The Warm Fuzzy Feeling You Get from Helping Someone

Written by: Ashleigh D. Noda, Esq.

I received a case for a 2012 Schedule A correspondence audit. When I called the members, the wife answered and told me that her husband was the one that prepared the return, and usually handles all the tax matters, but she was going to be the primary contact because he was ill.

The process was long and arduous, as the members had to get their documents from the CPA, the husband had to translate his notes for his wife and she had to then get them to me with an explanation. There were quite a few delays in getting the documents and I found out later that among other things her husband was having numerous visits to the hospital, emergency surgeries and she had fallen and broken her arm.

Once I received the documents I noticed that the members had received another notice for the 2013 tax year as well. While awaiting the IRS reply for 2012 and requesting documents for 2013, the member’s husband passed away. I felt terrible knowing that the audit wasn’t going away. I had to get a new Power of Attorney, request the death certificate and a copy of his will. Plus, she still needed to provide documentation for the 2013 audit. I had to continue to follow up with her during this difficult time, as we had already been given an extension deadline which was coming up.

We finally received the exam report for 2012 that had a penalty included of $1,340.20. I prepared a penalty abatement request, explaining that her husband had passed away during this audit and he was the one that handled their tax matters. It wasn’t much compared to the $6,700 tax bill, but unfortunately based on the documentation provided, it was the only item we were able to dispute. We sent out the 2013 response and I told the member that she was probably looking at another $6,600 for 2013, but I would request the penalty be removed as well.

During this time, despite the unfortunate passing of the member’s husband, she was consistently upbeat, responsive and somehow maintained the “look on the bright side” demeanor. I had hoped that I could at least help ease the impact just a little with the penalty abatement.

A few weeks later, we received a new notice for 2012 which removed the penalty. When I called the member, she was so appreciative and she told me that she had also just completed her 2015 return and purchased our membership again and explained we were “stuck with her for another year.” She relayed to me how helpful had been throughout the process and how thankful she was that while she had to prepare for the funeral and take care of her husband’s estate matters, she didn’t have to worry about the audit because of our assistance.

In the beginning of this month, we received a no change letter for the 2013 audit (for which documents were admittedly weak, since we did not have the husband’s documents for a majority of the medical expenses and miscellaneous items). I was happy to share the news with the member, who was shocked when I explained what “no change” meant and jokingly wished that we did not have to work together again for 2014.

As I reflected on this story I thought, I did not do anything extremely special for this member and it was how I would have handled any other member’s case ─ I was just more invested. Everyone at may be able to relate to the fact that we always try our best for all our members, no matter what their situation is. The only difference is, some send us home with the warm fuzzy feeling at the end of the day.

Keeping It Simple Helps

Written by: Jonathan Crosby, EA

In August, I was assigned a case that was different from any other case I have ever worked. It was challenging in the way a serious jigsaw puzzling is challenging, and it required the same type of patience and commitment.

The IRS had sent out a soft notice in July asking our member for clarification of $626,842 in retirement distributions from 2012 that they couldn’t account for. After a review of the return I could understand their confusion. It turned out that the taxpayer’s son had been moving his mother’s retirement funds around in an effort to maximize the returns. The records showed $6,880,800 in distributions. The majority of the funds were re-characterized, and only $609,047 had been reported as income.

On further investigation and questioning, I learned that when the son prepared his mother’s return he had consolidated some of the thirty-seven transactions because the software program could only handle up to thirty transactions. The other issue that added to the challenge was that four of the re-characterized transactions had taken place in 2013 − within the required one year time frame − however, the IRS wasn’t able to connect the dots just by looking at the taxpayer’s 2012 return.

My first course of action was to understand, recreate, and validate what the son had done while preparing the return. I pulled the taxpayer’s transcript, which included seventy-two pages of transactions and multitudes of Form 1099-R Forms representing the distributions. The codes in box seven of the form were varied as well, from the common to the rarely seen:

  • Code 2 − Early Distribution Exception Applies
  • Code 7 − Normal Distribution
  • Code N − Re-characterizations IRA Contribution made for TY2012 and Re-characterized TY2012
  • Code T − Roth Distribution, Exception Applies
  • Code R − Re-characterizations IRA Contribution made for TY2012 and Re-characterized TY2013
  • Code Q − Qualified Roth IRA Distribution

After sorting through the various transactions I was able to paint a picture of what had transpired and connect the dots. But I still needed to recreate exactly what the taxpayer’s son had done in Turbo Tax.

Meanwhile, the taxpayer received a second notice showing an amount due of $74,931, which included penalties and interest. I knew the taxpayer didn’t owe this, I just needed to be able to explain what had happened in a manner that whoever reviewed the document s could understand.

Almost three months after my letter went out to the IRS, we received a response stating that the taxpayer owed the same amount listed on the original notice. Based on the reviewer’s notes, it was apparent that he or she didn’t understand what was in the response package. Not to be deterred, I got on the phone with an IRS Representative and went through the material I had sent, page by page. When we were finished he understood the situation and agreed to make the changes I requested.

The taxpayer received a “no change” notice in January, which means she owes the IRS nothing. Needless to say, both the taxpayer and her son are extremely relieved by the outcome and grateful for our service. And I am looking forward to my next puzzle.

Not Easy ≠ Not Possible

Written by: Sondra Cates, EA

High deductions for employee expenses are a frequent audit target, especially when they relate to education. The rules are very strict and it isn’t easy to qualify. But just because it isn’t easy doesn’t mean it isn’t possible, and it doesn’t hurt to have an excellent team available to defend you when the IRS questions it.

The member had been employed as a director of a non-profit organization. The job required a high level of education and certain certifications in order to keep the position and remain up-to-date with the current standards of the industry. That was the reason she had deducted approximately $31K of unreimbursed employee expenses, which included $29K for her continuing education. The IRS initially disallowed the deduction and billed the member for $5,000. This was based on the position that the supporting documentation was lacking corroboration from the employer.

Upon the member’s departure from the nonprofit, others had also left the organization, including the Executive Director, Deputy Director, and the Executive Committee of the Board. The new leadership of the organization knew nothing about the internal policies specific to the expenses our member had been expected to incur while performing her job duties or whether she had been reimbursed for her expenses.

Learning that she would be unable to obtain a letter of support from the nonprofit, our member was discouraged, and we were too. But we had other approaches to try and we were not ready to give up.

We encouraged the member to write a narrative explaining her situation. In another response to the IRS we included the member’s written statement, along with her job description, certification and exam requirements, and re-certification requisites. The education was not a requirement for the employer; however, it was a requirement to keep her certification and it did not qualify her for a new line of work, two key points supporting her position.

The next response we received from the IRS was a “no change” letter, informing us that the IRS was accepting the member’s tax return as originally filed. The extra effort had paid off; the deductions were allowed and our member did not have to pay anything. She was overjoyed with the result, and so were we!