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 2020 tax return with the above scenario is as easy as it gets. One W-2 to report, claiming the standard deduction and the economic impact 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 2020 tax return!
The day was March 8th, 2021. I made my way to the mailbox to find a thick, large envelope 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 envelope on its front, my heart sank into my stomach as I noticed this envelope was sent from the IRS’s Boston division. If it was a check to thank me for being an American citizen, the envelope 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 its sleeve. After a quick glance, I was being audited for the 2020 return I filed in February of 2021. Included in my envelope was the reason why I was being audited, a nice little “You’ve been audited” FAQ sheet, and a return envelope with instructions on what the next step would be and how I needed 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 ever 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 2020, 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 2020, 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 collected 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 straightforward 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.