Mistake on a Return

[dmj4]

My office made a mistake by creating a return using the Payer’s Social Security from a 1099 MISC to create the tax return for the Recipient. The payer is the grandmother of the recipient. He is a minor and owed some SE tax and his parents wrote a check and sent it with the voucher. Of course, since the tax return had the incorrect social, so did the voucher and that led to the check for payment including the grandmother’s social security number.

When I e-filed the grandmother’s return it was rejected due to her social security number already used. I still did not realize it was due to our error. We paper filed the grandmother’s return with 14039 Identity Theft form. The grandmother received a letter from IRS stating she had filed two returns and they combined the two returns and added the Schedule C to her return. I was really surprised they combined the two returns after sending a letter acknowledging they received the 14039.

I plan to amend the grandson’s return with the correct SS# and send proof of the payment and asking it be credited to grandson’s account. The canceled check has the grandmother’s SS# on it.

I plan to send a letter for the Grandmother stating the income is not hers and should not have been combined with her original return, the originally filed return is correct and asking that the grandson’s payment be applied to his social security number instead of hers.

What are the chances IRS will actually credit the grandson with the payment? Is there a better way to straighten this out?

Thanks!

[MDEA]

How did your software allow you to do two returns with same ss#? Are the last names of both clients the same?

[dmj4]

How did your software allow you to do two returns with same ss#? Are the last names of both clients the same?

Yes, they have the same last name. I have used this software for a few years, but my old software of 20 years warned me every time a SS# was used twice for any reason, even if a dependent on parent's return and filing then filing a return for child.

[Lion]

You may need to file an original return for the grandson, because no return with his SSN went to the IRS. And, maybe pay to keep the interest/penalties from adding up.

You may need to amend grandmother's return, using the IRS "combined" amounts as your starting point. Unless you can get someone at the practitioner's line to look at what happened.

I'd be less concerned about the payments, if grandson's is not large, that is. When all is corrected, if grandmother receives a refund, she can give it to her grandson.

[dmj4]

FEDUKE404, the grandmother's business name, and her SSN was the source of the income listed on the1099 MISC for the grandchild. His SSN and name was on the1099 as the recipient. I have done the grandmother's return prior to 2018, but not the grandson's.

The grandmother's 2017 return had not been carried forward to 2018 when the grandson's 2018 was prepared with her social and e-filed. The grandmother is the spouse on her return, so there were not two returns with the primary social being the same. My prior software warned when a social was duplicated anywhere on a return.

The grandmother received a refund that doesn't come close to what I get when I add grandson's income to her tax return, so I'm not sure what the IRS did when they combined the two returns.

Thanks for your help.

[kathyc2]

I'm not understanding why you think the IRS should consider it identity theft for a return filed with a balance due that was paid.

I agree with the advise Lion and Duke have given you.

[dmj4]

I'm not understanding why you think the IRS should consider it identity theft for a return filed with a balance due that was paid.

I agree with the advise Lion and Duke have given you.

Hi Kathyc2.

Thanks for weighing in.

I really do get your point regarding whether IRS should have considered this Identity Theft when there was a payment made. I just feel it is a leap for IRS to send a letter stating you filed two returns, after combining the two returns, when there is a 14039 on file with the box checked that "Someone used my information to file taxes" and a clear explanation on that same form stating spouse had not filed a prior 2018 return.

Now, after them combining the returns I can't get the grandmother's numbers anywhere close to the refund IRS issued her last week.

Thanks!

[Lion]

You don't have to get the IRS's numbers to "work" in your system.

You prepare the return the way it should be (it sounds like you have that already in your software, if your original return should stand). Then you call up Amendment forms in your system. You want to say that you do NOT want your numbers moved to Column A, they remain in column C. Then, you just type in the IRS numbers in column A, including any refund or payments already made in her SSN. Your software will do the math and create column B. Explanation will be along the lines of correcting the IRS's addition of a second, erroneous tax return. Print, sign, mail.

Of course, I'd probably duplicate your original return in your system, with notes about what happened, and then amend only one of your copies.

First, efile an original return NOW for the grandson, as he has no return filed under his SSN. Maybe Grandmother will give grandson the money to make a payment in grandson's SSN. After all, she will be due a refund, yes? Or, YOU might have to pay it to keep this family as clients! But, efile NOW and sort out the payments as both sets of returns get processed.

File the returns NOW and then chase the payments/refunds when the IRS processes the correct information. Amended returns are taking a long time to process, so file ASP.

[kathyc2]

Now, after them combining the returns I can't get the grandmother's numbers anywhere close to the refund IRS issued her last week.

Thanks!

Have you received a copy of the notice that shows line by line what the IRS changed? There is a possibility that changes were made for other items such as a missing 1099R, 1099int, etc.

[dmj4]

Question already answered.

[kathyc2]

Question already answered.

Actually, you said you received a letter. Was the "letter" actually a CP2000 notice?

Did you actually put in the Sch C income into your software? If you just did a manual calculation, the additional income may have affected other items you aren't thinking of such as making more SS taxable, more LTCG taxable, etc.

I disagree with Lion in that you do need to know exactly what numbers the IRS changed before filing the 1040X. If you put different amounts in column A that are different than what the IRS system shows, you will be creating an even bigger mess.

[dmj4]

You don't have to get the IRS's numbers to "work" in your system.

You prepare the return the way it should be (it sounds like you have that already in your software, if your original return should stand). Then you call up Amendment forms in your system. You want to say that you do NOT want your numbers moved to Column A, they remain in column C. Then, you just type in the IRS numbers in column A, including any refund or payments already made in her SSN. Your software will do the math and create column B. Explanation will be along the lines of correcting the IRS's addition of a second, erroneous tax return. Print, sign, mail.

Of course, I'd probably duplicate your original return in your system, with notes about what happened, and then amend only one of your copies.

First, efile an original return NOW for the grandson, as he has no return filed under his SSN. Maybe Grandmother will give grandson the money to make a payment in grandson's SSN. After all, she will be due a refund, yes? Or, YOU might have to pay it to keep this family as clients! But, efile NOW and sort out the payments as both sets of returns get processed.

File the returns NOW and then chase the payments/refunds when the IRS processes the correct information. Amended returns are taking a long time to process, so file ASP.

I don't have the IRS numbers, yet. IRS only sent a letter stating they had combined the returns. Then they issued a refund on July 24th. So far they have not sent a follow-up letter showing the changes they made. I may need to request that.

I will e-file the grandson a new return and I will make payment with it.

I really appreciate your help on this. I would have never thought to do it this way, but it is definitely cleaner.

[dmj4]

Have you received a copy of the notice that shows line by line what the IRS changed? There is a possibility that changes were made for other items such as a missing 1099R, 1099int, etc.

Thanks for asking. Nothing has been received so far except a letter saying she had filed two returns and IRS combined them. Then IRS issued a refund the day after the letter came. I have told the grandmother to watch for a follow-up letter showing the changes. It has been 9 days since IRS deposited a refund. If it is not received this weekend, I will call and request it.

[dmj4]

Actually, you said you received a letter. Was the "letter" actually a CP2000 notice?

Did you actually put in the Sch C income into your software? If you just did a manual calculation, the additional income may have affected other items you aren't thinking of such as making more SS taxable, more LTCG taxable, etc.

I disagree with Lion in that you do need to know exactly what numbers the IRS changed before filing the 1040X. If you put different amounts in column A that are different than what the IRS system shows, you will be creating an even bigger mess.

No, the letter dated July 22 was "LTR 673C" just saying you should not file more than one tax return and IRS combined them and refigured the tax. The letter states they applied the $546 tax payment to this account (grandson's payment with her social on it). It states this reduced the refund from $4076 to $3802. And to expect the refund in 4 to 6 weeks. A refund went in two days later (24th) but it was only $2290.

When I enter the grandson's income in my software I show the refund should be $4,069 which is only $7 less than originally expected. Due to illness in 2018, she had a loss on her Schedule C business that was a little more than the grandson's 1099. So there would be no SE tax due on the grandson's additional income. They were also getting back everything they paid in on their original return. Their adjusted gross increased by $6004 ($2140 increased taxable Social Security and the $3864 for the grandson's income). Only $5530 of this amount is taxable due to income falling below the standard deduction amount on the original return. Their tax liability went from 0.00 to $553, but the additional $546 in payment applied makes the difference $7.

There is no QBI deduction or one-half SE tax to change things because overall self-employment was a loss. They had no LTCG.

Is the Practitioner Hotline where I need to call to get a copy of the notice listing the line by line changes? I was hoping one would automatically be sent, but it has been 9 days since the refund was deposited. Do I need to just wait a little longer?

Thanks!

[kathyc2]

No, the letter dated July 22 was "LTR 673C" just saying you should not file more than one tax return and IRS combined them and refigured the tax. The letter states they applied the $546 tax payment to this account (grandson's payment with her social on it). It states this reduced the refund from $4076 to $3802. And to expect the refund in 4 to 6 weeks. A refund went in two days later (24th) but it was only $2290.

Are you certain the 2,290 was from the tax refund and not that client is confused that it may be from something else like SS payment?

Is it possible that on the original return Sch C was under grandfathers SSN?