Photo by Steve Johnson courtesy of unsplash.com
Last week I received one of those letters from the “Department of the Treasury.” It was not, alas, an invitation to apply for employment with the Secret Service. It was instead a letter from the Internal Revenue Service advising me that I owed additional money with regard to my 2018 federal tax return, and giving me three weeks to pay it.
Some of you may have had the pleasure of dealing with such a notice personally. If you are an author or derive at least some of your income from self-employment, your return almost automatically gets a bit of extra attention which may ultimately generate such a notice to you. Others among you may have friends or relatives who have for one or more reasons been on the receiving end of a letter. This particular letter wasn’t my first rodeo. I have worked for fifty-one years and filed an equal number of federal returns. I have in that time received five letters of this type which isn’t too bad a track record, I guess, but I’ve learned a little about what and what not to do as a result.
I am today accordingly going to provide some very basic advice about how you can deal with such a situation, and possibly save yourself some money in the process. I offer this to those of you who prepare and file your own tax returns, as opposed to having a local or national tax service do that for you. Some of those will represent you before the IRS. If so, contact your preparer immediately upon your receipt of the letter.
To begin: eat the frog first. If you don’t want to read the rest of this post, fine, because you’ve just read my most important piece of advice. Open the letter and read it immediately upon your receipt of it. Do not ignore it, set it aside, or assume that it is a mistake. Doing so will simply cause the generation of more notices to you. Interest will accumulate. Matters will escalate. Open the letter, read it, and see what the IRS wants.
Next. When you receive such a notice it is probably because the IRS wants money. The amount is usually stated up front. Forget that for a moment. You want to know the basis for the determination that you are deficient. That is usually buried deep in the notice but it’s there.
Find it. Then get out your Federal tax return for the appropriate year and review it, particularly with regard to the area which the IRS says is causing the deficiency. If you see that the IRS is correct, waiting or ignoring action will not cause the matter to go away. You will continue to receive letters. Your file will eventually be assigned to an agent and the letters will become more personal. The matter will become more difficult to settle. Instead, pay the amount owed if you are able. If not, there is a telephone number that will be listed on the notice which you can call to work out a payment plan. Interest will still accrue, but if you work out a plan and stick to it the letters will (or at least should) stop.
What happened in my case is that the IRS said that I made a computational error resulting in a deficit. I got out my return and the IRS was wrong. I had actually made TWO computational errors. Whoever or whatever reviewed my return found one. I found a second error which substantially mitigated the first error. I accordingly set all of the paperwork aside and streamed the fifth season of Black Mirror, knowing that the IRS would eventually locate the second error and send a second letter with a recalculated deficiency.
Not really.
I got to work. The notice listed a number I could call if I disagreed with the agency’s determination. I got my ducks lined up in front of me in writing and called. I was on hold for forty-five minutes before I was told that due to a “network error” my call could not be handled and that I should try to call again later. “Network error,” I discovered, is agency-speak for “lunch.” Don’t call at or near the hours of 11:00A – 1:00P central time. Everyone is at lunch.
I called back at 2:30P EDT and after approximately a quarter-hour I spoke with a very businesslike but civil call center person. I politely explained my position and stated that I was of course (of course) willing to immediately pay the resulting (lesser) deficiency plus interest. I also asked for the best way to proceed in order to prevent correspondence from crossing. I was told to put my position in writing and (snail!)mail it to the address from which I received the original notice. Done and done.
Next. If you receive a decision in your favor, all to the good. If not, you do have appeal rights. If the dispute has its basis in an issue of tax law that you are going to run into frequently going forward — a business deduction, for example — you may want to obtain representation. If it is a smaller amount arising over a one-time mistake (or two) or a misunderstanding, you may wish to attempt to resolve it yourself. If so, keep in mind that if you run into an IRS representative who won’t budge off of the one-note, thank them for their time and politely ask to speak to their supervisor. Primary level agents are firmly ensconced within the sinecure of the agency’s position. Supervisory level agents are more conciliatory toward the taxpayer. They are not giving anything away, by any means, but are more often more receptive to a taxpayer with regard to a contested issue. Just remember your polite words.
Oh. One more thing. You call the IRS. It does not call you. If you get a call from somebody purporting to be from the IRS (or, as I have in the past, the FBI, or the U.S. Attorney’s office) telling you to go to Wal Mart and buy Visa gift cards or whatever to pay off your account, don’t. It’s a scam.
Hopefully, you will never need any of this information and have never needed it. That said, does anyone have any tax stories they want to share? If so, please do. Whether you do or not, Happy Father’s Day to all of you dads!
Good, informative post, Joe. I haven’t needed it yet (fingers crossed) but good info to know. Thanks. Widely shared.
Thank you, Harvey. I sincerely hope that you (and the other fine folks who visit TKZ) never require this information, but it is better to have and not need than to need and not have. Enjoy your day.
I’m waiting till Amazon gets around to direct-depositing the $thousands of royalties into my business account. So far, they say, there aren’t any such royalties. Ditto for Smashwords. Oh–I have to publish the book? They don’t do advances?
Eric, you probably would not believe the number of people who have asked me how much of an advance they can get from a publishing company for an idea.
True story…I was at a Bouchercon a few years ago when I spotted an executive from Amazon. I walked up, introduced myself, and said, “I’ve sold six thousand books over Amazon and haven’t received a penny in royalties!” He actually turned blue. I quickly told him that I was kidding, but it made me wonder. Thanks for the reminder.
Good advice. The best thing about deciding to have someone else handle my taxes is I don’t get that heart-stopping, sweat-inducing feeling when I get a letter from the IRS. I send it to Steve. Doesn’t mean I might not have to pay, but he does all the checking.
Thanks, Terry. You perfectly described the feeling. I’m glad you have a Steve in your life!
Thanks, Joe. Very good advice. Whether they’re right or wrong, the IRS will often settle both the amount and payment schedule, especially if you have representation.
Claims of any kind often age well. The longer they aren’t settled, the less likely they can be collected due to the Four Horsemen of the Apocalypse (or maybe I should say Five, if you include bankruptcy a/k/a insolvency, an increasing phenomenon in our world) intervening io thwart collection efforts, whether it’s the IRS or other creditor or claimant. Thus the IRS will often settle, as you suggest, by going up the food chain.
If you have a modicum of righteousness on your side, consider getting your Congress person to take up the cudgels on your behalf. Their staff persons often have expertise and contacts they can employ to get a fair resolution or fix.
I used this avenue on a Social Security dispute once, when I knew the SSA was wrong in suddenly hitting me with an erroneous recalculation that would mean my SS would cease for months as they “recouped” the “overpayment”. Within a month I got a call from SSA apologizing for the error and soon my monthly payments resumed, including a check for the amount of their error.
Sorry, I meant “Claims …. often DON”T age well.”
Thank you, David. Here’s another method. I once was scheduled for an in-office audit. I received a letter scheduling the date, time, and appointed place. There was a number to call if I needed to reschedule. As it happened, I had a conflict on the scheduled date. I immediately called and asked for an earlier date! The agent was backfooted for just a moment — most people call to put it off — but recovered and told me that they didn’t have any earlier dates available. We ultimately rescheduled. I went in and it was all resolved in about fifteen minutes. It wasn’t bad, but I wouldn’t want to do it again. Thanks for sharing.
Great advice, Joe. And thanks for the post.
I especially enjoyed the picture of the colonoscope you included. I think I know why you included it. And, having been on both ends of the colonoscope, I would pick that over dealing with the IRS, any day.
Like Terry, I have an accountant who does my taxes. Years ago, after a divorce, I received the dreaded letter from the IRS. Seems they didn’t believe how much I was paying my ex in alimony. My accountant at the time, Ernie, was an ex IRS man. He came to my office, picked up a 3’x3’x3′ box full of files and records. He told me he didn’t want me to go along. He prepared, then he attacked. When he got done, the IRS owed me $10,000.
I stayed with Ernie as my tax accountant until he retired because of lung cancer. I sent him a letter reminding him of his accomplishment years earlier. His wife told me that was his favorite former-client letter.
Have a great weekend and a Happy Father’s Day!
Thank you, Steve, and Happy Father’s Day to you as well! And thanks for sharing your story. It’s always great to hear an ending where the good guys win. An ex-IRS agent would seem to me to be the ideal representative since they would be familiar with both sides of the desk. I’m glad that you came out (relatively) unscathed. Have a great weekend.
Thanks, Steve, for identifying the sinister looking tool.
Back in the 1970s, we were audited b/c the IRS disagreed with the advice a stockbroker had given us about a foreign stock. If I recall, it was a procedural error (like when was the correct time to report owning the stock–on purchase vs. on sale), not any purposeful under-reporting. Nevertheless, that red-flagged the IRS which wanted to charge us a substantial penalty.
We and our accountant went back through our records and found additional deductions we’d missed the first time around. Once those were submitted and the amended return was filed, the IRS now owed *us* a refund.
Funny thing happened. Suddenly all dispute ended. That was when I learned the value of saving every receipt for every nickel that could be a deduction.
Thanks, Joe, for the practical advice and a great laugh over the colonoscope.
You’re welcome, Debbie! I got a good laugh from you as well when you told us how the dispute suddenly ended when the amended return was filed and you had money coming back. Oops!
Sage advice, Joe. Especially the part about eating the frog immediately. Delaying dealing with IRS notices only makes things worse and reduces options. I see it every day. I’ve been in the tax business since 1998 and have been an enrolled agent since 2003. As such I’ve negotiated with and dealt with and grumbled about the IRS. Moving up the chain is also good advice. As was involving your tax pro right away. Letters have a shelf life (usually 30 days) and depending on what letter you received, responding after the expiration date has very unhappy results.
Oddly, (and talk about prophetic) I’m speaking on this very topic this afternoon at Gateway Con in St Louis so I’ll be sure to plug Killzone and your post.
Good luck resolving your issue with the IRS.
Douglas…thank you so much. I’m humbled and honored. Please let me return the favor to the extent I am able: for anyone attending the St. Louis Writers Guild Conference today at the St. Louis Renaissance Hotel, Douglas Osgood will be presenting on the topic “The Business of Writing” at 3:00P. Writing is an art, but if you have any intention of putting your efforts out there it quickly becomes a business. Don’t miss Douglas’ presentation. Wish I could be there, Douglas. Thanks again.
I prepared taxes for one of the national services for awhile. I’d add a couple more points to Joe’s great list.
Be pleasant at all times. This can be a frustrating situation to deal with. The person on the phone at the IRS has limited authority and you might get passed around. Be organized in your objections. Persevere.
If you have a complicated return, especially with self-employment, get a LOCAL accountant to prepare it. It won’t cost much more Than a national firm. The local guy will be available in person and that helps a lot in getting things explained.
Thank you, Brian, particularly for the advice about getting a local accountant. And not that this should be anyone’s primary concern but occasionally a local professional can cost less. Thanks again.
Happy Father’s Day, Joe!!!
Hope you get it all sorted without too much trouble. My father-in-law works for the IRS, so he’s there whenever we need him. Poor Dad has had his car keyed numerous times by angry taxpayers. Death threats caused him to carry a gun to work … at 81 years old!
Thank you for the good wishes, Sue! I’m really sorry to hear about the treatment which your father-in-law has endured. In what universe is that acceptable behavior? That said, I’m glad you have a go-to guy who still has the physical and mental capacities to get up and go to work at 81…I want to be him when I grow up. Thanks for sharing.
What Joe said about taxes. I did a blog on American writers and taxes several years ago. I’ll post my links below. Some may be dead. I don’t have time to check them right now. All are from legitmate experts or trusted resources.
Writers and taxes, General Information:
http://www.artstaxinfo.com/writers.shtml
http://publishing.about.com/od/BookAuthorBasics/a/Taxes-And-Book-Author.htm
https://www.thebalance.com/hobbyist-vs-pro-tax-guidelines-for-book-authors-2799859
http://www.writersdigest.com/writing-articles/by-writing-goal/get-published-sell-my-work/tax-advice-for-writers
http://www.eclectics.com/articles/taxes.html
http://www.tarakharper.com/k_tax.htm
http://www.forwriters.com/taxes.html
https://blog.nathanbransford.com/2017/09/writers-know-taxes.html
https://www.bookworks.com/2017/10/sales-tax-basics-indie-authors/
Deductions:
http://www.freelancetaxation.com/deductions-writers
http://writersrelief.com/blog/2012/03/taxes-for-writers-expenses-that-you-can-and-cant-write-off/
http://www.nolo.com/legal-encyclopedia/tax-deductions-writers.html
My sympathies, Joe, and thanks for the good advice. And here’s something else writers often learn the hard way — If you make too much the year you turn 65, you can be stuck with not only a tax bill but SSI will go after your check. Ask your tax attorney for the current number
Thank you, Elaine, for the kind words and also the reminder about Social Security. The retirement age threshold is a little complicated, as is the earnings test and the special rules for self-employment income. That’s good advice about consulting an expert. Thanks!
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I haven’t gotten one of these calls but for two days I’ve gotten that bogus robocall from the U.S. Treasury. The last day they thought it would be good to call every 10-15 minutes. I turned my phone off. It’s sad to think that there are actually people out there that fall for this. It is a pet peeve of mine for those scams that especially prey on seniors. They are despicable.
I’m totally with you on that, Rebecca. A number of those potential victims have to depend on the kindness of strangers — clerks, etc. — to keep them from falling for it. Very sad. Thanks for the reminder.
I’m sorry. I forgot to add, Happy Father’s Day to all dads both birth and father figures! You are all loved and appreciated and deserve an extra-special day.
Thank you so much, Rebecca!
Happy Father’s Day, Joe. I shouldn’t be having problems as I’m now 77 and in the age bracket where I can earn extra money without paying a tax on it. I hope, I hope. That’s one of the few plusses to getting old. I’m going to email your helpful post to my adult children. Thanks. 🙂 — Suzanne
Thank you, Suzanne! And yes, you are in the age bracket where you can earn income without your social security benefit being reduced or withheld, though it still can be taxed! Don’t get me started on that last point…
Thanks, Joe. I’ll have to look into that. —- Suzanne
Sage advice, Joe. I knew you were a brave guy, but you’ve leveled up even higher my estimation now that I know you not only do your own taxes, but go toe to toe with the IRS!
We have also had five letters. All were about errors, but two of them declared that the errors meant they were sending us money. I liked those letters!
No Steve for us. We have had a Fearless Leslie for 13 years, and I bless her existence every day.
Belated Happy Father’s Day to you!
Thank you, Laura! I like those extra refund letters too. I’ve gotten a couple of them. Not many, but a couple.
I’m glad you have a great tax preparer. Put a picket fence around her. The key is to tell just enough people about her that she stays in business but not so many that she’s too busy to work for you!
There is a thin line between brave and foolhardy! I try to recognize the difference. It keeps shifting as I grow older and hopefully better. Thanks again. Hope that Pickney had a great Father’s Day as well!