Several months after sending in a 130-page timely response to the IRS on a Schedule A medical expense and charitable deductions audit, I received a call from the IRS representative. Her first words to me were, "I'm going to disallow all of your client's itemized deductions because they have not been substantiated." I was dismayed, not only because she seemed to be the most disagreeable IRS employee I had ever worked with, but also because our member had worked for many hours assembling her documents and I dreaded telling her the news. The document organization task had been an immense challenge for her due in part to a self-admitted learning disorder. She had a form of dyslexia that greatly delayed her ability to perform basic categorization and chronological sequencing. I took a deep breath and asked the IRS examiner for clarification. "Your member is claiming medical expenses for a service animal. There's no letter from her doctor. This is just her pet dog," she responded curtly.
I wondered if the examiner had called me without actually reviewing my original document submission. I asked her why the letter from her doctor was not sufficient, since it clearly stated that the member had a rare form of diabetes and needed a service animal to detect when her blood sugar levels plunged to avoid a medical crisis which could include a coma or even death. The Philadelphia-based IRS examiner said, "I didn't see that letter in your files." Calmly, I referred her to the specific page and section of the response package, clarifying the date the letter was written and the doctor's name. She placed me on hold for several minutes. Finally, she returned and said, "Okay, so I found your letter. But I still need proof that the animal is certified under the Americans with Disabilities Act." It turns out there is no ADA certification-standard for service animals. She also claimed the member hadn't proved she paid any of the medical expenses, despite the many Amazon purchase invoices and corresponding credit card statements included in our response package.
Immediately after this highly unpleasant phone call, I notified our member she had the misfortune of getting an IRS examiner who seemed set on rejecting her itemized deductions. But as any good audit rep would do, I promised our member I was not going to give up on her case. Working around the client's already hectic schedule, I advised her how to re-work her documents and clean up her spreadsheets to force the examiner to reconsider her original determination. During this process, I recognized the member's credit card charges weren't lining up with Amazon purchase orders. This is because Amazon only charges the customer when the order ships, so if a single order is split into two delivery dates, there will be two separate charges to the VISA account. I made sure to illustrate this point by creating a visual example in the second response to the IRS to hopefully save us another rejection from the examiner who was not likely to put forth this effort on her own. In the cover letter, I also asked the IRS examiner to kindly reconsider the original doctor's letter supporting the service animal and clarified that the ADA does not require certification of a service animal. To support my statement, I provided a reference to a specific page on the ADA website which outlines this policy.
If this didn't work and the examiner responded with the same kind of pushback, I planned to request a case re-assignment under the Taxpayer Bill of Rights. But to our surprise, we received a follow-up notice from the IRS within 30-days concluding with no changes to the originally filed tax return. I was fully expecting a long battle and was so happy to have received the no change letter. When I shared the good news with the member, she expressed such gratitude that we had gone to battle for her and spared her more than $3,000 of additional tax. This was a great learning experience for me as it just goes to show: with a positive attitude and perseverance, all things are possible…even when dealing with the IRS!
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