Ugly Letters from IRS

[Corduroy Frog]

Seems like June/July is the season for most of them.  What are the error percentages?

50% the fault of the IRS, either in part or in total.

40% my customers for not giving me information, or bad information, as in "I didn't know I had to turn that in" or [tee! hee!]

      "I forgot.  Some of their excuses are quite imaginable...

10% or less are my goofs and mistakes.  They don't happen everyday, but I admit they do happen.

 

And overall, maybe 10% (at the most) of my clients receive such letters.

[kathyc2]

3 hours ago, Corduroy Frog said:

And overall, maybe 10% (at the most) of my clients receive such letters.

Holy cow!  That's close to 5 times national average. 

[Corduroy Frog]

2 hours ago, kathyc2 said:

Holy cow!  That's close to 5 times national average. 

Doesn't surprise me.  When you consider all the returns that are filed with TurboTax because they have only a W-2 and no deductions, and those who file by themselves with only a W-2, those people never get a letter.  My 10% is absolute maximum, more like 5-6%.  Almost all my returns have farms, small businesses, rental property, investments, etc.  Being in southern Tennessee, I do several Alabama returns, and haven't had a letter from them in years.  Maybe the AL tax people are understaffed.

[kathyc2]

5% is still a ridiculously high number.  Farms, Sch C, and rentals have very little if any matching with IRS database.  

I only remember one federal notice client received over the last 2 years, and that was part of the group last year that IRS admitted were sent in error.

I know you think analysis is a dirty word, but if I didn't use it on returns I would have a lot more.  If client had investment statement in prior year but did not provide for current year, they are asked about it. If they only give me page 1 on investment 1099 accounts, they are asked for the full tax forms.  If amounts are significantly lower without a 1099B they are asked if they moved to a different brokerage.  If they are at the age for RMD's and don't provide 1099R they are asked.  If code W on W-2 but no 1099SA they are asked. Even if W-2 is significantly lower, they are asked.  Surprisingly, some people forget a W-2.  Basically, if anything is significantly different between years, I ask.  If elderly people or others that get confused about investment have discrepancy I ask them to give investment adviser permission to speak with me.  

I required one client to set up an IRS account and print out their estimated payments as they would often have it apply to incorrect period.

As far as TT simple returns not being in error, I disagree.  I had one the took the amount of 401K on W2 as an IRA deduction.  If they have HSA and don't input 1099SA, they are going to get a notice.  

[jasdlm]

I'm with you, Kathy.  I go through the return I've just prepared against the previous year's return; check line by line and then check blank 'records' (i.e. Schwab DIV that I had last year that I don't have this year).  I think it saves me tons of time in the long run, and I think clients are appreciative.

[WITAXLADY]

I empathize with Corduroy!

Latest letters - 3 non payments for taxes or 941's and taxpayer/we sent back a copy of the cashed check!

Lot of nuisance and 75-80% IRS error..

Best, D

[kathyc2]

1 hour ago, jasdlm said:

I'm with you, Kathy.  I go through the return I've just prepared against the previous year's return; check line by line and then check blank 'records' (i.e. Schwab DIV that I had last year that I don't have this year).  I think it saves me tons of time in the long run, and I think clients are appreciative.

Pro has a 2 year report that I always run before even checking input.  Also run 2 year for C's, E's and F's see if everything looks to be inline. 

[Corduroy Frog]

Actually, I've been comparing information returns with previous year's for the last couple years.  This was based on advice from kathyc2 some time ago.   We'll note if the ugly letters drop some.

Again, this still will not stop notices from the IRS that are in error.  Still in the 50% range, and providing them ironclad information doesn't help.  It's like it just sails over their head.

[kathyc2]

10 hours ago, Corduroy Frog said:

Again, this still will not stop notices from the IRS that are in error.  Still in the 50% range, and providing them ironclad information doesn't help.  It's like it just sails over their head.

I'm guessing that may have to do with how you look at who is at fault. 

Example:  In March 2021 I had a new client that I amended all three years prior both federal and state to correct an error that lowered AGI. State processed amended returns within a couple months and issued refunds.  Being Covid year IRS did not process amended until late fall.  In Dec 2021 client receives notice of balance due from state, which reversed the state amended return.

After calling the state, I learned that they link with IRS computer to verify AGI numbers match three years in.  This is to catch if federal upward adjusted and state amended was not filed.  To fix client needed to get transcript showing amended amount and then send that to state. 

I could have blamed IRS for not timely processing amended rather than realizing Covid wrecked havoc at IRS.  I could have blamed state for not just accepting the amended return they had already received.  Guess what?  I realized it was just bad luck with timing and no one was to blame. 

[Gail in Virginia]

It can still be frustrating.  I have a friend that three out of four W2s they reported on their return have apparently not been processed by IRS, and perhaps not by social security.  This is for a 2023 tax return.  This dropped their income so low they are not getting child tax credit or EIC at the level they should.  They responded to the IRS letter by sending copies of the W2s, and following up with a letter from the employers.  The W2s are still not being added to their return.  I realize that anymore, anyone can print a W2 to be able to send it in, but I am not sure what the taxpayer is supposed to do if the W2 either doesn't get filed by the employer or is lost in the system somewhere.  i sent them to SSA to try to get it straightened out there.  But I am afraid this is only going to get worse as lay offs continue.  

[kathyc2]

30 minutes ago, Gail in Virginia said:

I have a friend that three out of four W2s they reported on their return

Three different employers did not submit W-2's?  If it was just one it could be employer was not paying withheld taxes and committing fraud.  But three?  Something sounds fishy.

You've probably already done so, but make sure there wasn't a transposition error W2's received and tax return.   Been a couple years since I got out of payroll biz, but it used to be paper W'2s were sent to SSA.  Do these show up on annual wages on SSA site?

The employer should be checking that all W-2's they submitted were processed correctly.  Since we're talking about refundable credits, doubtful IRS will be able to do anything on the individual return. 

[Abby Normal]

16 hours ago, kathyc2 said:

Pro has a 2 year report that I always run before even checking input.  Also run 2 year for C's, E's and F's see if everything looks to be inline. 

I got a return from the big CPA firm in town and when they looked at the comparison, dividends were double the year before, and rather than double check their work, they circled the increase and wrote "Wow!" next to it. I quickly caught that they had entered a trust 1099-DIV on 1040 as well as the 1041, so, ta-da, dividends were doubled.

I got to amend both the 1041 and the 1040, and got the new client a 10k refund.

I used to work at that firm. years ago.

The word of mouth referrals, or retelling of the story, is always good for my business.

[Gail in Virginia]

3 hours ago, kathyc2 said:

Three different employers did not submit W-2's?  If it was just one it could be employer was not paying withheld taxes and committing fraud.  But three?  Something sounds fishy.

You've probably already done so, but make sure there wasn't a transposition error W2's received and tax return.   Been a couple years since I got out of payroll biz, but it used to be paper W'2s were sent to SSA.  Do these show up on annual wages on SSA site?

The employer should be checking that all W-2's they submitted were processed correctly.  Since we're talking about refundable credits, doubtful IRS will be able to do anything on the individual return. 

I don't think that they were not submitted; I think they were just small companies who submitted on paper, and SSA is behind on processing those.  However, I was just looking at it for a friend and not preparing the return, so my suggestion was that he take the W2s to the social security office and ask them about it.  That was before almost all the offices were closed, of course. 

[Lee B]

It highly unlikely that the SSA hasn't finished processing 2023 W 2s.

Perhaps filing Form 4852s for these 3 W 2s would be the best solution.

 

[jklcpa]

1 hour ago, Gail in Virginia said:

I think they were just small companies who submitted on paper

It's always possible that these small companies mailed the W-2s to IRS instead of SSA. It's hard to believe that 3 companies for one client would do that though. I agree with Kathy that something seems off.