No Stranger to Kindness

Most of us are not comfortable speaking about our personal problems with anyone other than family and close friends, but situations sometimes arise in which we have no choice but to disclose private details about our lives to strangers. The IRS has a way of putting us in that position when they audit our tax returns. This month’s case shows how an Audit Representative from TaxResources provides the support you need when an intrusive IRS audit happens to you.

The members, a married couple, received a letter from the IRS requesting information to substantiate the medical expense deduction reported on their 2007 tax return. Even though it did not come as a complete surprise, they felt the same panic most people do when they receive an IRS letter. They were relieved to find their Audit Defense certificate at the top of their tax file, and the husband volunteered to be the main contact with TaxResources. He called right away to report the letter.

The Audit Representative assigned to the case was congenial, and the member felt at ease speaking with him. He explained that the $55,000 medical deduction was the amount he and his wife had paid to send their two teens to a special boarding school. The family had been in crisis that year. Both children had been having behavioral problems, and they had found a school for them that addressed the myriad psychological issues faced by troubled teens. The Audit Representative explained that to support the expense as a valid deduction, they would need to provide doctors’ letters recommending the treatment and information about the program developed for the children, including details about the type of counseling that had been provided to them.

The initial letters sent by the school were not quite what the Audit Representative had hoped for. He warned the members that the IRS could disallow the medical expenses if they could not establish that the schooling provided was secondary to meeting a medical need. He asked them to request a revised set of letters addressing the medical aspect of the academy’s services, which would mean providing more detail about the specific behavioral problems faced by the children and the therapies used to address them. It was more information than the members wanted to provide, but they understood that without it their deduction would likely be disallowed. The school complied with their request and provided them with detailed letters regarding the care provided to each teen. The Audit Representative sent the documents to the IRS along with a letter explaining that the costs of the special school met the requirements of Internal Revenue Code section 213. They were deductible as medical expenses because the principal reason for attending the school was that the school had the resources for alleviating the students’ mental or physical handicap.

Almost two months later the IRS responded by disallowing the medical expenses. Along with the letter was a bill for $13,560. Both the taxpayer and the Audit Representative spent quite a bit of time trying to reconcile the amount of the disallowance on the IRS letter with the expenses listed on the tax return. Neither could make sense of it. The Audit Representative called the IRS and waited on hold for 35 minutes before someone came on the line. The agent was unable to explain the reason or amount of the disallowed expenses; she said she would put a note in the file and that someone would be in touch. After two days of waiting for a call back, the Audit Representative faxed a request for an itemization of the disallowed medical expenses. A week later the Audit Representative was able to confirm that the fax had been received, but he still did not have an explanation for the disallowed expenses. He was given the name of the examiner assigned to the case, and he left that person a message. The next day someone from the IRS called on behalf of the examiner. She said the file was being reviewed in order to provide the information that the Audit Representative had requested. The Audit Representative attempted to make contact over the next several weeks, and then one day a letter arrived from the IRS. It stated that the audit was closed with no changes to the originally filed tax return.

The members were happy with the outcome and very thankful for our assistance. Here is what they said about their experience with their Audit Representative and TaxResources:

Our Audit Rep was extremely helpful and made sure to put our minds at ease throughout the process. His attention and understanding was greatly appreciated. It made the IRS audit seem much less intimidating and stressful than it would have been without him in our corner.