, 2022 [8 favorites]
first get your account at irs.gov so you know what they know
contact Taxpayer Advocates. this is a government office, their job is to advocate for you
https://www.irs.gov/taxpayer-advocate
*my husband is a tax preparer and during Covid the IRS made a 20,000 dollar mistake and it took 2 years to resolve. so be prepared for that kind of timeline
posted by cda at 5:42 AM on July 6, 2022 [4 favorites]
contact Taxpayer Advocates. this is a government office, their job is to advocate for you
https://www.irs.gov/taxpayer-advocate
*my husband is a tax preparer and during Covid the IRS made a 20,000 dollar mistake and it took 2 years to resolve. so be prepared for that kind of timeline
posted by cda at 5:42 AM on July 6, 2022 [4 favorites]
Last year we received a similar scary letter, and the problem was due to our previous tax preparer's mistake. But our current tax preparer's guidance helped turn "you owe the IRS thousands" into "wait, it turns out WE owe YOU several hundred." The IRS definitely makes mistakes sometimes.
posted by emelenjr at 5:51 AM on July 6, 2022 [1 favorite]
posted by emelenjr at 5:51 AM on July 6, 2022 [1 favorite]
It is quite possible that the IRS...made a mistake. Inheritances, cross-state moves, name changes, etc are all things that can be surprisingly opaque on paper despite everyone's best efforts. Don't jump into paying anything right now. If you can look at your taxes and spot the point where you think the IRS misunderstood what happened (ie, if you think that they are double-counting bank account 1 and bank account 2) you can pull together your documentation and send them a letter and that may settle the matter. If you are unclear about why they feel that you owe this money, check in with a tax accountant and then take action.
Both my father and I have had the IRS make (entirely understandable errors due to moves, household changes, etc) errors on our taxes, wrote letters and got things cleared up.
posted by Frowner at 5:56 AM on July 6, 2022 [2 favorites]
Both my father and I have had the IRS make (entirely understandable errors due to moves, household changes, etc) errors on our taxes, wrote letters and got things cleared up.
posted by Frowner at 5:56 AM on July 6, 2022 [2 favorites]
I did a stint as a day trader a few years back and the brokerage recorded every sale I made as pure profit. I got an unexpected tax bill for $6,000,000 a few years later.
I enlisted the help of a CPA who helped me track down the problem as well as prepare a supplemental return to correct it. Said return reflected the actual losses I had taken and it turned out I was owed a small refund for that year.
Definitely do not pay the money without talking to a CPA/Tax Preparer first.
posted by Tell Me No Lies at 6:44 AM on July 6, 2022 [6 favorites]
I enlisted the help of a CPA who helped me track down the problem as well as prepare a supplemental return to correct it. Said return reflected the actual losses I had taken and it turned out I was owed a small refund for that year.
Definitely do not pay the money without talking to a CPA/Tax Preparer first.
posted by Tell Me No Lies at 6:44 AM on July 6, 2022 [6 favorites]
The IRS didn’t apply my tax payment correctly this year and sent a letter saying I owed $6000. I had to fix it, which took hours but was better then paying $6000.
I made an account at IRS.gov, this took a few tries. Then I called the helpline, discovered the near incomprehensible phone tree, and googled “how to talk to a person at IRS”. I then called their number, using the phone tree walk through, 48 times in a row. 47 times I got a “All agents are busy, try again tomorrow” message. I would immediately hang up and try again. On attempt 48 I got to a “We’ll call back when someone is available” recording and entered my phone number. I got a call back in 45 minutes.
When they called back I explained to the agent I didn’t think I owed the money and he agreed, he then correctly applied the payment I’d already made. I checked my account two weeks later and found the issue resolved.
posted by lepus at 6:49 AM on July 6, 2022 [1 favorite]
I made an account at IRS.gov, this took a few tries. Then I called the helpline, discovered the near incomprehensible phone tree, and googled “how to talk to a person at IRS”. I then called their number, using the phone tree walk through, 48 times in a row. 47 times I got a “All agents are busy, try again tomorrow” message. I would immediately hang up and try again. On attempt 48 I got to a “We’ll call back when someone is available” recording and entered my phone number. I got a call back in 45 minutes.
When they called back I explained to the agent I didn’t think I owed the money and he agreed, he then correctly applied the payment I’d already made. I checked my account two weeks later and found the issue resolved.
posted by lepus at 6:49 AM on July 6, 2022 [1 favorite]
Possibly relevant, or at least reassuring that you’re not alone: California taxpayers told they owe the IRS money when they already paid. Here’s why
posted by sageleaf at 7:36 AM on July 6, 2022
posted by sageleaf at 7:36 AM on July 6, 2022
A few years ago I called the IRS telephone assistance line on behalf of a friend in a similar situation, and it was a surprisingly good experience. The folks who answer the phone there are extremely knowledgeable, helpful and non-judgmental. Here's the contact information I used (on the bottom of this page) if it is helpful.
posted by mjcon at 7:54 AM on July 6, 2022
posted by mjcon at 7:54 AM on July 6, 2022
My first step would be to hire a CPA to go over the tax return in question. You don't say how confident you are that this is an error (or not), but it's definitely worth several hundred bucks of expertise. A CPA will also know what real IRS correspondence looks like, so they can answer the scam question. They may even be able to interface with IRS on your behalf.
Is it an even $10k, or did you say that for simplicity? Large even numbers would raise my eyebrows.
posted by Dashy at 8:08 AM on July 6, 2022 [1 favorite]
Is it an even $10k, or did you say that for simplicity? Large even numbers would raise my eyebrows.
posted by Dashy at 8:08 AM on July 6, 2022 [1 favorite]
If this letter is real, I would hire a CPA to deal with this. The IRS messes up my taxes every few years, and calling them (even visiting them and working with an in-person agent) is always a waste for me personally.
posted by The_Vegetables at 8:23 AM on July 6, 2022 [3 favorites]
posted by The_Vegetables at 8:23 AM on July 6, 2022 [3 favorites]
I screwed up my taxes and was sent a bill by the IRS. I freaked out. But it was all for nothing. I just went to HR Block (during the off season), and met with an accountant, who was fun and nice, and during the session all the other accountants in the office joined us and they talked about how often the IRS makes mistakes.
I also had to call the IRS a few times about it, and again, everyone was so great and non-judgy, they basically said as long as I responded back to them in some fashion and that I was dealing with it, they would work with me for as long as it took to straighten out. It was a totally illuminating experience.
posted by nanook at 9:18 AM on July 6, 2022 [2 favorites]
I also had to call the IRS a few times about it, and again, everyone was so great and non-judgy, they basically said as long as I responded back to them in some fashion and that I was dealing with it, they would work with me for as long as it took to straighten out. It was a totally illuminating experience.
posted by nanook at 9:18 AM on July 6, 2022 [2 favorites]
I've been preparing my father-in-law's tax returns for years. Two years in a row, he received a scary letter from the IRS saying that he owed a substantial amount in taxes. In both cases, I replied with a detailed letter explaining why the IRS was wrong. The situation was somewhat complex and a bit hard to explain, so I tried very hard to make sure that the letter was as clear as I could possibly make it (I went through multiple revisions before I was satisfied with the result). I also included all the supporting documentation that was relevant to the case. I submitted all this in hardcopy form, using postal mail (the original notices from the IRS contained the mailing address they wanted us to use). In both cases, the IRS replied within a few months and accepted my explanation.
posted by akk2014 at 10:52 AM on July 6, 2022 [2 favorites]
posted by akk2014 at 10:52 AM on July 6, 2022 [2 favorites]
My first impression is that this was reported as a deposit and that the IRS assumed that the money was income. An inheritance is not taxable income (except for inherited IRAs). I concur with the idea to speak to a CPA or tax lawyer.
The IRS is seriously understaffed these days and mistakes appear to be more frequent. But, as noted above, they can be good to work with once you speak to a person.
posted by yclipse at 7:58 PM on July 7, 2022 [1 favorite]
The IRS is seriously understaffed these days and mistakes appear to be more frequent. But, as noted above, they can be good to work with once you speak to a person.
posted by yclipse at 7:58 PM on July 7, 2022 [1 favorite]
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posted by EmpressCallipygos at 4:35 AM on July 6, 2022 [19 favorites]