Friday, February 20, 2015

The New, Friendly IRS!

The New IRS is user-friendly.  No, really.

Today in the mail, an ominous notice from the IRS that I owe them $1589 in additional taxes due to under-reporting of income.

The form is typical government bureaucrat-ese and is a little hard to fathom.  But after reviewing it - and last year's tax returns, I quickly figure out the problem.

We have a number of stocks held as Joint Tenants with Right of Survivorship, and the 1099 data reported to the IRS is based on the Social Security Number of the first person listed.

We sold some stock and had some dividends in 2013, and I reported this as income on Mark's return, not mine.  This is permissible.  You can report it on one owner's return, or the others, or both (dividing in half).

The problem was, the form provided did not make it clear how to appeal this decision.  So I called the 1-800 number, which provided a DTMF telephone tree of canned answers, none of which was satisfactory.   At the end it said, "Do you wish to speak to a representative?" and I pressed O.

Within a few rings, I got a representative, without musical hold, and I explained the problem to him.   He excused himself and went on hold for a few minutes and came back.   He verified that what I had done was permissible and that the taxes were properly paid on the Capital Gains, and that he would send a new notice showing only taxes due on the dividends.

So I told him the dividends were reported on Schedule B on Mark's return, and he said he did not have access to the Schedule B on his return.   Well, OK, I said, should I send in a copy of the return, along with a cover letter?

"No need," he said, "I trust you.   I'll show the tax as being paid and send out a new notice showing no balance due."

I trust you?   Did I dial the wrong number?   After all, we've all been programmed since birth (and Reader's Digest) to believe the IRS is this money-hungry agency that devours small children for breakfast, and then eats their parents for lunch.

Well, not exactly.  And maybe to me, being a former government bureaucrat myself - as well as a lawyer - I realize that the big scary old IRS is just a bunch of people like you and me trying to do their job.  And it isn't an easy job.  Most people who call in start off by screaming into the phone or making veiled death threats.   The view the government as the enemy and paying taxes as some sort of odious burden that no one else in the world has to deal with.   Oh, they should live in Europe, just for a year - and see what real taxes are like!

The key, of course, is communication.   Calling right away was the right thing to do.   Not responding at all is the wrong thing.   As noted in the notice I received, if I failed to respond, not only interest ($44) would be due, but penalties as well.   And that is where a lot of people get into trouble with the IRS - by simply "blowing off" letters like this.

I will wait for the updated response from the IRS, and if it doesn't arrive in a few weeks, I will send them copies of the tax returns and a cover letter - as well as the signed form indicating I don't agree with the changes, by the due date of March 19th, 2015.

Sadly, so many people are intimidated by the IRS that they simply refuse to respond.  I have met more than one person who has failed to file returns for years on end, convinced they will go to jail if they start filing now.   When they finally go to a tax accountant, they find out that not only are they not going to jail, but that they are owed a huge refund check for all those years they failed to file returns.   It is, to say the least, idiotic - give yourself an ulcer when you've done nothing wrong.

Sadly, too, some right-wing political groups are making hay out of people's irrational fears of the IRS - and using this fear to push odious political agendas.   But then again, people will believe anything these days, including the absurd proposition that you never have to pay taxes.