HUHO: How to win an appeal with the IRS
Or at least, how I did it, step by step, documented for Lauren’s project.
1) Yikes! The IRS says you owe a whole bunch more money than you paid them. Freak out.
2) On second thought, don’t freak out. Go directly to filing cabinet, and pull out file folder for that year. You do save your taxes, right? Save a copy of your tax form, a copy of each form (W-2, mortgage, unemployment, whatever) you had to file with your taxes, and receipts for any deductions, one file folder per year. Save these for as long as you might be audited, which I think is seven years (but you may want to double check this). Now, it’s clear from comparing tax forms that the IRS is wrong; they simply failed to account for any of your business expenses for that very modest home business, and charged you taxes on your entire gross business income. All you need to do is show them that schedule C, and you’re in the clear.
3) Darn it! Where is that schedule C? Why is the one form you need the only form that’s missing in that entire tax year folder? You know you filled it out.
4) It’s time for plan B. Did you have to file a copy of your federal tax forms along with your state taxes? You can order an old copy of your state tax forms, with all their attachments, from the state, for a fee which is considerably less than what the IRS is threatening to charge you. Or at least you can in California. I suspect other states have a similar deal. Go ahead and order that copy.
5) But just in case, after ordering that state tax form, go check the filing folders for years neighboring the year for which the IRS thinks you underpaid. Pay dirt! The schedule C was in the wrong year’s file folder.
OK, so you have the documentation that proves you right, whether by getting it from the state, or maybe even because, unlike me, you filed it in the right folder in the first place. Now you still have a few further steps to go through.
6) Get the address for filing an appeal with the IRS. I forget whether this was in the IRS letter or, what’s more likely, their letter just told me how to pay them and I got the appeal address off their web site. At any rate, it was the sort of thing which, if you don’t have it already, you can find through your local library.
7) Write up that appeal, explaining why you don’t owe the IRS any money, and attaching any necessary documentation. Save a copy of that letter.
This is the not so fun part. The IRS continues to send you one dunning letter after another, while it slowly gets around to considering your appeal. None of these letters acknowledge that you’re appealing their claim that you owe them taxes. Each time you get one of these letters, promptly reply with a letter (or fax) saying that you are disputing their claim that you owe taxes. What I did was to tell them when I filed the appeal, on what grounds I was appealing, and note the dates of every single letter or fax in which I had already informed them of this fact.
9) Oops! Now the state thinks you owe them taxes as well, because they’ve gotten word of the IRS’ incorrect determination of your taxes for that year. File an appeal with them, as well, explaining what has happened and supplying any necessary documentation (in my case, that schedule C).
10) It’s possible that the IRS may move slowly enough on your appeal that the part of the IRS that duns you for money reaches the point of threatening that, real soon now, they’ll place a lien on your property. This was the point where I phoned the IRS to yell at them about not acknowledging my appeal. As soon as I got them on the phone, I was told that I had won my appeal; evidently the last dunning letter went out right as they were deciding that I didn’t owe them any money after all.
So, persistence and documentation won the day.
November 28th, 2006 at 5:59 am
I’ve disputed taxes and won twice. One was some minor amount of money that I think they said I hadn’t reported, or hadn’t paid, like $83. It was their mistake. I found the proof that I had reported or paid it and sent it with a letter and that was that, but I wonder how many people just pay stuff like that without double checking. I was very close to doing that, but some niggling feeling that it was a mistake stopped me.
The other time was when I was doing some long-term temp work and was paid as a freelancer, was dead broke and hadn’t saved or paid any FICA or anything. My accountant advised me that I could dispute the “independent contractor” status, which so I did. This was in the 90s when there was a lot of abuse and fudging the distinction between freelancer and employee, especially in publishing and the IRS was cracking down on it. I had a solid case (worked only at their location, not for anyone else, etc.) so I won, but I had to fight for a long time with them since I also was paying on an installment plan, and of course I wanted them to prorate and credit me the interest and late fees on the excess taxes. Their numbers never exactly meshed with mine so I’m still not sure it was all done correctly. I agree that persistence and documentation are the keys to success, and the ability to write a good, clear letter doesn’t hurt.
In NY State, at least at that time, the state was way nastier than the feds. You could only do payment over time as 12 equal monthly installments, and they were harder to fight with. The IRS lets you drag out payments indefinitely, and accrue interest and penalties.
I think if I had to choose between fighting with the IRS and a health insurance provider, I might pick the IRS.
December 2nd, 2006 at 7:30 pm
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