I have an interesting situation here and I'm wondering if anyone can give me their thoughts on what my options are here. I filed and paid my personal taxes properly for the year 1999. Sometime later the IRS sent me a refund check of $15,480 saying that I overpaid my taxes. This was my first year in business on my own so I just figured I did something wrong and that it was my lucky day. The $15,480 refund they sent me paid off a lot of bills. Now, 2 years later, I just received a notice in the mail today saying that *I* filed my taxes incorrectly, and that I owe them $15,480. When I call them and point out that THEY sent me the refund check I'm sure they will realize that it's they who made the mistake not me, but I'm wondering what my options are here. I'm assuming that unfortunately I have to give them this money back? But it would create an undue hardship on me as I don't have an extra $15,000 laying around right now. What should I do in a case like this? I'm thinking of calling them and saying "Look, it's not my fault you messed up ... I don't have much extra money but I can pay you $100 a month..." or something like that. Will that work? I'm going to go over all of this with my accountant but it looks like they just totally screwed up. AND now they are trying to say that I owe penalties and interest too!
Not to sound too harsh, but you did make a mistake. You took money that wasn't yours. You have an accountant now - did you have one then? Why didn't you ask them about it? We just LIVE for those things. They make our day. Really!So now you owe the IRS $15k and don't have it. With a careful reconstruction of the facts, you might be able to get out of the penalties. As you said, you paid everything on time - it was the IRS who initiated the refund. But don't expect to get out of the interest. You've had the use of the money for the last two years.But first of all, you need to get the main issue straightened out: What IS your correct tax liability for 1999? What caused the IRS to send you the refund? There must have been something on the return or some error in their processing that generated the refund. Get to the bottom of that issue as quickly as you can, then you can deal with how much you owe the IRS and how to pay it.
What should I do in a case like this? I'm thinking of calling them and saying "Look, it's not my fault you messed up ... I don't have much extra money but I can pay you $100 a month..." or something like that. Will that work? I'm going to go over all of this with my accountant but it looks like they just totally screwed up. AND now they are trying to say that I owe penalties and interest too! Step one is to figure out what you're dealing with. There are two types of erroneous refunds: assessable and unassessable. Unassessable erroneous refunds can only be involuntarily collected by suit initiated within 2 years of the refund. Assessable ones can be collected in the same manner as tax. You are in a much stronger position if it's unassessable, given the difficulties of bringing suit.Clear this up first with your accountant. If (s)he doesn't know what you're talking about, find someone who does. I'd suggest a search at www.naea.org for some leads.Phil MartiRetired IRS Collection officer
The refund was sent to me in June of 2000 so it's definitely less then 2 years right now. However, the letter I received the other day said they will send me a bill in about 8 weeks and if I agree I owe them that amount then to pay it when I receive that bill. So that would bring us to about November 2001, which means they would have about 7 months to come after me even if it was an unassessable erroneous refund. Thanks for the info though ... I will do some research on unassessable vs. assessable and also see what my cpa has to say.As far as the other reply, they just totally screwed up. I did everything correctly, paid about 30k in takes, then 3 or 4 months later they sent me a letter saying I figured blah blah blah incorrectly and am now due a refund. Apparentely they recently realized that THEY are the ones who screwed up, and now want the money back. I've been doing some research on this lately and this may be related to a problem the IRS had regarding 1999 taxes. They said in a bulletin somewhere that they incorrectly calculated many peoples' refunds for this year.Thanks to everyone who has replied so far. It just seems CRAZY to me that I should have to bend over backwards to pay this money back after all this time has elapsed, when they are the ones who caused the problem. We'll see what they say once I talk to them I guess.
I did everything correctly, paid about 30k in takes, then 3 or 4 months later they sent me a letter saying I figured blah blah blah incorrectly and am now due a refund. The "blah blah blah" is actually the key as to whether its assessable or unassessable. If they erroneously failed to assess enough tax, then it's assessable under routine assessment procedures. OTOH, if they erroneously gave you too much of some sort of credit, e.g. withholding or ES payments, it's unassessable, and they have to sue if you don't pay it.Phil Marti
Here's what the most recent letter says ..."The total amount of federal withholding shown on your return was more than the amount of withholding your payers reported to us on Forms W2 and/or 1099. Therefore, we're disallowing some of the federal withholding you claimed."The silly part is, they still have no clue what's going on ... because I did not show any federal withholding on my return. LOLI was self-employed the entire year and made estimated tax payments as I was supposed to. Looking at their figures, it looks like they counted my estimated tax payments twice. I'm assuming they counted the estimated tax payments I made, and then figured that my employer also withheld that same amount as well.
Here's EXACTLY what happened in simplified terms...Taxable Income was 1999 was 57,810Tax due for 1999 was 22,647(Yes I paid 39% in taxes that year. What a scam this is.Luckily I've seen learned how to legally reduce this.)So my total tax due for 1999 was 22,647.I made 15,470 in estimated tax payments during the year,leaving 7,248 tax due in April. I paid this amount.Then in June I get a letter saying I paid 15,470 too much,which is obviously all of the estimated taxes I paid, andshould have had to pay. For some reason they said I shouldnot have paid this amount because it was not due. Doh. Sothey send me the 15,470 back as a refund.Fast forward to last week. They send me a letter saying theyhave disallowed 15,470 of the federal withholding I claimed.Hello?! I didn't claim any federal withholding.So, I think this explains the scenario pretty well. Can anyof you pros tell if this is assessable or unassessable? Anyadvice on how I should proceed with this? My CPA is prettylame so I think I'll have to find someone else. I hate startingover from scratch with new people ... ugh ...Thanks.
Here's what Phil said in a prior post:OTOH, if they erroneously gave you too much of some sort of credit, e.g. withholding or ES payments, it's unassessable, and they have to sue if you don't pay it.
Got it, thanks. So technically, according to what Phil said ... if I simply do nothing they have about another year in which they have to sue me to get the money back, and if they don't sue me within the next year they can never get it back. Hmm. It isn't often that you get a chance to give the IRS a taste of their own medicine. I'm definitely going to look into this and talk to a pro ... just wanted to get as much info as I can before I move forward. Thanks to everyone for the info and replies. Hmm if they sued me ... let's see ... House in my name? Nope. Cars in my name? Nope. Any assets to speak of in my name? Nope. Monthly income very low these days ... they might HAVE to settle for $100 a month for the next 13 years LOL. No way I can see them being able to charge me interest either. If I do have to pay interest I guess that changes things a bit LOL.Just so no one gets the wrong idea ... I've paid more than my share of taxes ... trust me on that one.
Seems to me when you recieved the money back, you obviously knew it was a mistake. You should have checked into it before cashing the check. Now that they have caught the mistake, THEY SHOULD WANT THE MONEY BACK. Since you had the money, interest is appropriate, though penalties should not be owed for their mistake. You know you were trying to gain from there mistake, as you had no reason to believe you were due the money. How fair would it be to other taxpayers if you were allowed to keep 15,000 simply for a clerical error?While I agree that taxes really hit a self-employed person hard (due to self-employment tax), that isnt the issue here. We cant blame the IRS, for simply following the tax laws.I do consider it outrageous that you dont think they should come after the money.
Seems to me when you recieved the money back, you obviously knew it was a mistakeSeems to me the authority in the matter is the IRS. If we get money back we should have to prove to IRS that they don't know their business? It is so frustrating to call the taxing authority and ask a question, get an answer, and then be told that what they just advised doesn't count. Grrrrbroadinthemarket
they might HAVE to settle for $100 a month for the next 13 years If you are in as dire straights as you indicate, but expect that your financial situation may improve in the future, you could make an Offer in Compromise.Download form 433A and 433B and 656 from the IRS web site and see how you fare. You may be able to obtain funds from a source to which IRS has no legal right to and settle for a percentage of what you owe. It's a process that takes 6 to 9 months. You just have to agree to pay your taxes timely and in full the five years after they settle with you.Any refunds you have owed you for the current year and the year of settlement is theirs. It's a way to clear the slate and start fresh honestly.Of you enter into a payment plan, that can only last 10 years from the year they assess you. Then if IRS hasn't been able to collect from you, the balance is dropped. Of course all this goes on your credit report which can hurt you in other ways.Talk with a tax attorney to see what your options are.
So, I think this explains the scenario pretty well. Can anyof you pros tell if this is assessable or unassessable? Anyadvice on how I should proceed with this? My CPA is prettylame so I think I'll have to find someone else.From what you've told us, it definitely sounds unassessable. They assessed the correct amount of tax and messed up the credits, resulting in an erroneous refund. Since they have no basis for assessing additional tax, they're stuck.This is not an everyday area of the law. Luckily, although it happens, erroneous refunds are not the norm. Thus a lot of practitioners aren't familiar with it. I strongly suggest an Enrolled Agent with an IRS Collection background. There's a searchable database of EA's at www.naea.org.If they sue you you'll need a lawyer, but I think a suit is highly unlikely. It's not an easy process on the government's end, and while it's not impossible, getting a suit filed in 7 months is highly unusual, especially if they're still at the correspondence stage of the process.I'm somewhat torn here. As a taxpayer I want you to pay the money back. As a former tax collector, I think everyone should pay the proper amount. But I also recognize that the law provides specific remedies, and it's not your fault if the government can't or won't pursue them.I leave moral considerations to you and your conscience.Phil Marti
Thanks for the info, it's much appreciated. Just another thought on the subject .... you think if they didn't get the money back for one reason or another my file would have a permanent red flag? They would probably audit me every year for the next 20 years just to make my life hell.
you think if they didn't get the money back for one reason or another my file would have a permanent red flag? They would probably audit me every year for the next 20 years just to make my life hell.Not even the Old Unimproved IRS would have. Failure to repay an erroneous refund doesn't indicate audit potential, and audit resources are too scarce to be wasting them on revenge.Phil Marti
They would probably audit me every year for the next 20 years just to make my life hell. Probably not for two reasons 1)Collections and audit are two different departments and 2) you'd have to have made an error to flag your your return. It was their error this time.There's a restaurant across the parking lot from my office. In the evenings, the restaurant patrons park right in front of my door! I had a sign made up that I'll hang out this tax season. It says, "Parking for tax office ONLY. All others will be Audited!" Do you think it will help??
There's a restaurant across the parking lot from my office. In the evenings, the restaurant patrons park right in front of my door! I had a sign made up that I'll hang out this tax season. It says, "Parking for tax office ONLY. All others will be Audited!" Do you think it will help??Tee Hee.Well - It would have to be my accountant to matter....1) If I thought that my accountant owned that property and it is part of his Kingdom, then you betcha, I'll park somewhere else, "Your Majesty." (My accountant is the nicest, wisest, smartest, bestest, and an Under-god. Who knows who he knows?) No wait, wouldn't he be on the hook, too, in an audit?but...........2) If I thought he leased? Hah, does he really have a clause that gives him the right to those specific parking spots? I think not... And if not, he should hire some BIG kid (who doesn't speak English) to wave off a restaurant goer (like me) who will then NEVER be a client. No wait, that does work either.No I think the sign won't help. Maybe you better skip it. broadinthemarket
I had a sign made up that I'll hang out this tax season. It says, "Parking for tax office ONLY. All others will be Audited!" Do you think it will help??Acm4taxNo I think the sign won't help. Maybe you better skip it. broadinthemarketThe landlord had put up one that was one of the threatening ones about towing your car. After dark, the restaurant folks don't want to walk from the available parking spots so they park in the fire lane, actually, in front of my door. I don't really mind them parking in front of the building, but blocking my door when the lights are on? I mean when I walk out, I literally have to squeeze around their vehicle to get out of the building!I just thought a sense of humor might make them think more kindly towards me and find another spot, or at least back up a few feet away from the door.Thanks for your opinion anyway.Maybe I'll move!!!
I don't really mind them parking in front of the building, but blocking my door when the lights are on? I mean when I walk out, I literally have to squeeze around their vehicle to get out of the building!I just thought a sense of humor might make them think more kindly towards me and find another spot, or at least back up a few feet away from the door.Clods don't think kindly toward anyone except themselves. Have one ticketed and towed--blocking your door must be illegal--and you'll probably get some help from the restaurant. They might even help if you tell them you're going to follow this course.Phil Marti
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