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Posted by Harlan Lunsford on February 28, 2007, 5:40 pm
Please log in for more thread options citizen_average@yahoo.com wrote:
> I have been filing Federal and California taxes for the last
> 18 years. For for the first time ever, I have received the
> honor of being audited :) I received the letter 2194 (SC),
> form 4549, etc. for tax years 2005.
>
> Basically, I have always done my taxes myself, the old
> pencil-paper- calculator way. My 2005 taxes are very boring:
>
> -- only W-2 income (self & spouse)
> -- a small amount of interest.
> -- No other income, no adjustments.
> -- Only personal exemptions and itemized deductions
> -- itemized deductions consist SOLELY of state taxes,
> property taxes, and mortgage interest
> -- ABSOLUTELY nothing else.
>
> Per IRS, I am subject to AMT just based on high California
> state taxes, and property taxes. No ISO, no option income of
> any kind, no "funny" income, no other deductions, no tax
> shelters. Absolutely nothing else.
>
> Anyway, IRS was kind enough to complete the form 6251 for
> me, and walking through the lines, I agree with their
> calculations, so I will pay. More or less happily (I mean, I
> have not cursed even once since receiving the notice, and I
> can afford to pay the AMT). So, my blood pressure is not
> high :)
>
> I have a couple of questions.
>
> 1. I file my taxes in California; it goes to Fresno, CA but
> the audit letter is from Andover, MA. Just curious, why is
> being handled from an office across the country?
Dear Mrs Average Citizen,
(grin)
IRS has offices in many cities which deal with specific areas
of tax law. I send tax returns to Austin, Philadelphia,
Atlanta, Ogden and whereever else "they" desire.
Specialization, you know.
> 2. Letter includes name of an IRS employee "Mrs. XYZ" (it
> actually says Mrs., not Ms., how quaint!), and lists contact
> hours as 4:30PM to 11PM (but does not say time zone). That
> is an amazingly odd hours to contact! Is IRS outsourcing the
> audit job to accountants in India, sitting in Bangalore?
> That would explain the odd hours!
Mr and Mrs is not "quaint", but accepted usage; always has
been. No, they do not outsource to India, but maintain
those extra hours to benefit you, one of their best
customers.
> 3. The notice also includes "Failure to file / failure to
> pay - IRC 6651" penalty equal to 10% of the AMT amount (IRS
> otherwise agrees 100% with my tax filing; only I never did
> AMT before, and they figure I needed to do it for 2005). I
> DID file taxes in time, I paid in time (through payroll
> deduction, and one extra payment on Jan 15, 2006). When I
> filed 2005 taxes in 2006, I received a small amount of
> refund.
>
> So, is there anyway IRS will waive the penalty? Can not
> including AMT form 6251 be considered a failure to file/pay?
> The 10% penalty seems steep. What "magical words" should I
> write in a letter, or should I utter on phone, to plead that
> the penalty be waived? Based on my family's income, I CaN
> NOT say that the penalty amount of less than $500 is a
> hardship on me. Still, if they waive it, that's a couple
> Chinese take-outs for me & my family :) So, how do I plead?
Yes, I think you have a very good case for getting them to
waive this first time failure to include the AMT. After
all, they are human. Well, many might even argue with this
I suppose.
> 4. The letter also includes INTEREST computation, at 7%
> (SEVEN!) COMPOUNDED from 4/15/06 through June, 06, and at 8%
> (EIGHT!) COMPOUNDED from July, 06 through now + 30 days
> (yes, all the way to next month!). Boy, where is IRS earning
> that high rate of interest? Even the best online savings
> account have returned between 4.5% and 5% during this time,
> and the yield on US treasury's 26 week bill auctions have
> been only about 5.3%. How can IRS justify charging such a
> high interest rate?
Because it's the U S congress which sets the rates, and they
are so much better than borrowing the money at your local
bank.
> Anyway to get IRS to use a more reasonable interest rate,
> like 5%? Can the interest be waived, or abated, fully or
> partially, under any circumstances?
No way.
> 5. One of the forms says "Can you pay the full amount within
> 120 days?" My answer is YES, and YES means no need to setup
> install payment plan. Fine. But will the interest continue
> to acrue during this time, if I pay within the 120 days? Or
> does it mean I get 120 days, interest-free, to pay?
The interest will be calculated until a date maybe 25 days
beyond the final letter they send to you.
> 6. If interest continues to acrue, suppose I paid right
> away, within the next 3 to 5 days (mailing time from
> California to Andover, MA), will IRS refund me the excess
> interest from the payment date to the next month? (They have
> computed interest all the way to now + 30 days).
If you want to send what you think it should be now, go ahead
and perhaps save a wee bit of interest.
> 7. Are the interest and penalty going to be be deductible on
> my taxes for 2007, when I file it in 2008? Or should these
> be deducted on 2006 taxes which I will file in a month,
> assuming payment was due on 4/15/06?
No deduction ever for penalties (which I hope you can get
waived since this is your "first time offense", but
interest is inevitable.
> 8. Quite unsually, all the material inside is nicely laser
> printed, even the signature of the "Operations Manager,
> Examinations" (boss of Mrs. XYZ listed on page 1) is scanned
> image, not a real signature.
>
> However, the whole package was mailed in an envelope, which
> was HAND- ADDRESSED IN INK, in real-old-lady handwriting
> style, with so much ornamentation around the serifs of
> letter "R" and what not. Kind of like one of those old
> archived documents from 2 century ago. I suppose some bored
> old lady in mailing department at IRS, or perhaps the
> auditor Mrs. XYZ herself, like to doodle on outgoing audit
> notices!
>
> Anyone else receive hand-addressed letters from IRS?
>
> Thanks a lot for your answers, and discussions. I welcome
> your suggestions, tips, guidance, and what-have-you. Even
> flames welcome! (but our esteemed moderator will likely snip
> that!)
It was the little old lady who did the examination who sent
you the results; not uncommon.
I'm pleased to see that you have as much understanding of
what's happened so far. So many taxpayers haven't a clue.
ChEAr$,
Harlan Lunsford, EA n LA
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