Roger shares a recent story about his difficulties in sorting out a small error with the IRS over 1099 reporting. I think the story is instructive of greater difficulties to come, when the IRS is gathering “all account data” from Foreign Financial Insitutions (FFIs) plus foreign governments. Remember, this is not just “income related data” like the 1099.
We now see FATCA has expanded to 3 various models, FATCA Direct, FATCA Model I for 5 EU countries, and FATCA Model II for Switzerland and Japan. More models to come? So, reflect on Roger’s story below, and ask yourself, “So what could possibly go wrong?” 🙂 Ah, she’ll be ‘right, Mate! Trust us! LOL
I have spent the last several days on the phone trying to straighten out an IRS error. They failed to give me credit for $159 in taxes withheld on dividends and interest. Last May 14th, I sent in documentation with of copies of the form 1099s which show both the income from these dividends and the interest, but they ignored the tax withheld at the source. So I got another bill for $165 including interest and penalties. It included a phone number, so I called it.
(Just Me Note: This is the beginnings of the automatic tax system that Shulman lusts after. Under this program, the IRS will just validate against 3rd party data and calculate your taxes for you. They send you a bill if you are wrong.)
The automated answering gave me 8 choices. The choice which seemed to describe my problem was #5, so that is what I punched in. Then I was asked to enter my pin number. Since I have no IRS pin number that I am aware of, I hung up and dialed in again to re-listen to the choices. Maybe I had punched in the wrong number. Choice 5 was correct. So, I punched it in again and got the same “enter your pin number” recording. There was no alternative selection to be able to access a live person, so I took a chance and punched in zero.
This brought a strong rebuke “YOU HAVE PRESSED A WRONG SELECTION!” It then repeated the choices. Nothing else even came close to what I wanted to talk to them about.
So I called the Tax Advocate toll-free number. I waited in line for 25 minutes, but was connected to a live person who listened attentively and asked a number of questions. She then asked me if I would like her to connect me with a live person at the IRS who could address my concerns? I quickly replied “yes!” She dialed up another number where I got a recording that all customer service persons were busy attending other customers. It urged me to wait on the line, because calls would be answered in the order received. The estimated wait time from the recording was “in excess of ten minutes.” So I just waited, and waited and after 26 minutes I was connected with a Ms. Agent A, who gave me her IRS ID number.
(Just Me note: They spit those Agent ID numbers out very quickly right at the beginning of the call, before waiting to acknowledge greetings or that you are ready to copy. You need to have your pencil ready at hand to write it down fast, or you will irritate them by asking to have it repeated. I have learned this lesson from lots of calls from overseas! On my dime, btw.)
She checked to make sure I was really who I said I was, (lots of additional security questions) and then I explained my problem to her. She went into my tax return and after considerable digging told me that this withholding had been reported on computer page one in my record, but for some reason it had not been carried forward to the computer page two from which the automatic calculations of my tax were made. She kept checking. I was on the line about 30 minutes with her. Various times she said she would have to put me on hold again to check things, but she always came back with new information. She confirmed that there was indeed an IRS error. I did not owe anything additional!
Relief, but not done yet!
“Unfortunately”, she said, she could not correct it! She would be glad to connect me to the IRS department which could make the correction. She told me she had added a detailed explanation of what she had found in the record, so the “Reconsideration Department” would see it. Meanwhile, she said, she had put a hold on the billing. I should not receive any additional bills or additional penalties.
She then transferred me to the “Reconsideration Department”, where my call was answered on the first ring by Mr. Agent B, who also supplied his ID number. (Remember, be ready. It is spit out quickly!) After going through the ritual of questions and answers to confirm who I said I was, (guess he did not trust the previous agent) he opened the record. He saw and studied what Ms. Agent A had added.
He said that “unfortunately” this open subject had been closed by the IRS. In order to have it reopened, I would have to address a letter and send it to the IRS “Reconsideration Department”, complete with all of the evidence to support my request. (I guess the notes from previous agent in the computer would not be enough!) He said I should also include a copy of everything I had previously sent in on May 14th that led to the claim having been closed. (Who knows where those records were now!)
I did not ask him for a mailing address, but instead asked him if I could send it by fax. He said I could. That would be good, because it would be acted upon more rapidly. In response to my question as to whether I should send it to his attention or the attention of some other person, he said no. Just fax it to the “Reconsideration Department”.
By this time I had spent about 3 hours continuously on the phone. Fortunately for me, this was done with toll-free numbers, thank heavens! I was not running up a big long distance bill. I hate to think what it would have cost if I was calling from Brazil, Mozambique or some other remote place on the face of the earth, and trying to sort out a FATCA problem with my account data and not just minor interest and dividend income error!
Today I finalized the letter requesting that the case be reopened. I faxed the 19 pages in total to the Fax number of the “Reconsideration Department”. It was transmitted and confirmed as ‘Fax received’. I recorded the fax number in my fax directory in case I might need it in the future.
Before sending it I had my daughter in Washington, who is an international corporate tax specialist with one of the BIG Accounting firms, review it. She made some minor corrections. She helps me prepare my tax return every year. She is the person who had led me through this. I am blessed to have such a daughter. She works in their Washington office where there are numerous employees who in prior administrations have had important jobs in the IRS and Treasury Department.
So that is what I have been doing for the past two days. It would have been easier and less stressful to just send them a check for the $164, but it was a matter of principle for me. My daughter also said I should not pay it, but call the IRS and insist that they correct their error. It was very clear they were wrong. I should not allow them to require me to pay anything that was not due. She was very firm in stating “Dad, don’t pay them! You do not owe them anything. You must absolutely insist that they correct their error.”
Both Ms. Agent A and Mr Agent B sounded like mature persons, and I was encouraged by being able to talk to someone who obviously was very experienced. They seemed to know what they were doing. But as they say, “it is not over until the fat lady sings.”
I will take no further action until I get a clean bill of health from the IRS. If I get another bill or anything other than notice that no additional funds are due, I will be back on the phone with The Taxpayer Advocate. I sure hope that will not be necessary
How long it will take to get this resolved? I have no idea. I hope it is during my lifetime! Meanwhile I am taking care of my wife as usual.
Just Me note:
End of story? Time will tell.
The lesson I take as it relates to the coming FATCA account data reporting, or automatic data exchanges, is this. We live in a human world and a data error prone environment. We also have lots of recent examples of data theft on supposedly secure banking computer systems. You have to wonder, with the GATCA which is being created, what could possibly go wrong? What will be the resolution mechanisms for long distance problem solving? Valid concerns I think. I hope they come up with systems that are easier than trying to get your name off the No Fly List. I hope GATCA doesn’t give them another data base to use as a means of adding your name to that dark list! But, that is another post for another time.:)
Here are my two thoughts for consideration:
1. If the transportation bill gets passed and no one can renew their passport without IRS approval, can you even imagine this Orwellian ordeal??!!
2. As a businessman, I would have calculated the cost of this entire operation and eliminated any “recalculation” on the IRS side for anything less than $500 as a waste of EVERYONE’s time! Give the benefit to the taxpayer; just the time spend on their side cost more than $164; most people pay because they’ve already calculated it would be a waste of their time for the money too! 2 days work for $164 = $82/day or about $10/hr. And that’s doubled on the IRS’ side. What a monumental and stupid waste for everyone involved!
Another reason why renouncing US citizenship (for those who can) has nothing to do with ‘taxes’ per se. Its about avoiding the pitfalls, quicksand and inevitable errors built into the Tower of Babel that is the US tax system. And automation just adds to it. I have already had the experience of being the victim of a computer error originating at a financial institution – which issued erroneous ‘duplicate’ slips to the tax agency – resulting in an incorrect re-asssessment of my tax obligation, and then my tax refund being withheld. It was a year long effort to get a (non-US) tax agency to correct it – even though both they and the financial institution admitted that there had in fact been a computer error, and that I was due the refund. I was the one who had to figure out what the error was, and ask questions of both the tax agency and the financial institution to pinpoint the cause of it. The onus fell on me to pursue the correction, with paperwork, even when the other parties admitted that I was right. I shudder to think what this scenario would be like dealing with FATCA, banks and the US.
If Roger was required to spend all of that time and effort, to correct something so small, how would we ever be able to deal with any errors made under FATCA?
There have been egregious cases where banks have made mortgage loans, in error, to fraudsters – but the onus fell on the innocent actual legal title owner to sort it out. Ex. http://www.cbc.ca/news/story/2006/11/01/mortgage-fraud.html . A bank went after the victims to recover the money – why? – because the victims were the easiest, most available target.
Proving the error can cost the victim a great deal of money, even when all parties agree that they are not responsible. The onus is always forced onto those with the least resources.
My point is that the individual account holder is in the weakest position if the bank, and the IRS makes a mistake with FATCA – one person, with limited means, up against two powerful institutions – both with dedicated legal departments. The onus will always be shifted to the individual. And if there is any grey area or ambiguity, it will not be decided in favour of the individual – who will not have the lawyers or expertise, or means or time, or insider information to pursue it. The fact that this is nowhere in any of the coverage or discussions of FATCA show that the individual account holder is not to be considered, and deprived of any rights or recourse. Just as in income tax cases, recourse to justice that is too expensive to pursue or access, is justice denied.
I had a similar problem with my state’s tax agency, where they did not properly compute my tax payment. I spent a lot of time to finally reach them by phone, and they agreed that it was their error, but said that I had to send a request in writing. I did, but they kept sending threatening letters, and every time I called they said that they had not yet processed my request because they were experiencing delays (aren’t they always?). I decided that it was easier to pay the $50 they were charging instead of continuing to argue. It was really a total waste of everyone’s time and government resources, as the state probably had more costs to communicate with me than the $50 that I paid.
I also had numerous similar problems with bank fees, some took a long time but they were all eventually solved. The difference is that I was not comfortable waiting for the state to correct its error because governments have the power to confiscate assets and arrest people, while banks don’t.
When my husband has a problem with billing of any sort he now knows to go directly to the “customer retention department”. To the captive non-resident US taxpayer, the US consulate fills that job.
@ShadowRaider, re; “I was not comfortable waiting for the state to correct its error because
governments have the power to confiscate assets and arrest people,
while banks don’t.”
Exactly. Under FATCA, and the citizenship-based tax and reporting web, we are being forced into situations of potential jeopardy, without recourse, where a lack of ability to grapple with the growing complexities, unintended errors and unintended consequences can obliterate us. We should not have to become tax experts to prove annually that we owe no US tax or penalties – all the while paying in full where we live and work abroad. It has become so fraught with peril, that even the smallest error can ruin our families. Should a government be comfortable with people paying money they don’t owe, or living with anxiety because they are afraid and overpowered? Is that how the US wants to be known? Apparently, it is quite content to be that creature.
I’ll be sharing later my last letter from the IRS, which denies FEIE apparently for having not dotted an i on my 2009 taxes. Over 3k they say I owe them. But they won’t get it, though it’ll cost them to try. I’ll share it once I am in front of my desk again.
In my nearly year long struggle with the IRS due to a disallowed Foreign Earned Tax Deduction (see my comment from a previous thread repeated below), the IRS agent who finally got my “letter of no change” said that she would “have to get my return sent over from records” and that it would take up to 6 weeks before she would see them. Apparently at least some returns are not even digitally scanned but are only stored in paper form. However it appears that Roger’s form was available on the IRS intranet.
Anyway, here is my comment repeated:
“I am still fighting the IRS over my 1040 from the year I expatriated,
2010. They decided to disallow my Foreign Earned Tax Deduction for the
part of the year that I was still a US citizen. They claimed that this
was because I had failed to attach a copy of the bi-lateral tax treaty
between Switzerland and the US. So I got a letter demanding 5 figures
of back taxes and penalties. Shortly thereafter I got another letter
from the another department in the IRS (dealing with alternative minimum
tax) claiming I owed a different amount of money.
After a year with numerous snailmail letters and phone calls we
received a letter from the first department saying that they were
accepting our taxform in a “letter of no change”. (BTW: did y’all know
that the IRS will not forward your phone call, provide direct numbers,
or provide email addresses?). Shortly after receiving this letter of no
change, we received another belligerent letter from the AMT people
threatening liens if we didn’t pay up. For about the 10th time we made
copies of past correspondence from department 1 and mailed them to
department 2. That was about a month ago and we are still waiting to
see what happens. More than once when I finally spoke to an agent in
Philedelphia or New York (I made numerous phone calls to both offices) I
would ask if it was even possible that 2 departments within the IRS
could both have claims open for the same person in the same year. I
never received a satisfactory answer from any one of the IRS agents.
Aside from being about the most sinister department of the federal
government, they are probably the most inept.”
@badger, I think that this is part of the larger problem of US tax complexity, although I admit that the situation is extremely more complicated for people with foreign income, as the National Taxpayer Advocate said. I blame both Congress, for creating the complexity in the first place, and the executive branch, for misinforming the public and enforcing absurd penalties and rules. The US government doesn’t realize the enormous financial and emotional damage it has caused to Americans abroad and immigrants, and as a consequence to the country’s own image and reputation.
Since my representatives have not responded to me, I’m planning to go to one of their offices in person next week. At least someone will hear me there. Any suggestions on how I should proceed, and on which topics I should focus?
That’s quite a story, Roger. I concur with Badger and I was thinking about this as I filled out my FBAR for this year. This form is not only a pain in the arse for us US persons but imagine the poor data entry folks who have to enter this information into an information system – I think they’s go blind after the first thousand or so. Or perhaps the forms simply get a preliminary check and then get stuffed in a warehouse somewhere. Who knows? But the opportunities for error are legion on the US side and also on the bank side. When I was working on getting my FBARs last year I had to ask my bank for the account information for the last several years (I needed the highest account balance for all accounts by year). They were great but they 1. said that their information system was not set up to be able to run an automatic search and pull that info out of the database easily 2. and so much of the search had to be done manually 3. it would take about 2-3 weeks to prepare it. They did a great job and I went over to the bank to personally talk with them and thank both my personal banker and his assistant for their help. We had a long discussion about US reporting requirements and I directed them to the IRS website which has the FBAR instructions. Now my personal banker is a smart guy with bare-bones English but he could not decipher the IRS instructions. So here is my question about FATCA. Are the instructions going to be issued in languages other than English? If not, then they will be translated locally and there will be misunderstandings and errors. If there is a problem one day and the IRS/Treasury has a problem with my returns/FBARs do they have bi-lingual staff or will the onus be one me to translate for them? What about the supporting documents? Will I be able to send them as is or must I translate? Would they even accept my translation or would I have to pay a certified translator? If so would they trust a French one or would I have to use a US government one located in the US? Inquiring minds want to know….
sorry to hear you had to waste so much time, energy and effort but glad you have such tenacity!
How truly frightening, to imagine just how awful all of this is going to get. So glad I will be totally out of their system sooner, rather than later.
In countries like India, one must fight to fix the error, if the error is made by the tax department and send a bill for amount more than shown in the return. This is because paying even US$10 would be construed as admitting gilt, so future filings would attract more scrutiny. I learned this lesson hard way, because we paid a small amount instead of appealing to fix their error. Then onwards, almost every other year our family owned company returns were automatically picked for audit by the computer. We got more money return than claimed for few years with 16% interest in some of the audits. We depend of professional to file tax returns and represent me before tax department, so end up paying more for the fees. Small towns in India, the accountant fees are very affordable in the range of US$4/hour. Of course, if one is filing last tax return before relinquishing US citizenship, it is not worth wasting time for few dollars.
*These things don’t surprise me—they are typical..
The Norwegian tax authority made errors on my tax return each and every one of the last five years. All of the errors take at least 6 months to clear up, and are preceded by threatening letters. The telephone calls are answered by “don’t worry”. Last year, my tax refund was withheld to cover the error of the previous year.
The IRS once denied my entire foreign income exclusion.because that year I missed to fill in the dates I had been out of the US (I had been out of the US 15 years), resulting in a $20,000 bill. This took 6-8months to clear up.
Here is a follow-up on Rogers story posted here..
*Hopefully the last chapter to this nightmare has now been written”
On July 24 I received a
letter acknowledging my request to have the case re-opened and committing to
“contact you within 60 days.”
This commitment was met. I
received the $8.92 refund of interest check plus, in separate envelopes on
August 7, two identical notifications, one to me and one to my wife, that the
interest refund should be received within 3 weeks, and the case was closed.
My daughter insists I
should write a letter to Nina Olsen documenting this poor service from the IRS.
That IS within the scope of her functions
Somehow I suspect Nina has
her hands full with these millions of dollars of fraudulent refunds to
non-existent persons and to non-existent dependents of illegal immigrants in
Mexico, the Caribbean and Central America, that I wonder if it is worthwhile for
me to write her and point out the shortcomings have experienced with the IRS.
And of course all of this pales when compared to what overseas Americans are
going through at the hand of the IRS But it certainly is an indication of how
sloppy they are in dealing with taxpayers.
What do you all think I
should do about contacting Nina?
@Roger, I think it would be helpful if you did write to her. Every letter helps. Gives her more ammunition in the fight to change things. My .02.
@Roger, absolutely! Why do them any favours? You may be contributing to job creation within the IRS, or contributing to its collapse! The IRS’s response to our OVDI submission is already long overdue, what’s another year?
*I did write to Nina Olson, National Taxpayer Advocate, today I received a reply from Nina with no answers but committing to getting answers. She also asked for my permission to include portions of my letter in her next Annual Report to Congress as a concrete example of what is wrong at the IRS.
Her reply is copy and pasted below. Immediately below her letter is my email thanking her for her reply and granting permission to use my letter in her next report to Congress. Taking advantage of having her attention I also addressed the problem of Citizenship based taxation, which is beyond her responsibilities, but which I sincerely hope will help to enlist her support for our most important cause. She is a influential person to have on our side. Congress does pay attention to what she says and writes. She makes me downright proud.
From: Olson Nina E
Sent: Monday, August 13, 2012 11:23 AM
To: Roger Conklin
Subject: RE: Taxpayer Advocate re 2010 deficiency Dear Mr. Conklin,First, let me apologize for the run-around you experienced in trying to get your simple tax issue resolved. No taxpayer should have to go through this kind of experience, much less one such as yourself, who is the primary caregiver for an Alzheimer patient. Please accept my sympathies and apologies. Second, your questions are very legitimate and I am afraid I don’t have good answers. We will look into why the IRS does not credit any tax withholding when it does the computer matching of 1099 and other information returns. I can only hope that this was an aberration. If it is not, you have my commitment that I will advocate for a correction in the programming so this information is captured – but that may take a year or two to get changed. I apologize for that, but I am a realist when it comes to the issue of getting computer programming changes in the IRS. Your questions about the phone choices are also spot-on. The IRS’s phone service has been declining in the last few years, even as they try to push more taxpayers away from the phone and on to the internet. I have been advocating to the IRS and to Congress that the IRS needs to better design its phone system, including giving taxpayers the option to get to a live assistor. You have my assurances that I will bring your concerns to the attention of the IRS and Congress – your case is an excellent example of what inadequate systems and service can do to taxpayers who are doing everything they can to comply with the law. With your permission, I would like to include a portion of your letter in my next Annual Report to Congress. We will not list any personal or identifying information, but I have found that using “real world” examples is better than 1,000 technical words. Sincerely,Nina OlsonNational Taxpayer Advocate
Sent: Monday, August 13, 2012 1:17
To: ‘Olson Nina
Subject: RE: Taxpayer
Advocate re 2010 deficiency
THANK you for your
prompt response. I do indeed hope that this information will be useful in your
next report to Congress and you have my full permission to use this information
in that report.
Perhaps there is one
additional important consideration that you might address that I failed to
include in my letter:
For a number of years
my wife, 4 children and I lived abroad. If we were still living and working
abroad where no toll free telephone service is available for “US persons” to
contact the IRS for any purpose at all, the money I would have had to pay for
international direct dial telephone charges for the three plus hours I spent on
the phone trying to get this resolved could well have been triple the amount the
IRS was incorrectly insisting that I owed and demanding I
Allow me to add that
the sole reason I resigned my position as Managing Director of a Brazilian
company in Rio de Janeiro, dedicated to marketing US exports in that country, to
return to the US was because of changes in US tax law which overnight increased
my cumulative tax obligation to Brazil plus the US to 81% more than the tax
obligation of any other non-American in Brazil with my exact same income and
family status. This additional US tax made it impossible for me to survive. So
when I resigned and returned home, I in effect, handed over on a silver platter
a $1 billion market I had personally opened in that country to foreign
competitors, none of which were burdened with having to pay their non-Brazilian
executives higher compensation to be able to cope with being simultaneously
subjected to two very different and mutually incompatible sovereign tax systems
on the same income. When I came home the US portion of that market soon dropped
from the dominant position to near zero.
I know that this is not
an IRS issue, but it is a tax issue. I bring it to your attention because the US
is the only industrialized nation that has a citizenship-based tax system. This
is a primary reason why the US today has a $753 billion 12-month merchandise
trade deficit and Great Depression level unemployment whereas several of our
high- labor-cost industrialized trade-competitor nations are racking up both
record trade surpluses and low unemployment rates. Our exports do not sell
themselves. They have to be sold and that takes American feet on the ground.
Germany , just one example,
has a 12-month $224 billion merchandise world trade surplus and a 6.8%
unemployment rate; it’s lowest in 20 years. While the US has a $300 billion
China trade deficit, Germany has a China trade surplus, even though it imports
more per-capita from China than we do. Germany exports 7.9 times more to China
per-capita than the US . Germany , like all of our trade competitor nations,
does not tax its citizens who live and work abroad, but instead considers them
patriots because they sell the German products that create jobs and prosperity
With our unique
citizenship-based taxation of individuals, the US treats Americans who relocate
abroad to sell what we produce, also requiring they submit very complex FBAR and
FATCA reports, as tax evading traitors. So Americans stay home and American
products, very competitively-priced compared to products from Germany , capture
an insignificant portion of foreign markets. The tax revenue loss from our
trade deficit is some 30 times greater that the pittance in tax revenue
generated for the US Treasury from the comparatively few US citizens who are
able to survive our double taxation when living and working
Thank you for your
prompt and effective response, and your superb performance as National Tax
Roger D. Conklin
@Roger, great work and I am happy for you that you received the NTA’s ear. I’m sure you will continue to keep it. FANTASTIC!