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IRS forms

Picture this: You work for one company from January 1st through December 31st and that is your only source of income for the entire year.  You’re young, live on your own and have no financial responsibilities other than yourself.  Living paycheck to paycheck, your home is an apartment complex where you rent and the car you drive is the only asset in your name.  No investment accounts, no savings accounts and  no interest of any kind filtering its way into your hands.

One would think that filing your 2008 tax return with the above scenario is as easy as it gets.  One W-2 to report, claiming the standard deduction and the economic stimulus payment you received and you’re done.  The most trouble you would have if filing with TurboTax or H&R Block would be to constantly press the skip button to move from page to page.  Well think again, because I received notice from the beloved IRS that I am being audited for my 2008 tax return!

The day was March 8th, 2010.  I made my way to the mailbox to find a thick, large envelop that was turned upside down.  I thought to myself, “I’m not expecting a package” and initially was filled with jubilation at the thought of something positive.  When I flipped the envelop on its front, my heart sank into my stomach as I noticed this envelop was sent from the IRS’s Boston division.  If it was a check to thank me for being an American citizen, the envelop would have been much smaller.  This could only mean bad news.

Before getting back to my apartment, I tore that sucker open as fast as I could because I wanted to know what the IRS had up their sleeve.  After a quick glance, I was being audited for the 2008 return I filed in February of 2009.  Included in my envelop was the reason why I was being audited, a nice little “You’ve been audited” FAQ sheet and a return envelop with instructions on what the next step will be and how I need to proceed.  To be quite honest with you, I found the documentation they included quite useful and straightforward.

According to the IRS, I had withheld the true amount of income from my employer, citing $13,000 was missing.  Strangely enough, this also meant that I did not report the additional income taxes I supposedly paid on that extra $13,000, so the IRS said I was on the hook for a payment of $450.00.  Should I choose to pay that additional amount now, no penalties or further investigation was necessary and this case would be closed.   Being a document pack-rat, I knew this was some kind of mistake. I went to my closet and pulled out my file box, which contained all of my tax documentation from the last five years and every single pay-stub I had every received.  Five minutes later, I was 100% positive that the IRS had made a mistake (whew!) and I knew exactly what happened.

You see, in that fateful year of 2008, my employer switched payroll companies.  This meant that at the end of the year, when it came time to receive my W-2, I actually received two of them, one from each payroll company.  The employer information was identical on both so I figured I could save myself 30 or so seconds and combine the two on my tax return.  Needless to say it was a shortcut that has proven to be quite the opposite.

The IRS suggests that they have two W-2’s in their possession for me in 2008, as they should.  However, they contest that the W-2 I filed on my tax return  (which was actually two W-2’s combined into one) was one of them, and the other was a W-2 with $13,000 reported revenue (which was one of the two individual W-2’s).

So essentially, the IRS has factored in my $13,000 W-2 twice, causing my tax return to be incorrect.  I promptly wrote a very nicely toned letter, suggesting that my shortcut had caused the problem and that if they take a second look, the revenue I reported was in fact, correct.  I also scanned my first and last pay-stubs from each payroll company as well as my W-2’s and mailed back the letter and original documents (scanned ones I kept) and now await a reply.  I’m confident that the IRS will be satisfied with what I have sent back and all will be well.

I stayed calm, cool and collective for the most part and hopefully the situation will resolve itself.  There are few things in this world that people fear more than an IRS audit (It’s actually called an “examination” nowadays) but for me the process appears to be fairly straight-forward and simple.  I suppose that would have more to do with how simple my tax situation is than anything else, but I was also prepared with documents to support my case.  As long as you keep your important financial forms and stick with honesty, tax returns and even tax audits are nothing to fear.

Author Bio

Total Articles: 158
After amassing more than $255,000 in debt on a math degree from the University of Miami, Michael now enjoys spending time at home and writing about personal finance.

Article comments

Dubary Brea says:

Great story, and I had a similar situation happen to me with the IRS as well.

Anonymous says:

Uhh huh. I’d like to hear the continuation of this saga. There are many phrases which can be used around IRS audits. But “the situation will resolve itself” is most assuredly not one of them. When you get your next notice, weigh whether the $405 is lessor than contacting an attorney.

Holy mackerel!

Well, if it were me (I knew you needed this free advice! 😉 ), I’d probably pay the $450 upfront just to forestall penalties. Then contest their claim. If you’re right, they’ll return your money. If you can’t convince them, at least you can keep the cost under control to some extent.

This is why I hire a tax lawyer to do my returns. I am incapable of remaining calm in the face of a notice like that from the IRS…I would just completely melt down. She’s expensive, but it’s a helluva lot better than having the government come after you. Besides, in my experience she manages to get a lot more back from the gummint than I can. And if any such letter ever appears in the mail, she will be there with me to deal with those people.

I had a similar type of letter audit. I had forgotten to write a total on one line of a Schedule D, but the taxes were calculated properly. Unfortunately, it turned into a nightmare.

I put together an explanation with the requested paperwork and they rejected my “explanation”. So, I resubmitted and they rejected it again. Both times, it was obvious from the rejection explanation that the reviewer either didn’t look at or understand my paperwork, she just rejected it.

So, I filled out the paperwork and sent in my $60 to take it to tax court. Then, some IRS lawyer sent me a legalized version of a rejection letter. I called them back and said, “I don’t want a letter from a lawyer, I want my day in court”. The next thing you know, they assigned me an “Appeals” case worker. He took one look at my paperwork, asked me a couple of questions and closed the case. They even refunded me $90.

Unfortunately, this wasted a year of my time and caused me a lot of stress, before I actually got to speak to a case worker. That is the problem with a tax system where you are considered guilty until you prove you are innocent. One computer glitch or a bad case worker can really ruin your day. I’m not bitter, but I sure learned a lot from the experience.

I hope you have much better luck with your audit.

agneaux says:

This reminds me of the time I was audited by the IRS in 1980 after being a graduate student with a research assistantship. I got the same bulky package in the mail. They claimed that I owed taxes on the approx. $9,900 I had earned in the assistantship that year, but it was clearly stated that these types of payments were tax-free in their own IRS documentation. I wrote them a nice letter back (“Thank you for your letter of xx/xx/1980…”) and explained it all to them, and received another letter from them exonerating me. So it does pay to keep track of your stuff!

Denise Detroit says:

Older article, still relevant!
I had the horrible misfortune of receiving a dir dep of $989, followed 3 weeks later by another d.d. of $989! What?
It’s hard if you owe the IRS on taxes, it’s really hard to give them $$$ back when they screw up!
Hours of calls, wasting time, no one there even knew WHY I got my refund twice. Did ex-husband’s taxes same day, he didn’t get twice d.d. Then I worried, if I gave it back, somewhere down the line they would “realize” their mistake, come after me with late fees and fines for the $989, but years after I’d paid it back. It was horrible.
Follow that genius up, next year here’s a letter from IRS, not the giant envelope, what is it? Oh, a bill for $300 for Quarterly Taxes.
I didn’t have a clue what Q.T. even were.
Now this was an endeavor of several weeks to deal with, again, THEIR mistake. I spent hours on the phone. Every person I spoke to could see the bill in the system, but were not authorized to fix it.
I was passed around to VM’s for weeks, they would call me back, same deal, are not allowed to remove the Q.T. I even got 1 who said that I requested it!
How could I request something I’d never heard of?
In the end, I dealt with that for it was actually several months and CSR’s who had no clue, supervisors, their supervisors. I mean, it’s their system, it’s the IRS system, and not only do they make mistakes, but worse, they can’t tell you How or Why the Mistake happened, and they can’t fix it. Leaving you at their whim and years down the road, maybe you’ve forgotten the details, they’re going to come after your paycheck to take what isn’t theirs.