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Author: Aida2003 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121564  
Subject: The IRS refund is wrong? What's my next step? Date: 3/28/2011 9:39 AM
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Hello,

I don't have experience with dealing with the IRS beyond submitting tax returns, so I'd like some advice on how to proceed this time.

I've been a 'pencil'-paper tax filer, so as usual I used Free Fillable forms via the IRS site to file our MJF 2010 taxes. But before sending it off, I also used Turbo Tax online to see whether I'll get the same result and I did. Well, the refund that was deposited into our checking account was $100+ less than on the 1040. Two weeks later on Saturday we received a letter from the IRS with explanation and now I know why.

It's because of the qualified dividends. For some reason, the IRS calculated our tax strictly on the taxable income though I showed our ordinary and qualified dividends on 9a and 9b lines, respectively, on the 1040 and also submitted Schedule B. So, the IRS decided not to apply favorable dividend treatment to us :(.

What should I do now? If it was less than $50, maybe I'd leave it alone, but now I'd like to get the rest of the refund.

Should I call or should I mail-in? If by mail, what should I send?
Should I type a letter explaining in words or just make a copy of my Line 44 (Tax) calculation in the 1040 instructions and send back?
Do I have to include another copy of 1040?

Thank you very much.

PS. I hope the above occurred not due to the order of forms on the Free Fillable site, because I couldn't rearrange them in the correct sequence there. So, it was something like this: 1040, W-2, Schedule B, 2441, W-2, Schedule D, etc.
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Author: irasmilo Big gold star, 5000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112844 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 10:10 AM
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The letter you received explaining the IRS changes to your return should also provide instructions for how to dispute the change. If the difference is truly as simple failing to calculate the tax using the capital gains and qualified dividend tax worksheet, you might try calling the contact number and explaining that. The agent may be able to correct the return on the spot. Otherwise send a letter explaining your position to the address provided. I would include only a copy of the worksheet showing the tax calculation since that's the area of disagreement and/or any other forms/schedules that are directly relevant to the disputed numbers.

Ira

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112845 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 10:13 AM
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...It's because of the qualified dividends. For some reason, the IRS calculated our tax strictly on the taxable income though I showed our ordinary and qualified dividends on 9a and 9b lines, respectively, on the 1040 and also submitted Schedule B. So, the IRS decided not to apply favorable dividend treatment to us :(.

...Should I call or should I mail-in? If by mail, what should I send?
Should I type a letter explaining in words or just make a copy of my Line 44 (Tax) calculation in the 1040 instructions and send back?
Do I have to include another copy of 1040?

==================================
I don't think this is something you can fix on the phone.
So send a letter, explaining the problem (in words), and enclose copies of:

1. Their notice
2. Pages 1-2 of Form 1040, CLEARLY MARKED AS "COPY"
3. Your copy of the line 44 Qual. Div./Cap. Gain tax calc. worksheet

Schedule B probably isn't necessary. It doesn't list the sources of qualified dividends.

And now for an item of unsolicited advice:

You did quite a bit of extra work doing the IRS online fill-in forms, AND then using free TurboTax to check the calculations. All to save $40 or less that it would cost to buy the package version of TurboTax, which would get you an e-file-able version of the return. I assume in your analysis, your time has no value to you.

And this is one error on their (IRS') part that would have been avoided if you had e-filed. Because what happened here is that the little-trained temp. employee at IRS who does that data entry just missed the line 9b entry. Not your mistake, but it almost cost you the extra $100 refund, as well as your time (which apparently has no value)involved in getting it, along with the postage.

Bill

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112846 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 10:28 AM
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Now I'm amused. Ira thinks you can get it fixed on the phone. Not my experience, but if you want to give it a shot, go for it.

Seriously, though, be prepared for a long wait, especially if you call today (Monday)as that is the worst day to call them, especially this time of year. It's not unusual to be on hold for a 1/2 hour - and I hope you REALLY like classical music. "The Blue Danube Waltz" and the "Overture to The Marriage of Figaro" are their favorites, I think.
IRS notices are generally dated on Mondays, but are actually mailed the previous Friday, so that most of them are received by the date on the letter.

I'm still betting they instruct you to respond with a letter.
In any case, good luck.

Bill

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Author: YewGuise Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112847 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:04 AM
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...You did quite a bit of extra work
... All to save $40 or less that it would cost to buy the package version of TurboTax,


Maybe OP did calc's by hand to save money, but personally, I wish more people would do their taxes by hand, even if they then use software, because it's a great way to understand how the calculations are done.

My DD (who had great SAT's both math and verbal, and whizzed through calculus) gets upset every year because her bonus check is so heavily taxed. She doesn't understand that if in fact she's overtaxed, she'll get it back in her refund anyway; and also doesn't understand the concept of marginal tax rates. These are VERY simple, basic, concepts, and I'm appalled at her ignorance. Granted, if my explanations were clearer, she'd get it. But the underlying problem is that she's never done her own taxes. She's taken them to H&R Block when they did them for free, then she took them to an accountant her first year of having deductible mortgage interest, and since then she's used TurboTax, just plugging in the numbers and trusting that the results are OK.

She feels her time has value, which it does, but I feel the learning experience would also have value.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112848 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:14 AM
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Have her read Pub 17 and actually read through her tax return. Doing it by hand just asks for calculation errors. If she revels in her ignorance, so be it.

As a taxpayer, I wish everyone used software and efiled. I have no interest in the IRS needing to fix peoples' errors.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112849 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:43 AM
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Have her read Pub 17 and actually read through her tax return. Doing it by hand just asks for calculation errors. If she revels in her ignorance, so be it.

As a taxpayer, I wish everyone used software and efiled. I have no interest in the IRS needing to fix peoples' errors.


Tax software leads to a false sense of security. Doing taxes by hand and then verifing the results eliminates calculation errors. It doesn't eliminate the problem of mistakes during data entry.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112850 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:54 AM
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If you can get through to an agent, they probably can fix it on the phone. It is Monday and the filing deadline is approproaching. Expect that you would have a long wait.

Since efiling, we haven't had any further problems with data entry errors. The one year we did, the agent was able to resolve the problem on the phone. The value of a line was entered for the line above. The agent checked some reference, I don't know if it was scanned copies of the return or other information submitted to the IRS, to verify then corrected the problem.

The letter should have instructions on how to contest the change. I would go this route. If you don't receive a response by April 18th, then call.

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Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112851 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:55 AM
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As a taxpayer, I wish everyone used software and efiled. I have no interest in the IRS needing to fix peoples' errors.

errors are indistinguishable from deliberate attempts to mis-state numbers, so IRS needs to check for them and fix them anyhow.

I can certainly see an argument that the IRS should get out of the data-entry business - but I think tax software makers (and their lobbyists) are going to be strong opponents to that happening.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112852 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 11:59 AM
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As a taxpayer, I wish everyone used software and efiled. I have no interest in the IRS needing to fix peoples' errors.

In this case, it is fixing the IRS' mistake.

All calculations have to be made by the IRS' computers. No IRS agent's time is invested in verifying calculations or sending out correction letters. It is all computer generated.

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Author: irasmilo Big gold star, 5000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112853 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 12:20 PM
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I agree with all you wrote about long wait times and a musical repertoire that hasn't changed in years, but my reason for suggesting a phone call is psychological. You and I know how to respond to almost any IRS notice. But for someone who has never seen one before, there is an immediate terror reaction. If they respond by letter, they worry did they send the right information, etc. and they'll have another 30 day wait before the next communication from the IRS.

If they call, they might get the issue resolved right then, or, if they still need to send a letter, they can discuss with the service rep exactly what information the IRS is looking for.

Ira

Now I'm amused. Ira thinks you can get it fixed on the phone. Not my experience, but if you want to give it a shot, go for it.

Seriously, though, be prepared for a long wait, especially if you call today (Monday)as that is the worst day to call them, especially this time of year. It's not unusual to be on hold for a 1/2 hour - and I hope you REALLY like classical music. "The Blue Danube Waltz" and the "Overture to The Marriage of Figaro" are their favorites, I think.
IRS notices are generally dated on Mondays, but are actually mailed the previous Friday, so that most of them are received by the date on the letter.

I'm still betting they instruct you to respond with a letter.


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Author: irasmilo Big gold star, 5000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112854 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 12:28 PM
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All calculations have to be made by the IRS' computers. No IRS agent's time is invested in verifying calculations or sending out correction letters. It is all computer generated.

It's amazing how many people still think there are rooms of IRS Agents whose only task is to scrutinize every single number on every single tax return. There are not quite 100,000 IRS employees in total and 140 million personal returns filed each year (plus another 90 million corporate, partnership, employment, excise, estate, trust, gift, not-for-profit, etc. returns). If every IRS employee were reviewing returns that would be 1400 personal returns per employee.

Ira

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112856 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 1:06 PM
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I own some GNMAs. They were bought at auction at 100 cents on the dollar. Every month for the past 15 years I have received a payment, which is partly interest and a little bit of principal returned.

One of the first years I had those, I didn't report the principal returned, and got one of those letters. The agent was able to fix it on the phone. For each month the amount of principal returned was equal to the cost basis, so no tax was owed on the "sales" of the partial amounts. The computers didn't know that, of course, and sent me a "we have changed your tax" letter.

So there are things they can fix.

Best wishes, Chris

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Author: Aida2003 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112860 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 2:17 PM
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Thank you, Ira, Bill and others for your responses. I really appreciate it.

I like the idea of calling the IRS, but terrified of the waiting time if it's really 1-2 hours. If I mailed a letter, must I sit tight and wait for the IRS response or could I call the IRS some day before getting the answer? Hmmm....maybe tomorrow or on Wed. I'll try my luck on the phone.

Oh, one more question. If the IRS agrees with me, will it mail a check or make another deposit based on our info on the 1040 form?
---------------------------------------------------------------------

Now in response to Bill's questions about my sanity :-)). Yes, I agree I'm saving a paltry $40 by not buying a software, but like someone said later I like it nitty-gritty and see "what's going on behind the curtains". Since I need to prepare only our family's tax return which is quite simple, I actually enjoy spending some time on our 1040 and then checking against TT. It's only once a year and it's a nice tool to check my math solving skills :-). It's quite funny to read all those IRS instructions: Compare line 1 to 4 and enter the higher number....Now increase to the higher multiple of $1,000, etc. etc.

Also, I don't think buying TT would have prompted an IRS clerk to notice my qualified dividends in my case.

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112861 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 2:34 PM
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Now in response to Bill's questions about my sanity :-)).

OK, now I wasn't quite THAT sharp!!

If I mailed a letter, must I sit tight and wait for the IRS response or could I call the IRS some day before getting the answer?

Yes, wait. Because otherwise you're just back to square one with the next person who answers the phone.

Oh, one more question. If the IRS agrees with me, will it mail a check or make another deposit based on our info on the 1040 form?

They will send a check.

Also, I don't think buying TT would have prompted an IRS clerk to notice my qualified dividends in my case.

If you had filed on paper, no, you're right.

My point was that if you use TT to file electronically, no data-entry error or ommission would be made by them (not that sort, anyway.) That data file you transmit would automatically be entered on the proper lines.

Bill

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Author: NaggingFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112862 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 2:36 PM
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Did you efile via FreeFillableForms, or did you send in paper copies?

I think some of the board experts are assuming you sent in paper copies...

- Megan

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112864 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 3:48 PM
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Did you efile via FreeFillableForms, or did you send in paper copies?

I think some of the board experts are assuming you sent in paper copies...


Just guessing, but that's probably because you can't e-file fillable forms.

Phil
Rule Your Retirement Home Fool

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Author: nwvic Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112865 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 3:58 PM
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Just guessing, but that's probably because you can't e-file fillable forms.

Well, there are free fillable forms, and then there are free fillable forms. Try these: http://www.irs.gov/efile/article/0,,id=201897,00.html

Foolish regards,

Vic
ancora imparo

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112866 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/28/2011 4:25 PM
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This sounds similar to what happened to me using Fillable Forms. IRS website kept saying I figured the tax wrong, which I hadn't. They eventually found their own error and corrected it but delayed my refund 2 to 3 weeks. Wonder if they had a software bug?

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Author: Aida2003 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112867 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/29/2011 9:20 AM
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Here're my answers to Bill and others. But first of all, I appreciate your advice and responses to my thread.

As most of you advised yesterday, I decided to give a shot and give a call today. I got lucky because I waited maybe 5-7 min before a lady answered me. She was an extremely pleasant person to my surprise. My guess is that the IRS hires people with great CS skills to offset its general image:-)) that isn't pleasant, IMO.

Anyway, like the latest poster Billjam mentioned I suspect this FreeFillableForms software has a BIG glitch because it doesn't make sense what I heard. I submitted online, but I printed paper copies for my own records.

Two major things were amiss on the IRS end by the time my tax return reached their computers. The lady said that she sees a number on Line 9a, but the 9b was blank....hence the recalculated tax on Line 44. And the second major thing is that she said she sees form 18xx that says that the dividends were our children's??? No clue about this animal...

This totally doesn't make sense. While on the phone, I managed to open my FreeFillableForms file online. It still matches my printed paper copies meaning that our 1040 shows qualified dividends on line 9b and there isn't any form starting with 18xx and my kids owning stocks. Very baffling....

The result: the lady got an approval from her supervisor to fix my return w/out me sending paperwork again :-)). I should get the rest of our refund this or next Friday. Now I'm keeping my fingers crossed that she finished correcting our file after she ended the call with me.

I don't know which means I'll use next year to submit our 2011 tax return though.

Thank you all again.

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112871 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/29/2011 2:06 PM
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My DD (who had great SAT's both math and verbal, and whizzed through calculus) gets upset every year because her bonus check is so heavily taxed. She doesn't understand that if in fact she's overtaxed, she'll get it back in her refund anyway; and also doesn't understand the concept of marginal tax rates.

I get my bonus in March. Once I find out how much is withheld, I go through a withholding worksheet and adjust the withholding for the rest of the year so that I come out roughly even. This won't work if you get a bonus in December, however.

foolazis

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112875 of 121564
Subject: Re: The IRS refund is wrong? What's my next step Date: 3/30/2011 8:04 AM
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I don't know which means I'll use next year to submit our 2011 tax return though.

Notwithstanding earlier comments about doing taxes by hand so as to gain an understanding of what's going on, I've had good success with TaxAct; it's been worth the $10-ish dollars.

Eric Hines

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