Persistence Pays Off!

My case started in November of 2010. Our member was being audited for excess mortgage interest. This was the result of using the Married Filing Separately (MFS) filing status, which limited him to deducting interest on a maximum mortgage amount of $550,000. He had filed using the MFS status because the bottom line result of both federal returns was better than filing jointly with his spouse, or so he thought. When he realized he would be limited on deducting the mortgage interest by about $17,000, he amended his return to file a joint return. He paid the small amount due when he filed the amended return. When I reviewed the amended return I found some issues with it, so he had to amend again. Unfortunately, he jumped the gun and did not wait for his first amended return to be processed, and that’s where the trouble began.

The IRS did not complete the processing of either amendment correctly. Each time I called to check on the status, I received a different story. At the end of April, the file was closed and labeled as agreed because they received the signed amendment. Then, about three weeks later, the file was closed as agreed from our standpoint.

The member was very happy to have this over with, but his sense of relief was short-lived, because the next day he received a bill for $14,570 with no explanation. When I called to inquire, I was told that the 1040X was not completely processed and that the spouse’s withholding information had not been transferred over. They said it would take “some time” to complete.

Two months later the members received a second reminder that they owed $2,404, even though they had never received a first reminder for this amount. From what I could determine, this was a failure to file/failure to pay penalty, neither of which was justified.

I sent another letter asking for abatement of the penalty, and eleven weeks later I received a response denying my request. I sent a much more detailed and aggressive explanation than before, but it wasn’t until April, almost a year and half later, that we received the news that the case was finally closed ─ and by that I mean correctly closed. Not only was the penalty removed, but we also received an apology letter from the IRS! I think I’m going to frame it!