Case 1. IRS preliminary assessment : $34,200 tax obligation. IRS final determination: $0 tax obligation.

In 2007, Andrew received a letter from the IRS. The letter stated that Andrew's income information for the year 2005 reported by other sources did not match the numbers reported on his Tax Return. According to the letter, Andrew underreported $92,120. Unpaid tax, including interest and penalties, was estimated at $34,200, which Andrew had to pay in full or through the installment agreement. If Andrew believed he did not owe extra money, the IRS gave him 30 days to prove it.

We analyzed Andrew's tax return and found out that in that year Andrew placed dozens of trades through the online brokerage company Etrade. There were gains and losses on the individual transactions, and his total capital gain for the entire year  was $1,760. This amount was properly reported on form 1040. A tax preparer who filed Andrew's tax return for 2005 did not file schedule D itemizing each transaction but applied a worksheet for the aggregated calculation. The brokerage company, however, reports each transaction for each client to the IRS. As a result, the IRS received a list of stocks sold by Andrew in year 2005. In the IRS eyes, each sale generated net income to Andrew. It was Andrew's responsibility to let the IRS know using the proper tax schedule how much he paid for each stock when he purchased it. 

We requested the copies of the transactions for the entire year from the brokerage firm and filled out schedule D indicating each transaction cost. We submitted all the evidence to the IRS within the 30-day window. Two months later, we received a letter from the IRS dismissing all previous allegations and confirming Andrew did not owe more taxes.

Case 2. IRS preliminary assessment : $2,578 tax obligation. IRS final determination: $251 interest payment to the taxpayer.

In 2005, Clara received a letter from the IRS. The letter stated that Clara failed to report her income at the amount of $13,200 earned in 2004 while working at a small restaurant. In fact, in 2004, Clara was still in high school, did not work and did not file taxes. She disregarded that letter and did not respond. After 30 days, she received a second letter with the determination of her obligation to pay $2,578, which included taxes on unreported income, interest and penalties.

In June 2006, Clara received a letter from the IRS informing her that her tax refund for 2005 was levied to cover her obligation to the IRS.  In August 2006, she received another letter requesting her to pay the remaining part of her debt, which was $1,530 including interest and penalties.  Clara already knew her identity was stolen and somebody was working under her social security number. However, she was unable to put a stop to it and to resolve her problems with the IRS.

When Clara came to our office, we helped her dismiss the remaining part of her debt and resolve her identity theft issue. It took almost a year to have her 2004 tax situation cleared and to get back her previously assessed  tax refund for 2005. Moreover, when the tax refund check was issued, it included extra $251 in interest for time the money was taken away from her.

Case 3. Amended Return result: $3,328 refund to the taxpayer

In 2007, Steven came to our office to file his Income Tax return. Steven was married, with two children. While reviewing his tax return for the previous years, we noticed that his wife was not included on the return. Steven explained to us that his wife did not have a social security number up until 2006, therefore he did not include her on her tax return.  This is a common mistake made by the inexperienced  tax preparers. When one of the spouses is a legal resident, his husband of wife can be included on the tax return even if she does not have a social security number. In this case, we get  the Tax Identification Number (TIN) for that person.

Because of that omission, Steven lost over $3,000 by filing as a head of household instead of married filing jointly and by missing the spousal deduction.  We filed the amended return for two previous years and Steven got a refund from the IRS.

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