IRS sent me a notice with the wrong tax liability – How do I advocate for myself?

Forum|Forum|2 years ago
February 28, 2024
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Background:

Step #1 - While filing my 2022 federal tax return, I realized that Line 2 of my already filed 2021 Form 8606 had the wrong “historical non-deductible Traditional IRA contributions” (i.e., $0 instead of $6,000). This error did not impact my 2021 tax return because Line 2 serves to only keep track of the “non-deductible IRA basis”, but it did set the wrong “non-deductible IRA basis” for my the 2022 tax return I was about to file.

Step #2 - I did e-file my 2022 federal tax return using the correct “non-deductible IRA basis” (i.e., as if my 2021 Form 8606 had been originally filed correctly), and at the same time amended my 2021 Form 8606 (via mail) to show the correct “non-deductible IRA basis” on Line 2, which post-amendment aligned with the filed 2022 federal tax return. In filing the 2022 federal tax return, I added a statement at the end explaining that my 2021 return missed $6,000 of “non-deductible IRA basis” in Form 8606 and that I was going to amend it, but I was not able to actually attach the amended 2021 Form 8606 with my 2022 tax return because I e-filed my 2022 return.

Step #3 - In November 2023, I received Notice CP22A from the IRS stating that I had a balance due arising from the 2021 amendment I described on point #1 above. Considering that I am 100% sure the amendment should not trigger any additional tax liability in my 2021 tax return, I called the IRS and spoke to an agent that confirmed there was a mistake on the IRS’ end and that a $0 balance should be showing under my account. The agent told me they passed along a notice to the “Admitted Returns Department” via Form 4442 and that a decision would be made within 30 days.

Step #4 - In December 2023, I received an IRS Letter thanking me for my December call and explaining that the new balance due was from the amended 2021 tax return (which I already knew) – this letter did not provide any additional details. As such, I once again called the IRS and this time an Agent that seemed quite lost / unexperienced confirmed that my claim was still being looked at – They also told me that the IRS Letter I had just received did not show-up on their system and suggested to give more time to the process.

Step #5 – Last week (late February 2024) I received Notice CP501 (i.e., different from the original Notice CP22A) with the same balance outstanding plus some additional interest and late-fee penalties. This letter did not provide any details behind the balance due or regarding my inquiries or calls.

Questions:

Question #1 - The IRS calls / agents seem to not be very helpful to resolve this issue. What process would you recommend I follow to clear this up?
Question #2 - Is it better to pay my balance due and then figure out how to get a refund back?
Question #3 - Is there anything else I am missing in this overall process that I should be considering in terms of the amendment?

Thank you very much in advance!

Best answer by BillM223

#1 Always respond in writing. This means that the people at the IRS who get this letter at least know the situation you are talking about. That is, you want to communicate only with the people in the office that sent you the letter in the first place.

#2 I would not pay the balance due until you ask for a waiver on the penalty and interest because you have shown that the original assessment was incorrect AND that you responded in a timely manner.

#3 Include references to all the contacts that you have had so that the agent responding to your response is aware that there are multiple communications - by letter and by phone.

And after this, always respond by letter.

BillM223Answer

#2 I would not pay the balance due until you ask for a waiver on the penalty and interest because you have shown that the original assessment was incorrect AND that you responded in a timely manner.

#3 Include references to all the contacts that you have had so that the agent responding to your response is aware that there are multiple communications - by letter and by phone.

And after this, always respond by letter.

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Polaris23Author

Thank you very much @BillM223 , that's very helpful!

On your response #2 - What's the best way to go about requesting the waiver? I am seeing online that there's mainly 2 initial options to go about this - The first one seems to be through the Taxpayer Advocate Services (https://www.taxpayeradvocate.irs.gov/contact-us/), and the second seems to be via Form 843. Which one would you recommend?

Also, should I be re-attaching copies of all of my amended / previously related forms, received letters, and a personally written summary when reaching out to the IRS via mail?

Thank you!

LeticiaF1

It would be good to send the waiver application first, and send it with the package of information that you are already preparing.
Yes, send them all the information you have, the more information they have the easier it will be for them to process your case.
Be patient the IRS can take a couple of months or more to resolve your case.
If you do not get answers from the IRS, then contact the Taxpayer Advocate Service. They usually want to see that you have exhausted all options with the IRS before they take your case.

@Polaris23