L1: IRS Audit
About a year ago my 2007 tax return was audited because of an early distribution (SEPP) from an IRA (see my post titled IRS Audit dated 1/10/2010). It took about seven (7) months to get this resolved in my favor.
Now my 2008 tax return is being audited for the same thing, but what’s odd is that I received two (2) separate mailings of Form 886-A. Both were issued on May 10, 2010 but the adjustment amounts are not the same.
Mailing # 1 states that they are proposing to adjust my tax by 10 % of the premature distribution for an adjustment of $3,122.70.
Mailing # 2 states that they are proposing to adjust my tax by 10 % of the premature distribution for an adjustment of $6,635.00.
The amount of the annual SEPP distribution in question is $31,227 so Mailing # 2 does not make any sense to me. Maybe it’s just a computer glitch? Anyhow, I disagree with both of these mailings because the distribution was a valid SEPP distribution and a Form 5329 claiming exception # 2 was filed with my return.
It took about seven (7) months to get resolution on the audit of my 2007 return so I was wondering if it would be appropriate to contact the IRS’s Taxpayer Advocate Service (TAS) instead of responding to the two mailings.
Any advice would be appreciated.
2010-05-14 12:24, By: daiglel, IP: [188.8.131.52]
L2: IRS AuditLou:If you don’t respond to the letters, inwhich you would say essentially the same thing, ie, “IRS you are wrong,” then you will have to deal with failure to respond in a timely manner. Then I would get either an Enrolled Agent (EA) or CPA to deal directly with the IRS. Actually you would let this person prepare the response letters. I’m convinced that the IRS responds more quickly to EA’s and CPA’s than they do to us regular tax payers.Good luck.Jim2010-05-14 13:36, By: Jim, IP: [184.108.40.206]
L3: IRS AuditIt is possible that the 2nd notice is 10% of the total of the 2007 and 2008 distributions, and the IRS never corrected its records that the 2007 adjustment was reversed.The Taxpayer Advocacy Service (TAS)is not permitted to work on any issues until you have exhausted the IRS 1040 route, or a tax practitioner has tried to get the issue resolved thru our special PRACTITIONER PRIORITY SERVICE (PPS).However, you might be able to talk to an IRS SUPERVISOR, and explain that this is a repeat of the same issue resolved already for 2008. Tax practitioners know how to deal with the IRS on situations like this. Taxpayers will have a difficult time navigating thru the IRS “system and procedures”.2010-05-14 16:31, By: dlzallestaxes, IP: [220.127.116.11]
L4: IRS Audit
Thank you to all who responded.Just to follow-up on my original post, I called the IRS and spoke to an examiner. It seems that the only record they have is of the 1st mailing (adjustment of $3122.70)…very strange.
Anyhow, I explained that I was taking substantially equal periodic payments and that this would be on-going through tax year 2015. He understood exactly what I was talking about and he said that I should issue a response requesting that they drop this examination and all future examinations due to the Repetitive Audit Standard” plus the fact that I received a no-change letterÛ for my 2007 examination. I mailed the response and now I’ll wait…probably for several weeks!
2010-05-19 19:30, By: daiglel, IP: [18.104.22.168]
L3: IRS AuditI have a CPA do my taxes. If I get audited due to my using the 72(t) plan, and get the letter, do I persomally have to respond to the letter if my CPA tries to resolve it first by telephone using the Practitioner Priority Service? Does him using the PPS to resolve the issue remove the need to respond to the letter? Or does the letter have to be responded to by either him or me no matter what?
Thanks.2010-05-16 12:15, By: mikex, IP: [22.214.171.124]
L4: IRS AuditYour CPA should prepare an IRS form 2848 (IRS POWER OF ATTORNEY) for your signature and date, which you return to him to fax to IRS, assuming he has a CAF number with the IRS. ( I have ALL of my clients sign one EVERY YEAR covering the current year, the preceding4 years, and next year. I submit them to the IRS at the end of each month for those received back from clients each month.)The CPA/POA then becomes your official approved representative to deal with the IRS. At that point YOU should not contact IRS because the CPA/POA will be doing that for you.By the way, if you checked off on your tax return to allow IRS to communicate with your tax preparer, that authorization applies ONLY to mathematical issues, NOT TECHNICAL ISSUES, and that authorization is valid only until April 15 of the year 15 months after the year of the tax return ( i.e. 4/15/2011 for 2009)2010-05-17 01:57, By: dlzallestaxes, IP: [126.96.36.199]
L5: IRS AuditThanks for your reply – a couple of clarifications –
“The CPA/POA then becomes your official approved representative to deal with the IRS. At that point YOU should not contact IRS because the CPA/POA will be doing that for you.”
So to be perfectly crystal clear then, the letter, if I get one, is turned over to the CPA. I do not even have to send it or a copy back, or even call them, within 30 days, with a response such as “I am turning this over to my CPA, Mr. So-and-so, for resolution” you wll be dealing with him from now on. I just give it to him and go relax in the hot tub, so to speak (because I have set up my 72t properly).
“By the way, if you checked off on your tax return to allow IRS to communicate with your tax preparer, that authorization applies ONLY to mathematical issues, NOT TECHNICAL ISSUES”
Are perceived problems the IRS may have with the claim of being exempt from the 10% early withdrawal tax (a mathematical calculation) because of an SEPP and the associated formula used (a mathematical calculation) for the method used (amortization, annuitization, etc) mathematical issues? It would seem to me that they are…2010-05-17 12:15, By: mikex, IP: [188.8.131.52]
L6: IRS AuditNo, this is a technical issue, not an arithmetic problem. ( Most tax returns are done on computers, so that this IRS “authorization” on the tax return is virtualy meaningless.) Also, often the IRS notices are after the following 4/15, so that this limited authorization also does not apply for that reason. For your 2007 tax return, that authorization automatically expired on 4/15/2009, even if you filed under an extension as late as 10/15/2008.The 2848 form is the BEST form to use in almost all situations. Your CPA/POA must sign the form AFTER you, and your spouse, have signed, dated, and returned it to him. HE will mail or fax it to the IRS. They will usually post it to their “CAF” (Centralized Authorization File) within a week.Most taxpayers are happy to turn tax issues over to their accountant, and just wait until he gets it resolved. Most tax professionals tell clients to NEVER talk to the IRS because that will usually get you into trouble, and rarely results in getting things resolved.2010-05-17 15:20, By: dlzallestaxes, IP: [184.108.40.206]
L6: IRS Audit”Most taxpayers are happy to turn tax issues over to their accountant, and just wait until he gets it resolved. Most tax professionals tell clients to NEVER talk to the IRS because that will usually get you into trouble, and rarely results in getting things resolved.”
Then to summarize, if I get an audit letter asking me to respond in 30 days, I do not respond in any manner. I sign a power of attorney form, give the letter I got to my CPA (who has all my documentation for my 72t), and let him handle it all.
Thanks.2010-05-18 00:17, By: mikex, IP: [220.127.116.11]
L7: IRS AuditYour summary is correct. I would have thought that your regular CPA would have briefed you to contact him / her immediatelyshould you receive any correspondence from The IRS.Jim2010-05-18 14:37, By: Jim, IP: [18.104.22.168]
L8: IRS AuditIf you had told us initially that you had been audited on this before, you would have saved all of us a lot of time. We could have told you initially about the “repetitive audit” response for you or your CPA under 2848 POA to take care of the entire issue.I had a meeting today with IRS Management, as a liaison for the accounting profession, and suggested that they set up better systems and procedures for SEPP 72-T plans to minimize the nonsense of these notices.2010-05-19 21:49, By: dlzallestaxes, IP: [22.214.171.124]
L9: IRS Auditdlzallestaxes,Re-read the first two paragraphs in his original post. He did mention two audits.2010-05-19 22:36, By: MrWillys, IP: [126.96.36.199]
L9: IRS Audit”I had a meeting today with IRS Management, as a liaison for the accounting profession, and suggested that they set up better systems and procedures for SEPP 72-T plans to minimize the nonsense of these notices.”
Thank you. It has always seemed very strange to me to not have a clear tax form to be filed with your taxes indicating all the parameters and calculations you are using to set up and run through a SEPP plan. If this were the case it would seem to me it would clear up the confusion, and also catch mistakes in the first tax filing rather than years after the fact.
I hope they also educate their employees better, since having read several reports of IRS people having no idea how these plans work. Although I have set up my plan correctly, I fully expect to have it audited and to have my CPA “explain” it to their own agents, this due to the fact there is no form to be filed showing how it was set up or the calculations used.2010-05-21 12:49, By: mikex, IP: [188.8.131.52]