Seriously Incompetent Auditor

[MsTabbyKats]

Just out of curiosity why is the large business and international dealing with this case? They usually don't come out on cases like this.

I assume because the taxpayer is a non-resident alien. He certainly isn't a large business!

Doing my homework, I have a nice letter drafted...citing Pub 519...that scholarships, when used to pay tuition, are tax exempt. (Any scholarship he got was applied directly to this tuition...but this wasn't even for the year being audited.)

I am also citing Pub 519 for interest...and that non-resident aliens don't pay tax on US interest (his is all of $30...no big deal)

I can't find anything specific about dividends (also about $30)...and I don't think that's worth my time, since it seems to be treaty/visa related...which means a call to "complicated situations" and a long hold time @ IRS (Honestly...I think this rule changed in the past decade and I never knew. It used to be all dividends were exempt.)

There is a nice flow chart in pub 970 about tuition...and I've flowed thru it. I'm not citing cases etc at this point. I'll let the appeals auditor go thru his letters and statements.

Will report back tomorrow.......

[Cathy]

You took the words out of my mouth! I was going to suggest you refer to the Publication or document that will tell the auditor how each item in question is handled. Also, list the page number, the paragraph number.....or better yet send a copy of the page with the Publication # noted and highlighted along with the info to prove your point (also highlighted).

It's inconceivable that IRS is filing positions such as auditors and supervisors of auditors with people clueless about the tax code! I know your frustration!

[Guest Taxed]

>>>It's inconceivable that IRS is filing positions such as auditors and supervisors of auditors with people clueless about the tax code!<<<

Republican's are threatning to severly cut IRS's budget so that they can not enforce Obamacare?

What stops the IRS from shifting resources, cutting back training and auditors and then when IRS is blamed that they can't do the job effectively because they don't have enough boots on the ground make the Republicans eat their words!

[MsTabbyKats]

I'm just pointing out....the reason I started this thread was not to question the auditor's judgment about the education deduction. I know "there is work to do" to prove that.

It was that she added in scholarship income, although there was no scholarship income for 2011....and she told the client she didn't know where she got her numbers from! Any scholarship he got prior to 2011 was paid from the school to directly offset tuition. So..there was nothing reported to the IRS.

(Total interest/dividends is less than $65...so it's really a non-issue @ 25% is less than $10...so it's really a non-issue.)

If I got snippy....it was because people were missing my point...and making this into "going to court" and I'm incompetent and derelict of my duties.

So, I apologize for my snippiness.

[jainen]

>>she told the client she didn't know where she got her numbers from!<<

That does NOT mean she didn't get them from someplace. Pull the transcripts, and ask for her workpapers while you are at it. And never let a client fax 19 pages of anything ever again. You know, there's a real good chance she got the mischaracterized number from HIM.

[Jack from Ohio]

It's inconceivable that IRS is filing positions such as auditors and supervisors of auditors with people clueless about the tax code! I know your frustration!

I am certainly hoping that your statement is rife with sarcasm....

The IRS has been doing EXACTLY what you described for at least the past 3 years.

True documentable story:

At the firm, we specialize in home based businesses. We do returns from all 50 states. 2012 tax year, new client from Kansas City, MO. She contacted us because of our connection to Mary Kay consultants, etc. Late February, I took her phone call and she was asking basic questions about her first year in Mary Kay. As part of the conversation, I asked what her daytime job was. "I work for the IRS." My heart quickened a bit then settled down.

Me: "Really! How long have you worked for the IRS?"

Her: "Since this past October."

Me: "What do you do there?"

Her: "Currently I am answering phone calls in the Where's My Refund department. It is pretty straight forward to get people answers."

Me: "What did you do before working for the IRS?"

Her: "I have a background as a paralegal. In addition, with a few more weeks of training, I will move up to processing 1040X returns. I should be doing that by June."

Me: "That is great that they let you move up so quickly." (Inside I wanted to scream!!!)

Her: "Yes moving up seems easy. How difficult can processing amended returns be?"

Me: "Well it sounds like you have a good career path working. Are there any other questions I can answer for you?"

Her: "Nope. You have answered all my questions."

Me "Thank you for calling. If you have any other questions, please feel free to call back."

This story is 100% factual by me, first person live.

I can only hope to the great tax gods in the sky that none of my amended returns end up in her hands.

[Guest Taxed]

>> I can only hope to the great tax gods in the sky that none of my amended returns end up in her hands.<<

Jack this is an opportunity for you to train her and also have a personal connection at the IRS. Your 1040X will be first in line to be processed.

[MsTabbyKats]

>>she told the client she didn't know where she got her numbers from!<<

That does NOT mean she didn't get them from someplace. Pull the transcripts, and ask for her workpapers while you are at it. And never let a client fax 19 pages of anything ever again. You know, there's a real good chance she got the mischaracterized number from HIM.

No...cause I'm not planning on working with her. I'd rather start fresh with the appeals officer, just as the letter suggests.

I have serious frustrations issues...and will sound very condescending when I point out 2011 Pub 519, page 17, third column.

I do hope you agree with me that when an institution grants a scholarship, and that institution reduces tuition payable based on the scholarship, this scholarship is not taxable, so even if it were in TY 2011 (which it wasn't)....this scholarship was not taxable.

[jainen]

>>I do hope you agree with me... this scholarship is not taxable<<

Yes, I do. I mean, I would if it happened. But you say that is not what happened, which I already agreed with earlier. Neither of us seems to have any actual evidence one way or another, but I never saw it as much of an issue. Apparently the audit started with the $54000 deduction, and the scholarship came up in reviewing the taxpayer's own records other than 1098-T.

As for the deduction, I don't agree with you on that. I think you need to research legal precedent to challenge the strong presumption. Something more than a letter saying an MBA is not required for the job.

[MsTabbyKats]

>>I do hope you agree with me... this scholarship is not taxable<<

Yes, I do. I mean, I would if it happened. But you say that is not what happened, which I already agreed with earlier. Neither of us seems to have any actual evidence one way or another, but I never saw it as much of an issue. Apparently the audit started with the $54000 deduction, and the scholarship came up in reviewing the taxpayer's own records other than 1098-T.

As for the deduction, I don't agree with you on that. I think you need to research legal precedent to challenge the strong presumption. Something more than a letter saying an MBA is not required for the job.

I'm really not sure of what the auditor thinks about this. When the client spoke to her she asked for copies of his checks. If she already said "no" why does she want copies of anything? (this was a rhetorical question)

If it comes to doing "legal research" or something out of my scope, I'll refer him to a tax attorney. I can only go by what the pubs say...and how I interpret it in regard to his situation. According to their flow chart...he qualifies. I'm just a simple RTRP....I know when I'm out of my league.

When I had an issue with the IRS (DH and I get 1099-Rs from about 10 sources....and one was a partial rollover....too confusing for the IRS). I had to make flow charts and sent in copies of the withdrawal and deposit into new account. My first attempt was rejected. I went to my local office...and they said..."tough"...send it in by mail again. With attempt #2....I worded an explanation as if I were talking to a 5 year old. And it was accepted.

So, as I said earlier...we are a long way from "tax court" and "legal research". We are at the "here's the facts" level...which is why I prefer to work with an appeals officer. If the appeals officer doesn't agree with the IRS Flow Chart/Facts....I'll refer him to someone else.

[Guest Taxed]

I have not tried this but if you are not getting your point across in a desk audit can you request a field audit?

[MsTabbyKats]

I have not tried this but if you are not getting your point across in a desk audit can you request a field audit?

I think we are jumping the gun.

I'm calling the auditor tomorrow (hopefully my POA is on file...if not, I'll have to hook things up differently).

On the letter the client got he has to request the appeals officer and list "what he is appealing".

This is where my letter, citing publications, pages and flow charts comes in.

I'll update....no use in repeating myself.

[SaraEA]

"If it comes to doing "legal research" or something out of my scope, I'll refer him to a tax attorney. I can only go by what the pubs say...and how I interpret it in regard to his situation.... I'm just a simple RTRP....I know when I'm out of my league."

Ms TabbyKats, you are definitely out of your league. We should have picked this up when you said you just "knew" you were right and didn't need to research something you already knew, ignoring the advice of many posters to review case law. And then you cited IRS pubs to prove your point when these pubs have NO legal weight at all (except perhaps to reduce penalties if you can prove they misled you).

When a tax pro takes a position on a return, s/he must be able to back it up with what the IRS calls "substantial authority" or face huge penalties. Code Section 1662-4(d)(3)(iii) defines substantial authority. It starts with the Internal Revenue Code and contains Regulations, Revenue Rulings and Procedures, congressional intent, case law (some courts carry more weight than others), letter rulings, etc. In my Master's program, we would get an automatic F on a paper if we cited a pub to prove a position. If you are the one who prepared this return, you can be in a heap of trouble for taking the position you did without having valid authority for doing so. In our office, whenever we encounter a grey area we create a list of all sources of authority that justify our position. If the IRS challenges it and our client loses, at least we will avoid those hefty fines for failing to meet what they call a "reasonable basis" standard.

Your client needs a tax attorney, EA, or CPA to represent him in this matter. You may need an attorney yourself, but perhaps the dollar amount is not high enough for the IRS to pursue a fine against you. At any rate, I'd stop being so antagonistic toward the auditor or she might just decide to go after you for taking the questionable stance you did based on IRS pubs.

Edited June 19, 2013 by kcjenkins
edited only to highlight the crucial issue

[jainen]

>>I'm just a simple RTRP.... I prefer to work with an appeals officer<<

Well now, that's a big problem, isn't it? You aren't qualified to go to Appeals anyway! Why are we even having this discussion?

According to Circular 230, "A registered tax return preparer may represent taxpayers before revenue agents... during an examination if the registered tax return preparer signed the tax return.... this right does not permit such individual to represent the taxpayer, regardless of the circumstances requiring representation, before appeals officers.... "

Oh, I forgot--you only go by what the pubs say. How about Pub 5, Your Appeal Rights, which undoubtedly was sent to your client with the letter you mentioned? "You may have an attorney, certified public accountant, or an individual enrolled to practice before the IRS represent you. Your representative must be qualified to practice before the IRS." Please, MsTabbyKats. You are very earnest, but you are definitely out of your league.

[Jack from Ohio]

It appears, MsTabbyKats, that you need to read thoroughly and carefully Circular 230. Then refer your client to someone with the proper authority to represent them.

RTRP designation is for advertising and bragging rights only. It gives us NO MORE AUTHORITY than an unenrolled preparer. NONE. It was simply a method for the IRS to increase revenues and nothing else.

[MsTabbyKats]

Thank you for enlightening me about the appeals auditor. I'll discuss this with the auditor.

But, I'm sure it's in within my jurisdiction to point out scholarships aren't taxable.

Letter from employer, tuition statements from university, copies of checks.....not enough evidence? If the auditor needs more.........???

[Jack from Ohio]

Thank you for enlightening me about the appeals auditor. I'll discuss this with the auditor.

But, I'm sure it's in within my jurisdiction to point out scholarships aren't taxable.

Letter from employer, tuition statements from university, copies of checks.....not enough evidence? If the auditor needs more.........???

I can see that you aren't listening.......

No more comments from me.

[jainen]

>>If the auditor needs more.........<<

The auditor doesn't need any more. According to you, "The letter he got says if he disagrees he should have a conference with a local appeals officer.." That sounds to me like the case is already closed.

Your employer letter could backfire because it only says the education is not needed for the current job. It does not address the key question, whether an MBA would qualify him for a different job.

Your tuition statement could backfire because it shows the scholarship was not used for tuition. According to the NYU website, "International students are not eligible for scholarships." I guess somebody else gave him a scholarship, probably identified in the 19 pages, which was used for non-academic living expenses.

Interest and dividends, as you have already noted, CAN be taxable to a student on an F visa. More research is needed.

Good luck with your phone call this morning. I would expect the auditor to take the easy way out, inviting you to send in your documentation. That will NOT re-open the audit. It might be considered a request for appeal, but more likely it will just be a tactic to get you off the phone and burn up some time for the client to exercise his rights. That's usually how it works.

[JohnH]

I can't speak for anyone else, but I am CERTAINLY getting an education reading these posts. Thanks for all the insights into how this process works and the warnings concerning the pitfalls.

[Guest Taxed]

I agree it is new stuff I did not know especially with 1040NR. I am more interested in finding out what the final resolution was and why? One thing that bothers me is that the client faxed a 19 page document to the IRS that may have stuff that could undercut his claim. I sincerely hope that does not happen. It would be like shooting yourself!

When i deal with a desk audit, I have the client bring me all the supporting documentation for review before it is sent to IRS.

Few years back one of my client under audit for business expenses on 2106 thought that she would impress the examiner by sending her receipts for charitable donations to prove how good she is at keeping records. I advised her against it and thankfully she followed my instructions. You never give any more info to IRS than is absolutely necessary to resolve the issue or the question!

[joanmcq]

Thank you for enlightening me about the appeals auditor. I'll discuss this with the auditor. But, I'm sure it's in within my jurisdiction to point out scholarships aren't taxable. Letter from employer, tuition statements from university, copies of checks.....not enough evidence? If the auditor needs more.........???

You are so far over your head you don't even know you're drowning. Your client needs knowledgable and qualified representation, and you aren't even attempting to educate yourself on the issues you are clueless about. Have you even reviewed the 19 pages of documents that were sent by your client? Have you read the tax treaty (if there is one with Columbia) to see if the dividends are taxable? It's a de minimus amount, but providing proof for your position on them could go a way towards convincing the auditor that you are competent, for which you'll need all the help you can get, because you certainly are not convincing me. Case law, facts & circumstances are what will prove or disprove the deduction.

[Jack from Ohio]

I can't speak for anyone else, but I am CERTAINLY getting an education reading these posts. Thanks for all the insights into how this process works and the warnings concerning the pitfalls.

You can call that Level II learning from a forum. I have learned literally hundreds probably thousands of little tidbits that have helped me many times by the same procedure. That is why I like it when people post final results and explain them.

[JohnH]

Agreed.

To me, this thread has been especially enlightening in several areas.

And fascinating.

[barosser]

This was a hoot reading all this banter. I really needed this after talking to about 5 different auditors today.

First get the auditor Lead Sheets this will or should explain the reasoning of the auditor. If she refuses to send these then go to the manager and send in a FOIA request. The lead sheets will have much more information than the 886-A form.

Good luck,

[Cathy]

>>>I have serious frustrations issues...and will sound very condescending when I point out 2011 Pub 519, page 17, third column.<<<

MsKats,

Trust me...it's not as hard as it sounds. You can vent (scream about their lack of knowledge with as much colorful language as you wish) when you are put on hold. I was put on hold 7 times because I failed to have the publication and page numbers handy. My issue was iron clad correct in favor of the taxpayer so I felt all that was necessary was for the auditor to speak with her "supervisor" to confirm the legality of the deduction.....NOT......the supervisor was just as clueless as the auditor was.

The last time she put me on hold, I had vented already until I had nothing else to rant about so I used the time to get the pub and page numbers ready. However, the auditor and her supervisor FINALLY had found them when the auditor took me off of hold.

The auditor told me to tell my clients they would receive a "no change" letter in 4 to 6 weeks. The case was closed with no further frustration.

If the auditor suggested the "appeals officer" in a letter already, you can always tell her/him before you proceed to appeals you wanted to "run the pub info by her". She wouldn't want something going to appeals if she missed something....I would think...or rather hope so anyway!

At this point, you have nothing to lose!