Page 20 - Pierce County Lawyer - January February 2024

A LAWYER WHO HAD TO DEAL WITH THE IRS
By David Shelvey
About seven months ago, I received a voice message, text, and email with capital letters, EMERGENCY – PLEASE CALL ASAP! It was from an attorney friend of mine, we went to law school together. He practices personal injury in a different state. I will call him James. James and I keep in contact via Facebook. When I called him and said, “Hi, James,” he blurted out, “I received a letter from the IRS saying I owe $77,000 for my 2021 tax year.” He knew I spent three years as a tax attorney before switching to Family Law, and he also knew I worked part-time during the tax season, preparing tax returns and responding to IRS letters. I asked him who did his taxes, and he replied that it was a CPA. So, I asked, if he had talked to the CPA, and he replied the CPA had retired. I said, “Let’s walk through this together. The IRS letter has a code on the upper right corner. It consists of two letters and numbers. He said, “Is this it – CP11?” “Yes,” I said, “let me call you back.”
The IRS has two different types of documents (as Microsoft Word calls it) that they mail out. A computer-created notice will have the initial CP in the upper right corner followed by
a number. If a human had produced the letter, it would have the initials LT. IRS uses a computer language called COBOL, which stands for Common Business Oriented Language. COBOL is a compiled English-like computer programming language designed for business use. It is a procedural programming language that follows a sequential, step-by-step approach to solving problems. In James’ case, CP11 stands
for Computer Paragraph 11. I went onto the IRS website and searched for CP11. The IRS says that a CP11 notice is mailed because we [the IRS computer] made changes to your return because we [the IRS computer] believe there’s a miscalculation. You owe money on your taxes as a result of these changes.
The computer found something reported on James’ tax return that did not match up with what the database had on file. When this condition arises, the computer is programed to go to Computer Paragraph 11 and do what it says. In this case, it generated a CP11 notice and place it in an envelope. At this point, chances are, no human knows what is going on. Kind of an Artificial Intelligence, but the computer is not thinking, it is just doing as programmed.
So, I called James back and explained to him why he received
a CP11 notice. He recalled that in June of last year, he received a refund of $75,000 for his 2021 tax year. This would explain the Facebook post of him showing off his new SUV, paid for in cash. He wanted me to look at his tax return. I let him know that before I did that, I wanted him to go on the IRS website (www.irs.gov) and do two things: on the front page, on the left side, select 'Get your tax record.' Then select 'Get Transcript online.' I asked him to order the Record of the Account, which provides the most detailed information. It is a combination
of the Return Transcript and the Account Transcript. It is like the back of the speeding ticket where the officer writes all their notes. He called me back to let me know he ordered it by mail.
About a week later, I received an email with the notice, tax return, and transcript attached. The email said the transcript
is full of numbers and codes. I called him back and, by a Zoom meeting, with the transcript in my hand (and he had the tax return in his) we began scrutinizing. Starting with the IRS Form 1040, Income 1a. I said what about the transcript amount $108,000 from Eastwind Health? He said, yes, my
wife is a nurse. I next went to line 8, additional income from Schedule 1, line 10: he said the amount is minus $147,000. My report shows the number should be $240,478. We then went
to his business tax return, Schedule C. Line 1, Gross receipts or sales: the transcript listed $508,000. He said his tax return listed 108,000. There obviously was a Scrivenor's error. And for total expenses, we both had $255,000. The transcript showed
a net profit of $253,000 and the amount in taxes owed was $67,791. His return on page 2 of the 1040 showed he got a refund. “Wait a minute,” he said, “my wife and I paid $75,000 to cover our Federal Taxes." And that explains his refund. With penalties and interest, the balance owing was a little over $77,000. I suggested he could request an abatement of tax, penalty, and interest, and see if the IRS would forgive some of the debt owed.
Of course, James no longer has the $75,000. Another thing
is that for the 2017 tax year, the transcript had a note, “No Record of Return Filed.” He said he did not file in 2016 or 2018 because “my wife and I made very little money.” I said, “I bet you owe for tax year 2017.” I explained to him that the tax system is based on voluntary compliance. That is why the
20 PIERCE COUNTY LAWYER | January/February 2024