Tuesday Tax Time: “The IRS is Wrong Edition”

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I just had to put up this blog post from Diane Kennedy, CPA’s US Tax Aid blog:

The IRS audit force has been doubled. The fairly new commissioner has been given one prime directive: collect more money! And, just like the feds, they’ve fired up the printing presses.

In the past few weeks, we’ve seen dozens of IRS notices and heard of hundreds more. In almost every case, the IRS is wrong. If you get an IRS notice, first of all, take a deep breath. There is a good chance that they are wrong.

Here are a few of the ones we’ve seen:

1 Your tax return was filed late. We’ve seen a handful of these, even though the extensions were accurately filed, on time, and we can prove it. (By a return receipt from the Post Office) And we can prove that the return itself was timely filed, again, by a return receipt from the Post Office.

2 Your C Corporation should be a personal service corporation. This is one that seems to be popular with the IRS right now. That’s because the personal service corporation will mean a higher tax rate. It also seems to be based on no proof whatsoever. One of our clients got the letter simply because the term “evaluation” was used in the title of his corporation. It was evident by looking at his return, the expenses and description of what his company did that it had nothing to do with performing evaluations of anything (which could be considered a personal service.)

3 We’re changing your W-4 exemptions. First of all, a gasp – never heard of this one before! In this case, the client typically paid some in taxes each year. But it was always paid on time and wasn’t a huge sum.

Yikes… I’ve been hearing rumors, but then my clients started getting their own bogus notices.  This is NOT good.  Taxpayer, beware!

Thanks, Jason M. Blumer, CPA

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