Russ B

During the past week I have dealt with two cases of the IRS (aka Treasury Dept I assume) withholding refunds...(Sorry it is gonna take awhile to explain).

It took me three days of going to the local office where they only had one person working...to talk to someone in person.

The first case was an amended return where the TP's were due back additional money, they filed MFS and then changed to MFJ and they were holding it because the wife would owe money but the joint return would cover that amount and still have a refund due. I talked to the IRS twice on the phone they agreed...and said the refund would be sent, so they had enough money to pay the amount the wife owed. Just a simple swap of checks. But that never happened...and this was in Feb..and June. Now they want to garnish her wages.

The next case was a client where they claimed they never recieved the Sch. EIC....so they disallowed all credits and applied another years refund to the SE tax, because she filed 3 years in one year.

Our system doesn't allow you not to that schedule...and the letter said she didn't owe anything for that year...she almost let it go. But she is due over $5000 now. When I asked the local office they said it shows that the Sch EIC was received. So I asked why this happened...they disallowed all of the credits...including making work pay credit, instead of requesting the Sch EIC....and took $1555 for a refund from a different year. She had no answer.

So I asked her why I was on the phone and explaining it the person only lowered the tax liabilty from $1555 to $55 and didn't issue a refund on that amount before I filed an amended return to tell they screwed up. Again no answer...again this was months ago...and they never requested an amended return for a form that their system shows was processed.

So my question is are any other professionals having these same problems?

More precise tax professionals that deal with IRS letters and audits on a regular basis.

Has anyone else noticed that the CP2000 and other IRS letters are showing more flaws with every batch that is sent out? Well, I have...I had a client today that the IRS sent a CP2000...they claimed he omitted the sale of some stock (which he did, but it was a loss, no big deal amended return). But, they also claimed he overstated the withholding from the W2's. So I pulled the file and checked the numbers...from the W2's in the file what was reported was correct (a company that is a federal government contractor...I know what the W2's look like). I went with my client to get a print out directly from the local IRS office....the local office seemed to know that his wife had this withholding from her wages but the CP2000 says she didn't. I mean come on they accounted for her wages just not the withholding. How does this happen?

I think it is done on purpose; or, they are hiring idiots now days. In many of my last few audits there have been appeals to the Regional Supervisors...and my numbers were correct every time. But, in each case the auditor tried to convince my client I was wrong. And they contacted the client directly to tell them that (telephone); and, didn't inform me when a POA was in effect.

So, has anyone else noticed the huge increase of mistakes by the IRS?

I recently answered a question about this topic. I stated that an IRA can't own rental property "DIRECTLY". Yes, I do understand the IRS allows it. And, as we all know federal tax law does not over rule state laws.

But, my answer was based on something told to me by a very good tax lawyer. He stated, "an IRA is not a separate legal entity; therefore, it cannot own the property directly. However,it can own the property (meaning all of the rights to any profits). The owner of the IRA can direct what he/she wants done to the property; but, this must be done through the custodian." Simply meaning, the owner can't even change a light bulb without the risk of losing the IRA benefits.

I also know about something, fairly new to me, called an IRA/LLC. I am still not sure it is legal. Yes, I know about Swanson v. Commisioner 1996. That was a very specific circumstance and it was only in a single tax court, which does not apply to the other tax court regions. I am not sure that you can form a LLC without ownership, which brings into play the "self dealing" clause for the IRA.

I freely admit that I might have chose the words for my answer very poorly; yet, I still think I do have a very solid basis for my answer, assuming the tax lawyer was correct. I also made a mistake of applying the question I ask him concerning three states to a general answer. My third sin was to assume that this person wanted to manage the property. With all of that being said.

My question is...was the tax lawyer correct? And, if an IRA is truly a separate entity why can it be levied...instead of a lien against the disbursements?

I would really would like to know if I have a misunderstanding of this situation. Oh, by the way...I am also an Enrolled Agent and have been for 15 years.