I Fought the IRS for Over $12K and won | Hacker News Reader

I Fought the IRS for Over $12K and won

mikekasberg.com

50 pointsLorenDB96 comments

There's this great bit I saw on Twitter a while ago:

  Government: You owe us money. It’s called taxes.

  Me: How much do I owe?

  Gov’t: You have to figure that out.

  Me: I just pay what I want?

  Gov’t: Oh, no we know exactly how much you owe. But you have to guess that number too.

  Me: What if I get it wrong?

  Gov’t: You go to prison

I absolutely hate the US tax system. As I understand in some countries, they instead send you a "pre-filed" statement (Finland, Denmark, Sweden, etc.). If everything looks fine, you don't need to send anything back at all. It's only if there is a discrepancy that you need to get in touch with the country's tax agency.

There have been attempts to do the same in the US. It's blocked by two blocks; the tax preparation companies who make bank every year charging people for their services, and generally anti tax people who want the process to be painful to make people dislike taxes more.

Generally though if you just make a mistake the punishment is paying it back with some fee/interest not prison. If they think it's an intentional effort to dodge taxes though it can escalate to prison time of course.

We could do that in the US as the IRS has everything they need. The reason we don't is that there are people in Congress who believe that taxes should be a big pain so people resent the IRS and want to gut it. And companies like Intuit want it to be a pain so they can keep making money essentially rent seeking.

If you gut the IRS are taxes abolished too? How does that work?

They're abolished as long as you can afford the lawyers to fight an underfunded government agency indefinitely.

A great question, and worth asking those who want to gut it.

Isn't that Direct File? Unless they give it the axe of course...

This is true, but progress is being made.

https://directfile.irs.gov/ is the IRS' direct file service, for those interested. It is supported in concert with 25 states from a tax filing perspective, and is free. From their email newsletter, improvements are rolling out month by month (continual expansion of tax scenarios supported).

https://www.irs.gov/filing/irs-direct-file-for-free

Almost certainly going to get killed by DOGE though:

https://www.businessinsider.com/irs-direct-file-doge-treasur...

DOGE and this admin won't be around forever. Looking forward to the reboot.

I wish I shared your optimism. I think the process will be more like rebuilding from a pile of rubble than restarting a working system.

Tomato tomato. No optimism, only positive nihilism. We're all default dead, humans have existed for ~300k years, this is another bump in the road.

>won't be around forever

they're working on it.

DOGE declared it woke fraud, waste and abuse.

Something about DEI I guess?

To be fair, that "you go to prison" is not really true. The IRS will work with you to figure out most things and you are only in trouble if you are actively trying to commit fraud. You may get fined for some egregious mistakes, but those are typically of the form that are pretty egregious.

Yeah, in Cheek v. United States it was found that (in an exception to the normal rule) ignorance of the law is a valid defense in criminal tax cases due to the complexity of tax law.

https://en.wikipedia.org/wiki/Cheek_v._United_States

https://www.irs.gov/pub/irs-wd/0947055.pdf

Yeah, my experience with making mistakes on my taxes was that they sent me a bill for the difference, I paid the bill, and that was it. There wasn't even a fine beyond that I had to pay interest on the money I owed.

Sometimes the IRS is wrong, too, and you just mail them proof. Like if you forget to report your cost basis for a stock sale, they'll send you a letter and say "We're assuming the cost basis is zero, so here's what you owe!" and you just respond back with a letter that says "This is the cost basis, and here's a copy of my brokerage statement." and that's that. I've found dealing with the IRS actually quite straightforward and non-scary. As long as you have your paperwork in order. If you're careless about your records, then you're going to have a bad time.

Exactly this. Is what I meant by them working with you. They aren't playing some devilish game of trying to trick you into paying more. They tell you why they say you owe something and what it would take to get them to change that. And are fine if you need time to find it.

If you are actively trying to avoid the calls, I'm sure that is probably not a good idea. But, that is basically in the "actively trying to commit fraud" territory, at that point. No?

And Intuit is one of the big powers keeping it like that.

In Spain we have had a "pre-filed draft statement" (that you have to confirm, but it's as easy as clicking "OK", or just mailing it back in the days when it was all paper) since 2003.

And there has been free government software for doing your taxes since 1988 (back in the day it was difficult to use and a bit terrible in general, but it was there and you could print your statement with a dot matrix printer... The web version nowadays is kind of ugly but pretty decent.)

> As I understand in some countries, they instead send you a "pre-filed" statement (Finland, Denmark, Sweden, etc.). If everything looks fine, you don't need to send anything back at all. It's only if there is a discrepancy that you need to get in touch with the country's tax agency.

Yes. I'm in Sweden and self-employed so I have to take a few extra steps when declaring taxes, but just did that last month and it took around fifteen minutes. If you're an employee and your only active source of income is your job, as is the case for most people, "doing taxes" amounts to just approving the prefilled form that you get, which is just a couple of clicks. Or one signature and letter if you want to do it on paper the archaic way.

It works because every company has to submit a monthly report of what it paid its employees, and also deducts income tax on your behalf. So when the tax year is over, the tax agency knows how much you earned and how much tax was paid on that, which is all it takes.

Considering the standard deduction is default for many people now it does seem like filing taxes should just be a quick form on the IRS website.

For MOST people you take the standard deduction, and there's now only a handful of legit credits, maybe some small other types of income ... done.

Granted lots of people do NOT want it to be that easy.

The alternative minimum tax is certainly not the default for most people; you have to make quite a lot for that to be relevant. Do you mean the standard deduction?

Yes my bad.

Standard deduction is great but this is the first year I had enough cash to bother parking it in a Money Market Fund instead of my bank's savings account and whew boy does that have an irritating tax process.

They don't really know how much you owe.

And that only works if you have one income, and if you only have one income filing your taxes is that easy

You do not go to prison. This is a lie the tax prep lobby wants you to perpetuate. The IRS sends you a letter letting you know what you did wrong. If you agree, you either pay them the difference or cash the check they sent you. If you disagree, you file a dispute and there's a whole system for handling that.

Yes, it's stupid that we do it this way, but there's no need to propagate the tax prep lobby's fear mongering.

Glad to see I wasn't the only one taking issue with that claim.

It is frustrating, as I understand why it is stressful to get a call from the IRS. For the vast majority of reasons you will get that call, it really should not be, though.

And agreed that it is silly we do things this way. It is equally silly that we have built up most people to think they are supposed to have an adversarial relationship with the IRS.

I think that's true in most cases for usual good faith errors. But(!) if you're not filing, or making an egregious error, thinking you're being clever and evading taxes, or keeping accounts below reporting thresholds on purpose, you can get investigated and potentially go to prison, so the threat is there in certain circumstances.

Even "no filing" won't get you in prison if you were not aware that you weren't filing. Happened to me once for state taxes, specifically. A lot of us were remote and didn't realize the company we were working for had messed up and not reported anyone's income to the state.

That said, yes, if you are attempting active fraud, then you are doing more than just making mistakes on your taxes.

That's not the situation described in the post I was responding to, and I don't think it applies to most tax filers.

The "situation" was a meme about filing taxes in its broadest possible conception. I don't agree that there's a distinction to be drawn here, and I already explicitly noted that this doesn't apply to most filers.

I guess you could include intentional fraud under the phrase, "What if I get it wrong?" but that seems pretty far outside the intent of the question.

I don't agree that it's far outside their intent of the question. I actually think it was pretty close to the heart of it, which is an idea of complying with the bizarre way in which the United States has decided to process taxes.

The truth is you can, in fact, go to prison, and that it is indeed rare for that to happen, but it can happen and I acknowledged its rarity.

You pay the difference plus interest! But yes 100% agree. That's how I learned you need to pay estimated taxes ;-)

Tax prep companies lobby congress so that they can continue to exist and be profitable.

Are you referring to this bit by Joe Zimmerman? <https://www.youtube.com/watch?v=RpWCK7t_iaw>

This kind of take is only true if you haven't given the tax system any thought at all and just want to dunk on the IRS to get upvotes

The govt only has an idea of what you might owe from "official" information (W2s), Since we don't live in a totalitarian society where the govt knows everything about you.

Filing taxes is the govt telling you to make sure to report anything they do not know about.

Also you do not go to jail for getting your taxes wrong, you go to jail if you fail to fix them after being audited or fraud.

But they could absolutely move to a system where the vast majority of filers could attest that the numbers IRS already has are all the income they have and be done with their returns. Then only the subset that has other income or adjustments would need to do a more involved filing.

These all apply here in Sweden. The information from the equivalent of those W2s is all available to me directly through the tax authority's portal though, so when I filed my taxes the other day I just logged in, checked the numbers looked sane, pressed a button, and the process was done.

It took about 5 minutes. It would have been more like 30 seconds if my Swedish was a bit better.

There's nothing we're doing here that you couldn't do in the US, you just don't.

Ah right, that's odd, wasn't aware I lived in a totalitarian society here in the Nordics. We literally just get a notification to check it, and because the state is neither trying to gotcha us or baby us, that's just the norm. The part that takes longest for me in the whole process is usually the 2FA.

If you do absolutely nothing but have a single salary job, taxes take about 5 minutes.

I do more than that which is I hire an accountant because the govt does not know everything about me.

>Since we don't live in a totalitarian society where the govt knows everything about you.

But… we do?

Totally agree, I find it absolutely obnoxious that it is a crime to make a mistake in the tax return documentation.

EDIT: Ok, I'm not from the US and for some reason I was under the impression that incorrect tax returns were punishable crimes. I guess some movie I watched as a kid impressed that notion and it was never challenged until now.

Mistakes are not a crime. The people that goes to court for tax evasion are the ones that commit fraud: they knowingly lie in the tax forms to avoid paying taxes. It includes people that forges expenses, or other documents.

It hardly ever raises to the level of crime.

The issue is that the IRS has 7 years to audit a tax return, and since taxes are due at the time you receive the income, the interest is backdated if you happen to underpay taxes and it compounds. So if they audited your 2019 return today and you underpaid $1k, you’d owe $1333 today with compound interest over those 6 years.

I think there's more nuance than that to it. I've made mistakes on my taxes, not been charged with a crime.

Small oops mistakes, I've never heard of someone being charged criminally.

BIG "yeah that was intentional" kinda obvious under-reporting of income, that turns into charges at times.

I actually had a big misunderstanding in terms of amounts once where the IRS thought I cashed out a large 401k. They simply sent me a letter and we mailed back and forth and I showed them that in fact I didn't cash it out and it just moved and it was all good.

It is not a crime to make a mistake. Who the hell is telling you this?

> Who the hell is telling you this?

The OP of the currently highest voted HN comment thread on this news article, for one:

    > Me: What if I get it wrong?

    > Gov’t: You go to prison

It couldn't be more obvious that's a joke, though.

In the past I’ve been happy with the irs. One year I had to sell a domain to Sony because they trademarked it and so I could no longer use it for my initial purpose. I got a decent amount of money and included it as income. A few years later I got a letter from the irs saying it should have been classified in some other manner and here is your refund.

But lately they’ve been terrible. With every correspondence i send I get a letter months later saying they got my letter/form/etc but haven’t had time to review it yet. This goes on for over a year before it’s resolved. They’re sitting on lots of refunds for me…

2 years ago my eFile was rejected because one of my dependents was already claimed. I have 3 dependents, and they offered no way for me to figure out what happened. The internet told me to file a fraud claim with the government and send that to the IRS, which I did and received no response. I had to print and send my taxes that year. They cashed my check immediately, and about 9 months later I was able to log in and see that I owed 0. That was it. I suspect they did nothing, but future returns were eFiled just fine.

Meanwhile my grandfather went through hell with them when they lost a $250k check they demanded since he had to pay quarterly.

He eventually won but they were threatening him with huge penalties for nonpayment and he had to get a lawyer.

Are you managing/filing your own taxes, or do you use an tax accountant?

same here, one year after i got a similar letter, nothing occurred, it's really slow.

I've gotten 4 CP2000 over the years from RSU. Since they're non-covered shares, IRS gets data with a $0 basis.

Some my fault (missed a page of 1099-B), some the broker's fault (missing one of two forms).

In every case you just send a cover letter with a couple sentences of prose explaining the error and a corrected form (8949, schedule B, whatever). Maybe a check if you still owe something. Or not, they will calculate and rebill you too. Maybe a copy of your 1099-B (I sent it 3 out of 4 times but forgot once, didn't make a difference)

It's slow as molasses, but the IRS is actually pretty damn reasonable about things.

The whole cost basis thing used to be a real mess especially with acquisitions, spinoffs, and so forth. At one point when I was selling shares for a very long ago company from employee stock purchase and maybe old style options as well, I just came up with a reasonable average and called it a day.

It’s generally easier today.

Yea it's definitely easier now

If only they'd go one step farther and make RSU be covered shares...

> The government should make all this easier. The US is one of the only countries in the world where people have to report their own income to the government every year (and a big reason for that is the companies like TurboTax that make so much money from it). In almost all cases, the government already knows how much tax you owe before you tell them anything. If fixing this was a priority for our politicians, none of us would have to file taxes ever again!

The conclusion makes a lot of sense. So many people wasting so much time is extremely expensive for the USA. And all of that waste is created because a couple of corporations bribe politicians to make public services worse. (And probably because the goverment can say that they "saved" money by not spending what is required to make it less wasteful).

Most nations I lived in, I got a bill or refund for taxes. In general it is "here is your bill/refund. If you disagree you have to prove you are right and we are wrong" - the government-prepared tax return model.

It is not this "we know how much you supposed to pay, but you tell us first, then we will charge you interest and penalty if you guess wrong, and you have to prove you are right and we are wrong" - the self-assessment model.

The government-prepared tax return model does work well for most simple returns. As soon as it gets a bit more complex it becomes an issue. there is also a concern with separation of duties, missing deductions, and the fight to get correction remains. Finally, government math is about as safe as bathing with piranhas with a bloody nose.

Maybe a hybrid solution?

My takeaway from this is you can use the IRS as a CD that pays 7% per year!

Reading through the blog post it seems like you could overpay your taxes by $10k, immediately amend your return, and get your money back with 7% interest a year later!

I’m not actually advocating for this - I’m pretty sure it’d count as some form of tax fraud. But crazy that the IRS might offer the best safe(ish) interest rate.

This is astounding to me. That is a fantastic return if guaranteed.

I had a return check delayed by almost 6 months once because I had also amended a previous return and sent them a check. Apparently they were so confused by it that they just cashed the check and then waited patiently for us to repeatedly call their phone tree and wait 8 hours a day for a week before someone finally picked up and helped us.

Good thing we just cut IRS staffing significantly so I can now wait a lot longer for the same thing.

I think some problems are made worse with more money.

For example, having enough staff to review messages manually and process things manually needs more funding to scale. Automating processes takes fewer people so there’s resistance to “automating away” jobs instead of just having the manual people focus on other things.

Towards the end of this article, the author recommends and links to another article about doing your own taxes[1]. I think this is a good suggestion. I've been doing my own taxes for years. In my experience, it is about the same level of effort as using the tax software. Instead of typing your numbers into tax software, you type the same numbers directly into the IRS's forms[2] and maybe use a calculator a couple of times. While there are some nooks & crannies that may take some time to figure out the first time you do them, the general approach is always the same: add up your incomes, subtract your deductions, apply tax to the difference, subtract your contributions. Done. Keep that algorithm in mind and it's quite easy to just follow the directions and see how each step is accomplishing each part of the algorithm. The first time you do it yourself, you can compare your final return against what the tax prep software did for you last year to sanity check your results.

If I was running my own business or something, I'd probably hire an accountant, but for individuals who only have some W-2s and 1099s and stuff, it's just an hour or two of simple math and you're done.

[1] Sadly has more AI generated slop at the top, but what're you gonna do. https://www.mikekasberg.com/blog/2024/03/15/i-did-my-own-tax...

[2] https://www.irs.gov/e-file-providers/free-file-fillable-form...

I worry that practical tips to deal with an unjust system, and success stories that demonstrate their use, undermine the will to fix the unjust system.

Seems crazy to pay for a financial advisor but not an accountant. My accountant is easily some of the best money I spend.

The issue with TurboTax that the author ran into:

>I’d entered my ISO info in two different forms in TurboTax – once after searching TurboTax Help for ISO and AMT, and again when TurboTax asked me about ISOs near the end. I’d originally assumed it was just validating or overwriting the numbers I’d already put in, but it was actually creating duplicates! (C’mon, how does software like TurboTax not validate against duplicate entry???)

That's pretty astonishing and I guess their testing missed it too or assumed the usual ISO field and searching help about ISO were different ... but that maybe should have raised questions for them. You would think just a couple extra sets of human eyes would catch that one.

That's actually very routine with TurboTax. This year when I filed through them they had duplicated a mortgage and also some charitable donations because I did the form and then they asked me again anyway as I clicked back through their interface.

That makes me wonder now. I had duplicates on mine on TurboTax once too ... but I assumed it was me ... maybe it wasn't.

That's unfortunately basically the norm with TurboTax. If you haven't done a specific thing before in TurboTax you should always double check the actual forms, too. You really can't trust it.

Honestly it seems to have different new bugs every year. This year, it completely ignored income from a 1099-DIV imported from Vanguard. It shows the 1099-DIV as imported, and it shows the correct numbers on it, but just failed to add any of those numbers to the totals for dividends and distributions!

Apparently the work-around is to manually edit the form and enter 0.00 on any line the import left blank. After doing that, the software accounts for everything properly.

I found a forum post of TurboTax users discussing this exact issue with Vanguard 1099-DIVs back in January, and it still isn't fixed yet in April. Seems like this could affect a lot of people who just won't notice, because it isn't obvious unless you manually double-check the tax math.

One time, I sold a bunch of stock options because my company was being spun off into an independent entity. "Use it or lose it" kind of situation. As part of the spin-off the company was also renamed. So it created a slightly weird situation, which caused a lot of trouble for me and my colleagues.

That trouble was a bill for $12k (which at the time, I absolutely could not afford). Basically, the mix-up was the IRS thinking I had sold RSU's and not options, so they had 0 cost basis and they thought I owed them the money. I contacted my former company's HR department, and they said lots of people had the same issue, and they shared the message I should send to the IRS in response.

So I printed out my correspondence with the former company explaining the issue, along with all the documents showing the cost basis, with a cover page explaining the tl;dr of the situation.

The IRS sent me a couple months later the same bill for 12k with late fees - now totaling 13k. So I printed out again the entire package I had sent them before, including a new cover page (on top of the old one) saying, "Find enclosed the documentation I sent you before which explains clearly I do not owe you money". At this point it was 15 pages of materials.

A few months later, I got a letter back which said in legalese something along the lines of not admitting to any error, but also at the same time saying I didn't owe the money. Weird, but I took it as a win.

I just want to understand who sees a tax bill of $10,000 and doesn’t investigate even a little bit.

They're in a fairly rare situation that's expected to cause a higher than normal tax bill.

He did? He investigated quite a bit actually and wrote up a long guide for others.

But later on in the article he said that $10,000 was a lot higher than expected. I would think that if the overage was higher than they expected they would go through the PDFs that Turbotax/etc. generate and double check the math.

I do this even without weird tax situations because I want to understand what the website is submitting on my behalf.

Considering the ISO they likely weren't surprised they owed a lot.

A $10k tax bill (every year) is less than what the median worker owes.

Not really. This is $10K on top of what was already paid through payroll deductions, etc. The median worker is not paying anything additional.

Cool blog/theme. Anyone know the blogging software of theme used? Thanks.

I hear all kinds of complaints about the IRS. But my experience with them is that they are reasonable.

I had a tax situation when I did a same-day sale of some nonqualified stock options. What happened is that my employer put the net gain as income on my W2. In addition, the stockbroker sent me a 1099 for the total value of the options sold. This wasn't quite correct, because the income was already reported on my W2 and the broker should have known that and not 1099'd me for it.

I filed my tax return correctly, only including the W2 income and disregarding the 1099.

The IRS added the 1099 back into my income on their end after I filed, and sent me a bill for around $190,000 for the tax on the 1099 income.

I sent them letter with a clear and correct accounting for the difference. They agreed and sent me back a letter admitting that I was correct and that my tax due was now $0.

It was a bit nerve-racking, but I'm glad they did the right thing in the end.

The California Franchise Tax Board, on the other hand, is a whole different beast. Those people are a bunch of idiotic uncouth goons.

> the broker should have known that and not 1099'd me for it.

The broker is obligated to 1099 you for it. The issue is that brokers who handle NSOs are not obligated to set the correct cost basis, so they set it to 0, making it seem like you owe tax on the entire NSO's value for cap gain, on top of the income recognized on the W2. Setting the correct cost basis after importing the 1099 is a tricky, manual, error-prone process, and companies that grant NSOs often don't warn you about it, either. Brokers should be required to set it (they seem to already know this information from your employer in most cases, but don't want to take responsibility for reporting that value to the IRS).

I'm sure you're right that the broker is obliged to 1099 me for it.

Are you saying that I should have imported the 1099 and overridden the basis of those shares to be exactly what the sale price was? That seems like an odd thing to expect the end user of tax software to know to do. It's not clear to me that doing that would not also set off a flag when the IRS evaluates the return. There ought to be some solution between employers, brokers and the IRS that doesn't put such a burden on the taxpayer.

> Are you saying that I should have imported the 1099 and overridden the basis of those shares to be exactly what the sale price was?

Yeah, you never leave income forms out, you always provide them and correct them if needed. My broker provides a separate, non-standard form with the cost basis for each transaction. Yours may or may not. Once you have the correct cost basis, you provide it on Form 8949 (column E plus code 'B' in column F), which then gets accumulated into Schedule D to provide the true gain/loss for the transactions.

> That seems like an odd thing to expect the end user of tax software to know to do.

Yeah. It's one of those things where I think doing your own taxes is an advantage over using the software. The problem becomes obvious when you understand how income tax works: tax applies to income --> the shares are part of my income, so were taxed as such --> but if cost basis is 0 then the entire sale price will also be considered income --> I'm being taxed twice?? Something is wrong here. The tricky bit is figuring out how to solve it :) But the IRS's instructions are quite thorough, and some googling can point you to the right instructions if it's not obvious where to start.

Correct and I agree. TurboTax flags zero cost basis values for you and gives you some basic instructions on where to look for the correct ones, but it's quite tricky. I think the issue is brokers don't want to take responsibility for setting the value.

Yeah I've had similar encounters. Had several run ins with the IRS. All via mail, and the way the system worked and their responses were all very straightforward and professional.

The IRS "you owe us this much" mail is kinda scary, but if you read the letter it explains how to dispute / communicate with them and I found they were more than willing to follow the facts.

I've been audited twice by the IRS due to me being young and stupid, but yeah I just read the mail, followed the directions, and everything was perfectly professional and not scary at all.

Yeah. I think the tax prep companies try to spread the image of the IRS as some giant evil fiend who will steal all your money and/or apply the death penalty to you if you file your taxes wrong. But no, they just want what they're owed, no more and no less. Some years back, I accidentally used the "single filers" tax table instead of the "married filing jointly" tax table, and the IRS actually mailed me a check returning my overpayment amount out of the blue some weeks later.

I had the exact same thing happen w/ IRS. Also corrected their mistake with a brief letter. Honestly the whole 1099-without-basis thing should not be allowed.

I don't know how anybody can read a story and think giving these jokesters (the IRS) MORE money is going to fix anything and not just pile it deeper and higher. These people terrorize the lives of law-abiding and tax-paying citizens.

Something is so fundamentally wrong at that organization. Whatever DOGE is doing I doubt it's going far enough.

Do you have some sources?

Last time I read the IRS actually doesn't cost tax payers money. Additionally, every dollar increase in IRS spending will net the US govt. $12.

Whatever DOGE is doing is illegal.

https://budgetlab.yale.edu/research/revenue-and-distribution...

DOGE is planning to ax Direct File, so that'll be less efficient. And they're cutting tons of jobs, so that'll less efficient.

I'm sure there are plenty of things wrong with the IRS, but DOGE's approach seems to be to make them wronger.

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