The IRS has never been known for its reasonable, sensible approach to taxpayer mistakes. If you have ever faced an IRS dispute, you know that the agency will seize on the smallest mistake and assess huge penalties and interest. That’s part of the reason an IRS dispute is so stressful for taxpayers – because rather than helping taxpayers correct their mistakes and pay reasonable penalties, the IRS uses their power like a sledgehammer and assesses penalties so severe that many taxpayers simply can’t pay them.
A recent example of over the top IRS behavior caught our attention. It took place in the city of Virginia Beach, and it’s an excellent example of the aggressive, punitive nature of IRS collection agents. As a recent Virginian-Pilot article reported:
The Pilot's John Holland reported this week the IRS picked a totally ridiculous fight with the city of Virginia Beach. The tax agency said the city had miscalculated - by one day - the eight-year maturity date of a $20 million water and sewer bond from 2010.
Thus, the city would get the princely sum of $33.59 more than it should have over those eight years. (Try spending that little on a dinner for two at an Oceanfront restaurant.)
The penalty for such an error? A cool $5,000.
City officials were stunned. Granting a mulligan would've been saner.
In a letter to the IRS that Patricia Phillips, director of finance, wrote Oct. 10, she urged the cost be lowered to $1,000: "While this amount is still punitive, it is much more reasonable in comparison to the trivial mispricing caused by an innocent and inadvertent mathematical error."
Eventually, the city wrote a check for the full amount. But Beach officials still felt the edict was rotten, and they continued to fight.
A new IRS agent and common sense helped overturn the original ruling. The city got a full $5,000 refund in March.
"An IRS reversal is highly unusual," City Manager Jim Spore wrote to council members March 28. "In fact, our bond counsel commented that this is 'unheard of.' "
Phillips has said the dispute cost the city thousands of dollars in attorney's fees and staff hours. But the Beach also taught the feds a lesson.
Yes, you read that right. An error of less than $35 led to a five THOUSAND dollar penalty from the IRS. In what world is that reasonable or fair? Unfortunately, this type of IRS aggression is very common, as anyone who has faced an IRS controversy can attest. In this case, though the penalty was eventually refunded, the matter was extremely costly and time consuming for all involved.
If you’re facing an IRS dispute, it’s important to have an experienced tax attorney on your team. IRS collection efforts are aggressive and their tactics are designed to intimidate taxpayers. If you would like to learn more, or if you need assistance resolving your IRS controversy, we want to help. Please call 844-841-9857 to learn more!
