April 01, 2011 | Written by: Mark D. Olander, EA, USTCP
There are certain times in life when an IRS audit is unavoidable. One of those occasions is when certain items on your tax return do not match the figures sent electronically to the IRS by third parties. This month’s case is just one example of how common life changes can cause your tax return to get caught by the IRS’s document matching program, and how a correct tax return can still get you audited.
The member received an IRS CP-2000 notice, an automated letter offering “proposed changes” to his 2008 tax return. The IRS had been informed that he had paid $11,610 in deductible mortgage interest, yet he had reported $22,320 as an itemized deduction on his Schedule A. The letter stated that if the information the IRS had on file was correct, the member would owe $4,033, including $260 in interest. He was given the option to (1) agree with all changes; (2) not agree with some changes; or (3) not agree with any of the changes. If he disagreed he would need to “enclose documentation to support the entries” on his original return. Not sure what to do, the member was relieved that he had purchased Audit Defense.
During their first contact the Audit Representative assigned to the case asked the member if he knew why the mortgage interest he’d reported did not match up with IRS records. He explained that he and his wife had split up, and 2008 was the first tax year since they had been married for which they had not filed a tax return together. He had claimed the mortgage interest on his wife’s house on his own tax return. He said the house was still in his name and he was a co-signer on the mortgage loan.
The Audit Representative asked the member to send her the 1098 forms he had used to file his tax return. She warned him that he may be asked to prove that he had actually made the mortgage payments if the IRS were to question it further, as they often do. She guessed that the problem was likely a mismatch in Social Security numbers on the forms, and she expected that it would be easy to resolve his case.
She found out that the member and his wife had three children; she claimed two and he claimed one, and they both used the Head of Household filing status. They did not live together at any time during the tax year. Even though the IRS had not questioned it, she reviewed with him the complex eligibility rules for Head of Household just to make sure he was using the correct filing status.
When she received the documents from the member, the Audit Representative was able to confirm the reason for the notice. Some of the statements showed the member’s Social Security number, but others did not. The Social Security number on some of the forms he’d reported on his return belonged to his wife. He had never received a notice before because he and his wife had always filed a joint return, and therefore the amount they reported as mortgage interest had always matched up with IRS records.
The Audit Representative mailed the documents to the IRS with an explanation of what had occurred. She let the member know that she expected a “no change” letter from IRS, but that it would take six to eight weeks before it would be received. When a few weeks later she called the IRS to follow up, she learned that the case had been closed with no changes to the originally filed return. She called the member and let him know to expect the IRS letter soon.
When the member received the “no change” letter he called the Audit Representative to let her know how happy he was with the outcome. He told her it was the best $40 he had ever spent and that he had purchased Audit Defense for all years the IRS could possibly audit him. Here’s what he wrote about his experience with TaxResources and his Audit Representative:
You guys ROCK! I'm a client for life!
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