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Compassion, Dedication & Expertise

February 01, 2012 | Written by: Betsy Ramsey, EA
1099-A Tax Form
My colleague, Vu, always performs exceptional service, but this time she truly bent over backwards for a member who was not able to provide the needed documents in a timely manner. The audit was focused on the Schedule C for self-employment and a Form 1099-A cancellation of debt. A lot of money was at stake, and she did all she could to make sure our member didn’t have to pay.

The member’s son was hospitalized and in ICU for over a month, which was making it difficult for him to provide documentation to support the audit issues in a timely manner. Vu spoke with the IRS auditor and had the case converted from an in-person office audit to mail-in correspondence, however, the auditor would only allow a short turnaround time for documentation due to the length of time that had elapsed since the first audit letter was sent.

On the real estate issue, the member had lost two properties to foreclosure in 2009 and received 1099-A forms for both. The IRS added a total of $433K in “other income” for cancellation of debt on the examination report due to lack of evidence of the original purchase price of the properties. The member provided the original purchase paperwork on his home and was able to qualify for debt forgiveness on a qualified principal residence, however, he did not have any paperwork on the second property, which had been purchased for investment only and had never been used as a rental. We researched property value records on the Zillow real estate information website to determine the selling price of the property when the member purchased it and provided the website printout to the IRS. They accepted the information as proof of loss on the sale of the investment property, and ultimately removed the entire $433,000 “other income” adjustment from the assessment.

Although the member provided documentation for his self-employment expenses, they were submitted to us in a piece-meal fashion and were not examples of the best record keeping as required by the Internal Revenue Code. Because of the extenuating circumstances with the member’s son in the hospital, Vu took extra time to reorganize the documents for him and presented them in the best light possible to the IRS. Fortunately, the IRS accepted most of the expense substantiation and disallowed only a small amount.

In the final outcome, the examination report resulted in a zero balance due after the IRS’s review of Vu’s expert presentation of the support documents. The original IRS assessment was $174,000 including interest and penalties, and the member was very happy and relieved to see it go away.

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