IRS Transcript

[MelanieCPA]

New client for 2006 filing. While trying to minimize underpayment penalty, I referenced Pub 505, p 48 to figure each spouses portion of the 05 tax liability. In short, the IRS said they could not match my 05 numbers and sent a transcript of 2005 and 2006 returns.

The income for 05 matches the copy I have, but the Sch A is completely different. For instance, my copy uses the state and local income tax ded, IRS transcript uses sales tax, etc. Not one number on Sch A matches between the hard copy vs the IRS transcript. The net result is $1900 due, which my client says he paid vs IRS transcript which shows $1100 due.

How should this be handled?

[Uncle Sam]

IRS Transcript

Submit schedules of supporting documentation showing how the amounts reported on the return were computed. Then your client should be able to obtain a refund.

[bertrans]

irs transcrip

If your client wrote a check for $1,900.00 and the transcript does not reflect it, submit a clear copy of the cancelled check,, front and back.

[MelanieCPA]

So, I should go with the IRS number, because it is lower, even though it is not what was (paper) filed??

[bertrans]

IRS transcript

Basically, yes. The form 1040X, towards the bottom part, gets fuzzy. Your primary concern is changing things like: adjusted gross income, Sch A or standard deduction, filing status, exemptions, taxable income, regular tax, other taxes(if any), withholding, and credits, like the Additional Child Tax Credit, etc. Those are the items which the Service will adjust per your figures. Hope this helps.

[bertrans]

IRS transcript

BIG PS: Don't forget to get that payment traced! That's a whole other issue.

[erchess]

What's Wrong Here?

So the IRS messed up and the client is going to have to pay to straighten the mess out. To me there are two obvious morals to the story.

1. Efiling avoids this sort of inconvenience and cost.

2. When it can be shown that the IRS has made a mistake, there needs to be breathtaking financial penalties for the service. For example the taxpayer has a transferable exemption from all taxes for 50 years. During this time the holder of the exemption pays no federal income tax and sends to the IRS any tax bills it would otherwise owe to any government in the world. And yes, the taxpayer may sell the exemption to Bill Gates, or to GM or Microsoft. And no the proceeds of the sale are not taxable but are deductible to the buyer. Maybe I am over reacting but I have collected fees to straighten out so many situations that did not seem to me to be the fault of my clients who had to pay.

[ED SMITH]

Something doesn't add up here. Since this is a new client, presumably the 2005 was prepared by someone else and the client brought in a copy. This may not necessarily be a copy of what was filed, but a version that was later changed and the two got mixed up.

I would request a copy of the return, not just the transcript. It can't be done over the phone as it requires the use of form 4506 and a $39 check. Then it can be seen what the IRS actually got. If it matches the transcript then it will be obvious that the incorrect return was filed.

[MelanieCPA]

Good point...

I spoke with the prior CPA and he sent me a copy of his latest version (which is what had to have been mailed). It matches what the client gave me.

So, should I mail a copy of the return to the IRS and telling them this is what was filed. OR go with their lower number (that no one can support) and ask for a refund of $765. At that point, I will need a copy of their 05 return to fill out the 2210 for 06.

Also, in situations like this, do you advise the client to go ahead and pay the penalty (to stop the interest), and then ask for a refund when everything is straightened out? They keep getting notices, and it scares them.

Thanks.