IRS Audit Letter

[Terry D EA]

Very good client received a notice their 2016 return was being audited for the AOC credit for TY 2016. The first part of the letter states the items they want to prove eligibility to take the credit. No problem except these folks have three kids in college and the letter only mentions the word student and does not identify which on the return. Deeper into the letter, the IRS states the credit has been taken for more than 4 years but makes no reference as to which student. So, looking back thru the returns, the AOC had begun in 2012 for the oldest student which now leads us to believe this is the student they are referring to. Here is my dilemma. I feel we should amend the 2016 return to remove the AOC for the oldest student but in turn utilize the life long learning credit which they would be entitled to. The IRS gives instructions as to where and how to send the documents to prove eligibility to take the credit but again there is the additional year the credit was claimed which the letter gives no instruction on what to do. So, my question is if we take the amendment route, should I have the client mail the amendment in with the letter, documentation to prove the eligibility to claim the AOC for the other two students, and the check for the difference. Anyone see any other way this could be handled?

[Evan S. Golar]

Why not simply submit the 1098-T forms showing WHICH child the credit was taken for each year in addition to other proof of college expenses for each child? Once the IRS sees different children for different years, they'll back off.

[RitaB]

13 hours ago, Terry D said:

Very good client received a notice their 2016 return was being audited for the AOC credit for TY 2016. The first part of the letter states the items they want to prove eligibility to take the credit. No problem except these folks have three kids in college and the letter only mentions the word student and does not identify which on the return. Deeper into the letter, the IRS states the credit has been taken for more than 4 years but makes no reference as to which student. So, looking back thru the returns, the AOC had begun in 2012 for the oldest student which now leads us to believe this is the student they are referring to. Here is my dilemma. I feel we should amend the 2016 return to remove the AOC for the oldest student but in turn utilize the life long learning credit which they would be entitled to. The IRS gives instructions as to where and how to send the documents to prove eligibility to take the credit but again there is the additional year the credit was claimed which the letter gives no instruction on what to do. So, my question is if we take the amendment route, should I have the client mail the amendment in with the letter, documentation to prove the eligibility to claim the AOC for the other two students, and the check for the difference. Anyone see any other way this could be handled?

If you have identified the one student for which they claimed the AOC five times, and you want to amend 2016, I think I'd just focus on the one student, and not send anything regarding the other two. 

[Catherine]

I think once it goes to audit, you have to go that route.  However, if you do find one student took the credit five times, go in saying "we looked into this, discovered a mistake, here's the correction" and you may be done in a half hour.  If it's a correspondence audit, do the same thing but on paper.

[Pacun]

This might not  apply in your case but it is a good idea for all of us to remember that if a student took the HOPE credit, it counts against the four times a student qualifies for AOC.

[Max W]

Catherine is right.  Once a return comes under audit, you can not submit an amended return.  What you can do is submit the corrected forms with an explanation.

[BulldogTom]

On ‎04‎/‎21‎/‎2018 at 11:55 AM, Max W said:

Catherine is right.  Once a return comes under audit, you can not submit an amended return.  What you can do is submit the corrected forms with an explanation.

What Max said.  

Tom
Modesto, CA

[schirallicpa]

had exact same situation - gave them "corrected" forms and a detailed letter explaining that we made a mistake and would take the lifetime credit now.  Included all the other bunk they asked for as well.  IRS accepted and made changes that I proposed.  Taxpayer owed a little money but not as much as first assessed.  Everything was good.

 

[WITAXLADY]

I use the 1040X and write worksheet across the top usually - works

[MAMalody]

As a prior IRS auditor I would go with Catherine, Max W, and Bulldog Tom. I would handle it just like schirallicpa said his experince was.

[Terry D EA]

Well we did finish this up. We did submit the corrected forms, included receipts showing actual expenses as required and the form 1098T they asked for and included an explanation of the error. I did amend the return to claim the tuition and fees deduction as it returned a lesser difference than the life long learning credit. I am hopeful that all will come out well. Thanks for all the advice. BTW, all documents were mailed to the address on the letter as instructed. My client also included a check for the difference.

[BulldogTom]

Not that I am the biggest fan of ATX, but one feature that it has that I can't live without is the watermark on the client copy.   I change the watermark to "Corrected Copy" on the amended version of the return, and I print off the original return with "As Originally Filed" splashed across it.   I don't know if that pisses off the IRS or not, but this is so much better than the way we used to do it by writing those things on the top, highlighting them, and then hoping the IRS employee noticed what you put on the top of the page.   There is no way they can get the two versions mixed up.   I cannot fathom living without the watermark feature ever again.

Tom
Modesto, CA