12 votes

IRS Incompetence

I just got a bill from the IRS for $12,220! They say I significantly under reported my income for the year 2011. I am an Ebay dealer of rare DVD's & video games. Don't get too envious just yet. I earned a whopping $17743 in 2011. That was my profit after expenses, mileage & capital expenditures (buying stuff to resale) etc. The IRS doesn't seem to understand the difference between profit & total gross sales, but that isn't the half of it. They seem to be considering the figure of $37,876 on my 1099-K form from Paypal as my income! This is the total amount of money I took in for 2011. Of course, a substantial amount of this figure is shipping charges paid by buyers & then spent by me to ship the items. I am astounded that the IRS could be this incredibly stupid, but they are saying I owe taxes on this $37876. They aren't even giving me credit for my standard deduction for being a human being! It is as if they completely ignored my tax return, which specifies all my expenses etc. and assumed that strangers just sent me over $37000 through Paypal for doing absolutely nothing. I guess even the most simple modest business manages to confuse the bureaucrats at the IRS. I guess I am going to pay a visit to the IRS on Monday so I can laugh in their face & explain to them how traumatic my sticker shock was when I saw this letter. Any advice from my fellow liberty lovers will be appreciated & considered.

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My advice is not to go down

My advice is not to go down and laugh in their face....

If you disagree with me on anything you are not a real libertarian...

IRS pub. 525 pg. 32

I'm not saying this makes it law, or that it even makes sense, but this may be where they are coming to the conclusion that you under-reported income.
On page 32, listed under the heading "Sale of personal items" the following example is provided.

Example.
You sold a painting on an online
auction website for $100. You bought the paint­
ing for $20 at a garage sale years ago. Report
your $80 gain as a capital gain as explained in
the Instructions for Schedule D (Form 1040).

http://www.irs.gov/pub/irs-pdf/p525.pdf

I have learned over the years

it is pointless to discuss taxation with taxpaying big government enablers. Enablers do what they do best ... enable big government addiction.

Do not do anything in your own name. The system is rigged for corporations because corporations can have so called legitimate expenses whereas an individual is ineligible for a payroll expense to self.

That said let's consider the scenario above.

Your corporation sold a painting on an online auction website for $100.
Your corporation acquired the painting for $20 at a garage sale years ago.
Your corporation had travel, fuel, and labor expenses to acquire the painting.
Your corporation had a payroll expense for the labor and time to acquire the painting.

Your corporation had a net loss of $x.xx after corporate vehicle, insurance, travel, fuel, payroll, shipping, auction fees, and all other expenses than can be carried over for 10 years.

If the legal system is going to presume you are using a citizen title 24/7/365 one may as well incorporate and live their life 24/7/365 wearing a corporate mask of employee, president, etc. instead to take advantage of all the expenses and deductions an individual is legally prohibited from claiming. If the legal system is going to unjustly presume one must obtain a license or registration for every activity because they are on the citizen clock whether they are getting paid or not I suggest one take advantage of the corporate structure where all those fees and the labor involved to acquire them are deductable.

If your corporation suddenly has a liability such as profit or a suit ... do like everyone else does. Go out of business and start a new corporation. Own everything in one corporation and lease it to the corporation with all of the liability exposure to consumers. Play the game the same way the big boys do.

Furthermore if you need a product or business idea ... try the business of selling liberty. Every lunch is a networking business event. Every meeting an expense while you are on the clock trying to sell liberty. Reinvent the Campaign for Liberty and make it what it ought to be, a for profit business venture which carries over a net loss until the ideas of liberty become popular and profitable. Reinvent Daily Paul where corporate liberty business owners can subscribe to blog and deduct the fees and payroll expense to post.

My father-in-law always wrote off his cigars

as having been destroyed by fire. He never got caught.

Sorry, IRS, he died in 1986.

There is no law

Just insist that they show you the law that requires you to pay any income tax at all. They can't because it doesn't exist! ;) The late, great Aaron Russo covers this well in Freedom to Fascism...

Seems like youre better off

Seems like youre better off doing absolutely nothing and applying for welfare.

Indeed. I would probably

Indeed. I would probably qualify for food stamps too. I don't have any kids though, so I can't get my IRS reproduction bonus in February! Many ppl are not aware that many poor people not only pay no income tax, but also get a monstrous multi thousand dollar welfare check from the IRS Every Feb.

Justice is

taxpaying tyranny enablers being persecuted. People don't like justice?

It isn't justice for people

It isn't justice for people to be stolen from, and then persecuted further by the thief.

Justice would be those taxpayers keeping their money.

Take a number ...

Taxpaying tyranny enablers will have to take a number. Surely they are in the bitch line somewhere behind those who were persecuted for not enabling, and then ridiculed further by big government enablers.

I can attest,,,

see my story below: their final response was that I in fact didn't owe another dime! Bug off thieves!

September 24, 2012

Department of the Treasury
Internal Revenue Service
Fresno, CA 93888-0010

To whom it may concern,

This letter is in response to the letter of notice we received from the Internal Revenue Service this 24th day of September, 2012 regarding the held belief by the Internal Revenue Service that there was a miscalculation on our 2011 Form 1040, which ultimately affects the tax amount being claimed by the IRS as owed. The IRS sent us a letter dated July 11, 2012 that stated schedule A was either incomplete or missing from our filed return and that we were to send them the completed schedule with information supporting the entry of $15322.00 on line 40, Form 1040 on said return. On the 27th day of July, 2012, well within the 20 day deadline requested by the IRS, I mailed the completed schedule A and all necessary documentation that related to and established proof of the $15322.00 on line 40, Form 1040 via certified United States mail, receipt number 7011-2970-0004-2916-4412. Our response was received by you August 5, 2012 @ 3AM per tracking confirmation on the United States Postal Service's website. Line 29 of schedule A, Form 1040 notated as Total Itemized Deductions shows $15322.00 as then transferred to line 40, Form 1040 per instructions given on line 29.

The letter we received this 24th day of September, 2012 states that the changes made to our 2011 tax return were due to a refiguring of our taxable income on line 43 of Form 1040 using the standard deduction because schedule A, Itemized Deductions, was either incomplete or not attached to our filed tax return. Schedule A was not incomplete and as referenced in paragraph 1 was sent as requested by the IRS within the allotted time frame given on their letter dated July 11, 2012. The letter clearly requests our response within 20 days from the date of the letter.

The fact that the letter was not delivered until August 5, 2012 is not our fault and must not serve as grounds for the alterations made by the IRS to our 2011 tax returns. The alterations made to our 2011 tax returns have not been critiqued, verified and approved by us and we have not signed the amended or altered 2011 tax returns you have compiled and are offering in order for the contract inclusive of additional tax to be binding. We do not agree with the assessment made by the IRS and are requiring proof that an amended or altered 2011 tax return has been completed and can be provided in order to warrant a reconciled amount due of $570.85 to you.

Let it be known that all information to justify a reversal has been sent prior and is further enclosed in this letter. Thank you for your attention to this matter and we look forward to your response. I am not willing to communicate via phone, therefore please limit all correspondence to United States mail as this will allow us to keep and make copy of all documentation being sent by you for our records.

Genuinely,

Justin Duane, of the Klinkebiel family

Father - Husband - Son - Spirit - Consciousness

This is exactly why I quit

selling on eBay 4 years ago.
Paypal and eBay started reporting to the IRS.
They where supposedly only going to be turning over info on people that did something like $100,000 or more a year. I thought yeah right.

I talked to our accountant and they told me if I was ever to get audited I would be screwed because I bought my items for resale at estate sales, garage sales and thrifts
and without an itemized, dated receipt I would never get the cost deduction.

Plus after going through one audit back in 1996 for 1994 where they disallowed EVERY deduction we had in our business..even the ones from our toro distributor where we got 90% of our product. I thought it would be a nightmare from hell if I got audited for selling on eBay.

Not sure how it works now but back in 1996 we had to hire a tax attorney @ $100 an hour to fight for each and every deduction.
It took forever but in the end we got our deductions. But we still ended up owing the IRS $6,000 because of 2 typo errors H&R Block made on our office expenses. Naturally also finds and penalties where part of the $6,000/ And oh, H&R Block doesn't back you up at all. They will go with you to the audit and sit silent on their thumbs and then slink away after the meeting never to be heard from again.

Good luck to you...

NO NO NO DO NOT TALK TO THEM EVER.

Never talk to them in person, DO EVERYTHING BY PAPER. REAL PAPER FROM TREES, NOT EMAILS, NOT PHONE CALLS NOT PHONE MESSAGES.

Do as the CPA below says, get representation. They will lie, they will cheat and what you see them doing it trying to steal.

There is nothing strange about having a bar of soap in your right pocket, it's just what's happening.

Didn't you get a 1099 from Paypal for the year 2011?

Paypal, Amazon and other online sales channels sent 1099s by law in 2011 to anyone having over 15000 in sales (I believe that was the number), by order of a bill passed by Congress in 2008 that didn't take effect until 2011. If they neglected to send you your copy, maybe that can help your case?

Yes, I did receive the 1099

Yes, I did receive the 1099 from Paypal. I'm going to bring a copy of it with me on Monday. The amount on the 1099 is the amount the IRS is trying to tax me on. They are considering this figure (37000+) as my PROFIT. This is patently absurd. I paid Ebay almost 4000 dollars out of this amount alone. Paypal extracts their fees out of it too. The IRS is trying to tax me for money that I sent to Ebay & Paypal for fees! Needless to say, I never saw that cash. They are also ignoring my standard deduction as well as my entire tax return as if they didn't receive it. I know they got it because they know how much I actually paid in self employment tax ($718). The 1099 actually tells you nothing about what a person actually made during the course of a year. There are obviously a number of variables that affect your bottom line. If you go to a bank for a loan, for example, they are going to want to see your tax return. They could care less what the 1099 says because that doesn't tell them squat about what you actually made in profit. You could have spent twice what you took in, which would mean you made negative profit (loss). Thanks for the suggestion.
Jeff

Listen to what I did once...

It was a great many years ago that the IRS suddenly did an audit on me and suggest I owe over $1,000. I went to my tax person and she detected that she was wrong but the mistake should cost an additional $100 ONLY. So I show up at the IRS office with my boom box recorder holding it close to me all the time. Walk up to the secretary desk and spoke into the boom box (in front of her) "I am at the IRS office on such and such date/time in response to an audit. She could see the recorder button push. She said nothing and immediately left to talk to the auditor with my paperwork (within sight of me). After a few minutes of their conversation and glares at me; the secretary came back with a sign approval of my paperwork I brought in. Mr XXXXXX; the auditor approves of your findings and I walk out of the office never to be bother by them again.

"First they ignore you, then they laugh at you, then they attack you, then you win!"
GANDHI

"The belief is worthless if the fear of social and physical punishment overrides the belief."

I don't know why, but I am dying laughing here...almost crying.

boom box hahahaha............ at the IRS hahahaha .............record button hahahaha .............glaring hahahaha .............signed paper Yipee!

Yup...

...I agree

"First they ignore you, then they laugh at you, then they attack you, then you win!"
GANDHI

"The belief is worthless if the fear of social and physical punishment overrides the belief."

I am considering something

I am considering something similar. I was going to get someone to record the conversation with my iphone. I'm sure they would protest, but I think I would be within my rights to record the conversation. The circumstances of this situation are so incredibly ridiculous, there is absolutely no defense for the IRS. No mistakes have been made on my part & I intend to illustrate that to them in a most colorful fashion. Thanks for the advice.

Michael Nystrom's picture

Get a good accountant

A good accountant is worth his or her weight in gold. S/he can help you navigate the tax system, which is confusing. The IRS doesn't even know what it is talking about half the time.

A good accountant is expensive, but in this day and age, in this world, a necessity in my opinion.

Good luck and keep us posted.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

I am a retired CPA

My recommendation is that you DO NOT try to represent yourself before the KGB, I mean the IRS. They will lie to you and do everything to get you flustered until you make mistakes because you are so emotionally invested (and rightfully so!) in the outcome. Never go face to face with them if you can help it.

Since you prepared your own tax return, I would advise you to find a CPA or an EA (an enrolled agent)to review the return and then to deal with the IRS for you. It will be well worth the money.

After 20+ years of being a CPA, I would still never represent myself before the IRS.

If you just recently received the letter, you should have a few weeks to respond. A CPA or EA may be able to just write a letter explaining all of the facts and get everything straightened out.
Good luck!
sdb720

I am going to follow your

I am going to follow your advice. I know a CPA & I'm going to go talk to him on Monday. I have all my paperwork, so he should be able to help. I also need someone to vent my frustration on. Better a CPA than an IRS agent I guess. I hope I can deduct his bill from my taxes!:P
Thanks,
Jeff

Notice of Lien, or what ?

How is the billing styled ?

The Constitution is a Trust : http://www.The-Legacy.Info

Fortunately, it is not a lien

Fortunately, it is not a lien yet. It is due by April 17. If I don't get it resolved, I guess they will have to come get my stuff. They will most likely be very disappointed.

OK Poster 1man :

Without at least the Form number I could not begin to suggest info for you.

There are some reasonable opinions here, IMO. It is no laughing matter., but much simpler than many presume. Don't get excited and consider the source.

What you have here is a simple admin. procedure situation. The paperwork against you is computer generated, from a generally dysfunctional data system.

Some years ago IRS was bragging about 7 new computer systems they had contracted and installed that would help streamline fair collection. It shortly came out the systems could not talk to each other ! Some help.

Anyway, a CPA and Tax Service will probably sort this out in short order. If you throw the extra bucks for an Enrolled Agent to represent you it should be a cake walk, as long as your records are in order.

Ordinary Income or Capital Gains ? Depends on the rate I suppose.

Anyway, where I was going. In the event you end up liened anyway here is a check-list I follow. Often gets them stopped quick. Sidestep their attempt to get you in the so called “Tax Court”. It's the first step toward Title 72 suits many spout about. Not that you need to go near that far. Obtaining a Waiver is a must.
Giving Notice of Intent to Sue.

===============================
IRS has promulgated regulations that establish procedures to be followed by a taxpayer who believes that IRS officers or employees have disregarded provisions of the tax code in their collection activities. See 26 C.F.R. § 301.7433-1. Specifically, these regulations require that an aggrieved taxpayer must first submit his or her claim "in writing to the Area Director, Attn: Compliance Technical Support Manager[,] of the area in which the taxpayer currently resides," and further require that the claim must include:

[13] (i) The name, current address, current home and work telephone numbers and any convenient times to be contacted, and taxpayer identification number of the taxpayer making the claim;

[14] (ii) The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service);

[15] (iii) A description of the injuries incurred by the taxpayer filing the claim (include copies of any available substantiating documentation or evidence);

[16] (iv) The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (include copies of any available substantiating documentation or evidence); and

[17] (v) The signature of the taxpayer or duly authorised representative.

Evans v. United States, 2006.DDC.0000228< http://www.versuslaw.com> ¶¶ 12-17; No. 06-0032 (D.D.C. 2006).

The Constitution is a Trust : http://www.The-Legacy.Info

A Deficiency Notice, or What ?

They asked you to come in on Monday ?

It may not be so hard to resolve this without a lot of hassle or expense. Depends on the Form they sent you. Could be as easy as asking the interviewing agent ;

"Before we get to far, please tell me the name and mailing address for the District Compliance Technical Support Manager. If you don't know please ask your immediate supervisor".

The Constitution is a Trust : http://www.The-Legacy.Info

And sadly to note as we speak...

Many IRS agents have stop paying Federal Income Tax. I wish one of these agents would go rogue and tell everyone how to do the same.

"First they ignore you, then they laugh at you, then they attack you, then you win!"
GANDHI

"The belief is worthless if the fear of social and physical punishment overrides the belief."

Steep

Even if you did earn 37000, 12000 is a steep price to pay. Something is wrong here.

Does that figure include FIT, SS and Medicare?

Almost 2000 of it was a fine

Almost 2000 of it was a fine for "under reporting income". The self employment tax is a whopper. It was almost $6000 alone. That's how they get their SS & medicare out of us (self employed) ppl. It is indeed steep. Also, there was almost $400 in interest. JEEEEEZ.

Unbelievable

I can see how it could make one not even want to work. Sometimes I look upon the homeless with envy.