Jainen - Care to beat me up again?

[BulldogTom]

Jainen,

Again I am asking you to make me look as stupid as possible so I can test my argument.

This is the same taxpayer that you beat me up about a few weeks ago. I am writing the audit reconsideration letter right now. The bare facts are this: Taxpayer claimed HOH, 2 dep, Child Tax Credit, and EIC on 2005 return. IRS audited for the third straight year. EIC is disallowed.

I believe the IRS made an error in that they allowed HOH, Dependency, and CTC while disallowing EIC. The Working Families Tax Relief Act of 2004 brought us the uniform definition of a child, which applies to a qualifying child for the purposes of HOH, Dependency, CTC, and EIC.

Please assume that all of the other requirements for EIC are met (SS#, Citizen, Income, etc.)

I want to make the argument that since the IRS recognized the children as qualifying children for the purposes of HOH, Dependency and CTC on the initial audit, they therefore qualified for purposes of EIC.

Can I make this argument? Is the Form 4549-EZ prima facia evidence that the IRS has "qualified" the children for EIC because they accepted the qualifications for the other items?

Thank you again for your time,

Tom

Lodi, CA

[jainen]

>>the same taxpayer that you beat me up about a few weeks ago<<

Hmmm, well I'm not feeling as feisty as I was last month. I thought we had pretty well run out the subject, but if that big Mondavi is still in the game, so am I.

Let's review. I recall that I felt there was little basis for an audit reconsideration, but no harm in trying. 2003 in particular seems off limits because the balance due was already paid. 2005 too, come to think of it. 2006 you won, did you? Is that the source of the 4549 that you want to apply to the earlier years? I also recall that I suggested the taxpayer might have been banned from EIC for reckless disregard of the rules, and maybe that is why he can't get it now. In my humble opinion he deserved it--but I digress.

My main advice concerning the audit reconsideration is something you in particular should think a lot about, so I am going to repeat it word-for-word. "Do NOT give them a bunch of detail in the request--save that for the audit itself. Keep your letter to a SINGLE page with lots of white space so they can understand it in ten seconds, which is all they'll give you. Make your point to the IRS point of view--effective tax administration and maybe a little public image. Don't bother appealing to fairness. The taxpayer already had the same chance as everybody else, and the IRS doesn't care about that anyway. Stick to the technical facts.

A very small dig at the poor service of national companies might fit in, but don't get into the blame game. Just explain that the taxpayer realizes his past mistakes and has engaged a competent professional to ensure future compliance now that he is married, and he just needs to clear up this old mess as simply as possible. Describe the key new records that you have organized and how they will show that the previous audit result was not adequate. Do not run on to a second page."

Focus on why the client should get an audit reconsideration. Save the arguments about why he should get EIC for the hearing. As for the inconsistent application of qualified child, that's not a bad argument in the category of effective tax administration. Be careful about using it in those earlier years, though. It only defined EIC then, not dependents and HoH.

[BulldogTom]

Jainen,

To clarify, I did not win yet on 2006. I just succeeded in getting it moved to my local office. I am waiting for the meeting to be scheduled and I have the 1040X on my desk to present the auditor. The issues on that one are pretty simple and I think I have it under control.

The 4549 is from the 2005 audit. The only change made is the denial of EIC. HOH was not changed, Dependents allowed, CTC was allowed. I can see nowhere in the record where the IRS made the claim that the taxpayers showed reckless disregard for the rules. The 4549 is very short on the subject. It says something along the lines of "We disallowed Earned Income Credit because you did not prove you were qualified". Again, since the rules changed in 2005, it seems to me that the service just denied the EIC because they had done so the previous 2 years and saw no need to change course. I believe this is an error on the part of the auditor and gives me a fighting chance.

As for the other years, I am going to amend 2004 (after I finish 05 and 06 audit). They denied everything on audit in 04, and the taxpayer deserves a better result than what he got (he is the father, paid the rent, provided the food, clothes and medical). If he had good representation, the results should not have been so harsh on him. Even if they deny EIC, he should have gotten the dependent exemptions. I found an issue that I think I can use to amend the return. It may or may not work, but it is something to try. And if the audit reconsideration works for 05, I may just ask for that instead of amending 04.

03 is such a long shot. I don't think I can even get IRS to talk to me on it so I am shelving that unless the IRS opens the discussion.

My letter bleeds into page 2 right now. I will consider all you have stated (when someone says something 2X, I ought to listen) and apply this to my letter. I thank you again for your thoughts.

Mondovi is definately in play, but I have not seen a Jeroboam (sp?) yet. I went to their website and did not see it listed. I will be taking a trip out to the winery to look in person.

Tom

Lodi, CA

[jainen]

>>taking a trip out to the winery to look in person<<

They're hard to miss. I think Mondavi calls theirs a double magnum; jeroboam is a European term. Actually it's kind of rare. At six bottles' worth, it's not a popular size.

>>when someone says something 2X, I ought to listen<<

On the other hand, when I have to say something 2X, I ought to reconsider. So now I think it would be appropriate to submit a package.

The cover letter is still only one page, stating the reason for audit reconsideration--because of weak advice the taxpayer was intimidated into accepting an examination result that was patently erroneous and inconsistent. A father claiming EIC for his natural child who lived with him, was primarily supported by him, and wasn't claimed by anyone else. Also include a proposed result. (In tax jargon they say "abatement," but I avoid that term because in the noble sport of falconry it connotes flapping your wings frantically.)

The second page is an index-description of attachments. The attachments include the audit report and the tax return as well as the supporting evidentiary documents which the taxpayer did not previously have an opportunity to submit.

[BulldogTom]

Jainen,

>>A very small dig at the poor service of national companies might fit in, but don't get into the blame game<<

Is this too big of a dig?

At the initial audit, the taxpayer relied on his preparer and the reputation of the national company that prepared his return, not understanding that the preparer was unable to practice before the IRS during the examination. Taxpayer contends the evidence establishing his positions taken on the tax return was not fully disclosed, nor properly presented to the service at the time of the audit.

>>Also include a proposed result<< Is this veiled threat to go to Court of Claims to obvious?

In the interest of effective tax administration, taxpayer requests audit reconsideration as opposed to other avenues of review available to him. If you grant this request, we believe you will conclude, based on the law and evidence, that the taxpayer is entitled to earned income tax credit.

I have the letter down to one page, it starts with who I am and the request for reconsideration. I then include the first paragraph above. That is followed by the law upon which the taxpayer relies and the application of the current facts to that law. It closes with the second paragraph above.

Am I on the right track? If you were the lucky auditor who got this letter, would you grant the request?

Tom

Lodi, CA

[jainen]

>>Is this veiled threat to go to Court of Claims to obvious?<<

Do you think the IRS believes your EIC client will go to Court of Claims? Does he even know what that is? Does the IRS guy even know? If there are "other avenues of review available" don't mention them now. Focus. By proposed result I meant that the correct tax should be such-and-such, which is already agreed, but the taxpayer is eligible for $X amount of E.I.C. Focus.

>>the taxpayer relied on his preparer and the reputation of the national company that prepared his return, not understanding that the preparer was unable to practice before the IRS during the examination<<

That's okay. About 20 words too many, but okay.

>>taxpayer contends<<

I know, this is the fashion for effective business writing these days, but I think it's dumb. First of all, you ARE the taxpayer so get out of third person and make it embarrassingly intimate. Secondly, you don't have to explain that you are explaining, just explain what there is to explain. Remember, the goal is not only a certain number of pages (one), but also a certain color (white).