Notice of Deficiency - How To List on Schedule D

[crackedmuse]

Received a Notice of Deficiency for an amount I do not agree with. (It was for an amount I paid, but IRS lost my amended return and refunded because they didn't know what I was paying). Now 1-1/2 years later, a letter shows up asking for the same amended return, but due to my receiving letter 3 weeks late and my response taking over 2 months to get logged into IRS database, system automatically kicked out the Notice.

Anyway, spoke to two different IRS agents and both felt interest and penalties for certain would be eliminated, and possibly a portion of the amount due since it was their screw-up. I was instructed not to sign the Notice (because if I sign it means I agree), but write a letter so a response is on file, and in the next 30-60 days my file will be assigned to a specific agent who will be able to resolve this.

I am filing pro se in the next 10 days, so my question is, do I mark this as 'disputed' on Schedule D, even though technically it is not a formal dispute since I cannot discuss it with IRS? Secondly, I was advised not to sign the Notice, but will listing it on Schedule D be the same thing as admitting I agree?

[justbroke]

This is confusing. I don't know how that has anything to do with how you listed something on Schedule D. Schedule D is for secured claims. Priority taxes go on Schedule E.

Oh, so you're asking about an IRS Notice. Since you haven't filed yet, you'd have to know just whether the IRS has a secured claim or not. They probably don't. You would generally list "recent" IRS taxes on Schedule E. If you don't know the amount, then make a note that the amount is unknown (not listing an actual dollar amount on the schedule).

If you are in an asset case, the IRS will file a proof of claim.

May I ask if you have a guidebook such as NoLo's guidebook to filing Chapter 7?

[crackedmuse]

My reply seems to have gotten lost, but if it suddenly shows up, my apologies.

My mistake. I meant Schedule E. (It's been a long day).

As of now, technically, I do not owe the IRS anything. Only when I sign and return the notice, or 90 days pass without a response will a bill be generated. Since I was advised not to sign the notice, my concern is that by listing the amount on Schedule E, can the IRS use that as an admission that I agree with their assessment and suddenly hit me with a bill?

I am a no-asset case. I even spoke with the IRS Tax Advocate and they felt it was possible I might end up owing nothing. (There's a history that I didn't go into for brevity's sake, but I really have no fault here and plenty of documentation to back it up). However, the reason the IRS agents told me not to sign, was because that was considered an admission, so any proof I may have to the contrary would go out the window.

My apologies again for the goof, but I have no way of editing the thread title.

And yes, I did have the Nolo Chapter 7 book from the library, but at the time I was completing the petition, I had no tax issues or any secured or priority claims/debts, so I skipped over that section.

[justbroke]

I can't provide legal advice on a strategy of whether or not listing an "unliquidated" and "unknown" potential tax liability (in the amount of $0.00) amounts to admission. It is true that your Schedules are a sworn admission of facts and they have been used against people before in collateral estoppel cases.

You either owe the IRS or you don't. It's up to you whether you want to list something, but you are required by law to list EVERY debt on the schedules. You don't get to pick and choose.

Are these taxes recent? It appears this will be an assessment. If the IRS assesses this before filing, there's no way you could discharge the tax even if it was from taxes last due more than 3 years ago. If these taxes are significant, I highly recommend an attorney. Some taxes may be dischargeable if they pass the dischargeability test.

I'm no tax expert and the Notice of Deficiency is for tax assessment usually because you didn't file a return. When you file a return, the assessment is moot -- so long as you file before the 90-days are up. However, if you file Bankruptcy, you are required to file ALL tax returns that were due prior to filing.

[crackedmuse]

The taxes are 2009, so do not qualify, nor am I attempting to discharge through bk. Return was filed and paid on time (4/15/10) and was all amount owed ($1,214) - no refund. In June of 2010, received a letter from Examinations Dept. that some of my income appeared to be from self-employment, so please file Schedule SE so they could determine if I owed this tax, which I did a week later by fax, and submitted what I felt was the underpayment ($1,171) electronically the same day. IRS received the funds, but Schedule filed by fax was never entered into the system, so payment was refunded two months later (August 2010) when they could not match it to anything - however, I did not know this was because my Schedule SE had been lost. Letter simply stated a review of my return showed I was entitled to credits I did not take, so a total of $2,068 was refunded - for credits not taken + the $1,171 they didn't know what to do with.

That was it. No further letters, no nothing, case closed. Then in July 2011, I receive the same letter AGAIN, asking me to file Schedule SE, which I did in August in person at the local IRS office, but it took them until October 2011 to log it into the system, thus the Notice of Deficiency was kicked out with an assessment of $2200 for underpayment + a year's worth of interest and penalties.

I am omitting several conversations with IRS where I followed-up and attempted to verify receipt, but suffice it to say, I did my due diligence and IRS even agrees with me, so that is why I was advised not to sign the Notice of Deficiency.

So no, there are no unfiled or unpaid tax issues. This is completely separate from the bk and will be resolved with the IRS whenever someone is assigned to my case. My concern is only if by listing the assessment on Schedule E, that could later be used by the IRS as an admission that I agree with their assessment, and would then be responsible for paying the interest and penalties they piled on in addition to the tax. That was the reason I was advised not to sign the Notice, because I would be agreeing to the interest and penalties - not just repaying the tax that was mistakenly refunded.

I intend to list it on Schedule E, because the "technical" nature of it is moot. However, when I file, IRS will not show me owing this debt. It doesn't officially turn into a bill for 90 days. But it pains me that by listing it, IRS will seize upon that as agreement when I definitely don't agree!

JustBroke, thank you so much for your responding. This is a completely unanticipated turn of events. I had actually planned to file 2 weeks ago, but decided I should wait because of a $9 charge at Kmart in August. Since I am pro se, I wanted the last 90 days to be completely clear. Now it seems I would have been better off explaining that laundry detergent that dealing with this! LOL

[HHM]

One thing that you haven't explained, when you GOT THE REFUND, why didn't you do anything at that point to take care of the issue? (So I am not going to entirely give in to the idea that you are hapless victim).

The nuts and bolts of this are actually quite simple, you owe some tax, the question is how much. Additional tax was owed, you attempted to file a return showing additional tax was owed, and attempted to pay it. The IRS made a mistake, but that doesn't mean you owe nothing. However, the IRS mistake gives you an argument to get the penalties, and possibly interest waived; but you still owe the underlying, principal tax.

You have a debt to the IRS, it is a priority claim based on BK rules, so it goes on schedule E. If you received a Notice of Lien (unlikely), then they would have an alleged secured claim. You simply mark the debt as disputed. It is liquidated, you know what you think it is supposed to be, and the IRS has its idea of what the amount is, the amount is not unknown, it is simply disputed; nor is the claim contingent; but again, it is disputed.

[justbroke]

If charges are for "personal" reasons... life affecting, housing, food, clothing, other shelter, necessities, gasoline/transportation, etc... no one bothers. Especially for $9!!

In any event, I think you are taking the right path with the IRS. I mentioned an "unfiled" return because that is usually the reason why they issue a deficiency -- or an unfiled schedule. It appears that they messed up. I hope that you received a "file stamp" copy of your Schedule SE when you went into the field office. That would certainly bolster your claim that you in fact filed the form.

It appears that the IRS goofed, but they are the MOST DIFFICULT agency to deal with. I spent 2 years trying to get a BOGUS 1099-MISC removed from my file. Some dumb company issued a 1099-MISC for a real estate transaction that the IRS took as income. It took me a year to explain to the IRS how could I pay taxes on a purchase transaction when the money listed was my down payment! They then told me to go back to the originator of the 1099 to get ride of it. I did, but the dumb company issued a corrected 1099-MISC in the amount of $0.00 against the WRONG SSN! So another 6 months go by and IRS is sending me some nasty letters!

Finally, I get the dumb company -- luckily they didn't go out of business during the real estate meltdown -- to send a corrected 1099 that had the right SSN and $0.00 in box 1. Lo and behold, the IRS then says that I have to go through the Office of Reconsideration since they already assessed the tax! Difficult, difficult, difficult! It wasn't until after I filed Bankruptcy that it all was straightened out. While I say 2 years, it was actually for tax year 2005 and assessed in 2007. I fixed the problem in 2009.

So I can actually sympathize with what you are going through with the IRS.

(I agree with HHM on the "disputed" part. With the additional information provided, it appears that you filed a tax return and you know the amount in question. )

[crackedmuse]

HHM: I'm not claiming to be a hapless victim, or that I do not owe the tax. It's the interest and penalties I object to, which is why I'm not signing the Notice.

The original letter received in June 2010 stated, "please file so we can determine if you owe this tax." I immediately called IRS and had an agent walk me through completing the Schedule. She explained the computations as we went through the form line by line. Naturally, they cannot comment if the total is correct because they are not looking at the paperwork, but told me to go ahead and file and if it was not right I would receive a notice with the corrected amount. Because I was moving to a new city later that month and wanted to avoid my paperwork being lost or subsequent delays in mail forwarding, I faxed the Schedule (with a copy of the letter) to the IRS and made the payment. (I have the fax receipt)

I indicated that for brevity's sake I was not going into all the particulars, but there were 3 conversations with the IRS in July 2010, attempting to verify that my Schedule was correct and payment sufficient. I was told during the first conversation that a payment had been received, but he was unable to access the Schedule; however, it often takes up to 6 weeks for documents to be scanned in the database, so I should continue to check back. Two weeks later, second conversation with same result. First week of August, third conversation. Still unable to access my Schedule, however agent said he showed a refund had been processed, so it appeared (to him) that payment was not only sufficient, but apparently I overpaid.

When the refund appeared a week later, the letter stated, "we have reviewed and determined you were entitled to credits and a refund has been processed." No amount was stated or what the credits were for. A few days later a check shows up for much more than the additional SE payment, so I assumed it was determined I did not owe any additional tax. I never received - nor did the IRS send - any letters following up on the original request; i,e., "you have not responded, please file requested schedule, etc." Nothing. A full year passes, then another letter exactly like the first shows up requesting that I file. I immediately call and that is when I'm told they have no record of having received my Schedule, and the payment was refunded because they showed my account as no balance due.

So the next day I go to the local IRS office with my documents (August 2011) and proof of having filed a year prior, and yes, I did receive a file-stamped copy. Then 5 more calls with IRS checking on status between August and mid-October when my documents filed at the local office finally appear in the database. In the meantime, a second letter arrived first week of Sept stating they had not heard from me and if I did not respond within 30 days a Notice would be issued. IRS advised that Notice was automatically generated because of the two months it took for my file to be updated, but now that my response is in the system (and the response date WAS shown as 8/22), my case was now awaiting assignment to an agent who would respond. If it hadn't taken so long for them to enter my docs in the system, the Notice would have never gone out. It was just a fluke of the timing.

HHM and JustBroke: So are you saying I should list the full assessment amount under "amount of claim", mark it as disputed, enter the amount I owed ($1,171) as "amount entitled to priority," and the interest and penalties as "amount not entitled to priority." Would that be correct?

[justbroke]

If it were me, I'd only list the tax due (exclusive of penalties and interest) on Schedule E. I would also list it as disputed. Other than that, it doesn't really matter. Trying to figure out -- on your own -- what part is entitled to priority and what is unsecured (Schedule F), is usually an exercise in futility.

[crackedmuse]

And JustBroke: about Kmart - I bought a tea kettle for $12.00, but the price was reduced to $9.00 because of some old "Shop Your Rewards" points I didn't even know about until the cashier asked me if I wanted to use them. LOL

And I actually wasn't concerned about the charge until I got a call from Amex a couple of weeks ago haranguing me over it! It completely floored me, because I was current on the card with $28 balance from buying gas two days (8/6) before + this $9.00. Payment wasn't even due until 9/5. However, I was 65 days behind on my other card with them, and it was becoming clear by the end of August that bk was in my future, so that's why I defaulted on the Sept. payment. Originally I was thinking if balance was zero I might be able to keep that one card, but later realized Amex would close it regardless if I bankrupted on them for anything, so what was the point of giving them another $37.00.

Wow, your tax issues are unlike anything I've ever heard. I did some paralegal contract work for U.S. District Court a few years ago, and the 1099 listed the amount as "Other." IRS sent me a form to "clarify." I called and asked what clarification did they need and was told "Other" does not specify what the income is for. The agent actually asked me if it was gambling winnings. U.S. District Court, paid by US Treasury check from Administrative Office of the Courts in Washington, DC. Yep, sounds like a casino to me!

[justbroke]

Life is a gamble. You should always go all in!

[crackedmuse]

We must have been posting at the same time. I will heed your advice re listing just the tax owed and marking it disputed. And I believe you are right about the futility aspect. IRS will make whatever claim they want regardless of what is listed, and the tax can't be discharged anyway so ultimately it doesn't matter.

I thank you guys for your time.