February 24, 2009

Taxpayer Forced to Pay Back a Tax Refund

Here's another IRS horror story sent in by a reader:

Every year I receive a tax refund from the government. For the year 2000, I received my tax refund and deposited it into my bank account.

A few years later I was notified by the IRS that I did not file a return and they did not receive the owed taxes for the year in question. I explained that there was a misunderstanding. Not only had I filed and had a copy of my return, but I actually received a refund check.

I was told by the IRS to prove that I received a refund. Of course I could not because I deposited the check and never thought to make a copy of it. I was sure they could locate the canceled check and the problem would be resolved.

No way. With interest and penalties, I was told I owed $400 unless I could prove that they mailed me a refund. I had no way of doing this as I explained to them. The agent I spoke to was very understanding and said that it happens to many people and that I was 'screwed' as she put it.

She said the best she could do was to drop the interest and penalties and I would be left owing $97. There was no way around it. So, I decided to pay the $97 to get the letters and harassing phone calls out of my life. Because it had gone to the attorney general's office, they filed a judgment against me and it showed up on my credit report.

I was instructed to go to the county auditor with my payment. Upon arriving, I paid my $97 fee, plus was told I would have to pay an additional $150 to reverse the judgment. I was given a notarized letter to mail to the 3 credit bureaus to have the judgment removed from my credit report.

I filed the forms with the credit agencies, only to get a letter from them stating it would not be removed from my credit report because it was a 'frivolous claim'.

The entire incident made me feel angry because I did nothing wrong and was penalized and charged and it has a negative impact on my credit history now.

RESPONSE:

Every time I read this story it "gets my blood boiling." This is how most people feel when they deal with the IRS. It's frustrating when you know that you have done everything you were supposed to do and you are still getting "screwed." These types of situations cause extreme stress and anger. It is important during these times to consult with professionals who know how the IRS works and how to best resolve each and every situation. We have the benefit of having seen myriad situations that seem completely strange and unsolvable to the average person, but are fairly routine to us because of the experience we have in dealing with the IRS.