2006 Calculator Irs Refund Tax -- audited for the first time -- some questions
Q.Basically, I have always done my taxes myself, the old pencil-paper- calculator way. My 2005 taxes are very boring: -- only W-2 income (self & spouse) -- a small amount of interest. -- No other income, no adjustments. -- Only personal exemptions and itemized deductions -- itemized deductions consist SOLELY of state taxes, property taxes, and mortgage interest -- ABSOLUTELY nothing else. Per IRS, I am subject to AMT just based on high California state taxes, and property taxes. No ISO, no option income of any kind, no "funny" income, no other deductions, no tax shelters. Absolutely nothing else. I have a couple of questions. 1. I file my taxes in California; it goes to Fresno, CA but the audit letter is from Andover, MA. Just curious, why is being handled from an office across the country? 2. Letter includes name of an IRS employee "Mrs. XYZ" (it actually says Mrs., not Ms., how quaint!), and lists contact hours as 4:30PM to 11PM (but does not say time zone). That is an amazingly odd hours to contact! Is IRS outsourcing the audit job to accountants in India, sitting in Bangalore? That would explain the odd hours! 3. The notice also includes "Failure to file / failure to pay - IRC 6651" penalty equal to 10% of the AMT amount (IRS otherwise agrees 100% with my tax filing; only I never did AMT before, and they figure I needed to do it for 2005). I DID file taxes in time, I paid in time (through payroll deduction, and one extra payment on Jan 15, 2006). When I filed 2005 taxes in 2006, I received a small amount of refund. So, is there anyway IRS will waive the penalty? Can not including AMT form 6251 be considered a failure to file/pay? The 10% penalty seems steep. What "magical words" should I write in a letter, or should I utter on phone, to plead that the penalty be waived? Based on my family's income, I CaN NOT say that the penalty amount of less than $500 is a hardship on me. Still, if they waive it, that's a couple Chinese take-outs for me & my family :) So, how do I plead? 4. The letter also includes INTEREST computation, at 7% (SEVEN!) COMPOUNDED from 4/15/06 through June, 06, and at 8% (EIGHT!) COMPOUNDED from July, 06 through now + 30 days (yes, all the way to next month!). Boy, where is IRS earning that high rate of interest? Even the best online savings account have returned between 4.5% and 5% during this time, and the yield on US treasury's 26 week bill auctions have been only about 5.3%. How can IRS justify charging such a high interest rate? Anyway to get IRS to use a more reasonable interest rate, like 5%? Can the interest be waived, or abated, fully or partially, under any circumstances? 5. One of the forms says "Can you pay the full amount within 120 days?" My answer is YES, and YES means no need to setup install payment plan. Fine. But will the interest continue to acrue during this time, if I pay within the 120 days? Or does it mean I get 120 days, interest-free, to pay? 6. If interest continues to acrue, suppose I paid right away, within the next 3 to 5 days (mailing time from California to Andover, MA), will IRS refund me the excess interest from the payment date to the next month? (They have computed interest all the way to now + 30 days). 7. Are the interest and penalty going to be be deductible on my taxes for 2007, when I file it in 2008? Or should these be deducted on 2006 taxes which I will file in a month, assuming payment was due on 4/15/06? 8. Quite unsually, all the material inside is nicely laser printed, even the signature of the "Operations Manager, Examinations" (boss of Mrs. XYZ listed on page 1) is scanned image, not a real signature. However, the whole package was mailed in an envelope, which was HAND- ADDRESSED IN INK, in real-old-lady handwriting style, with so much ornamentation around the serifs of letter "R" and what not. Kind of like one of those old archived documents from 2 century ago. I suppose some bored old lady in mailing department at IRS, or perhaps the auditor Mrs. XYZ herself, like to doodle on outgoing audit notices! Anyone else receive hand-addressed letters from IRS? Thanks a lot for your answers, and discussions. I welcome your suggestions, tips, guidance, and what-have-you. Even flames welcome! (but our esteemed moderator will likely snip that!)
A.More efficient to centralize volume operations in a particular tax issue area.If that EE actually exists, it's her preference. Conversely, certain IRS ops are permitted to use pseudonyms on letters. One advantage is when you call and ask for that person, they know what kind of a letter you have (like here, the AMT project). Another is not having the name/number in a volume operation documented, because if you call that person and he/she is real helpful, and you pass it along, that person could get flooded with ordinary inquiries.One can't assume that, as it's possible your return should better have been selected for other issues, and it's a mistake to have limited to AMT. Once they do so, the return is "closed" after you sign the 4549. So, unless you have a good argument on why filed late, I'd be careful on pursuing relief from the penalty. Other people, like a manager, may review your arguments, plus rest of the return, and decide that the penalty issue and anything else be referred to your local Area Office for audit completion.
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