How a phone call to the IRS saved me $2,000.

Last April, as tax season was ending, I decided to take advantage of a little thing called filing an extension. I’d never done it before, because my taxes had always been pretty straightforward. Last year, however, was when MANteresting went from hobby to holy-crap-this-thing-is-growing-too-fast. My business partner and I decided to make MANteresting a LLC, where we both held 50% stakes.

Whenever two people get added to any equation things get more complicated. Jesse had some receipts from MANteresting bills he paid. I had some receipts from bills I had paid. And we even had some revenue to report too. 

Since neither of us had operated a partnership before, we thought we would file personal tax extensions and deal with the LLC taxes this fall.

Apparently we are big idiots. Although we filed personal extensions, we didn’t know we also had to file a separate extension for MANteresting’s taxes.

Cue IRS Penalties. 

I got a fun little letter in the mail last week from our friends at the IRS letting me know that MANteresting was five months late on filing a tax return. We were charged $195/month, per partner, resulting  in a total financial obligation of $1,950 to be paid by October 30th. 

I felt sick.

Like I wanted to projectile vomit everywhere, pass out, and wake up from what I was hoping was a bad dream. Unfortunately, it was my reality. To make things worse, MANteresting wasn’t even profitable. So while we had a $0 tax obligation, we were being charged $1,950 for not reporting our $0 obligation to the IRS in April. Ugh! 

Fortunately, after a bit of internet research I stumbled upon first time penalty abatement. Apparently, the IRS is pretty cool about forgiving fees/penalties for first time offenders. I called some generic 1-800-IRS number and after being on hold for about 40 minutes, spoke to an IRS employee. She pulled up my account and explained why the IRS was charging the penalties.

All I said was “Yeah, I’m an idiot and this is the first time I’ve operated a business, I didn’t realize my personal extension didn’t also cover my business venture.” 

To which she literally replied; ” Oh, no problem sir. Give me a few minutes and I’ll have the penalties dropped.”

She put me on hold for about 5 minutes while she did her IRS thing, and then let me know I would be receiving a letter from the IRS indicating MANteresting was in good standing.

It really was that easy. So while taxes are probably my least favorite thing in the world, after Diet Coke, at least dealing with the IRS was surprisingly pleasant. Who woulda thunk it?

You ever dealt with the IRS before? 

18 thoughts on “How a phone call to the IRS saved me $2,000.

  1. A long time ago when I was working in valet parking at a hotel I was audited because I didn’t know how to report my tips properly to the IRS. When I was interviewed they saw that I didn’t make as much as they thought I did and told me no worries but make sure to report all my tips regardless to avoid an audit in the future. Now I have a tip compliance agreement with the IRS but they tend to revisit and bump up the assumed tips I supposedly make when I cannot legally force people to tip me because I have to pay tax on tips I’m always suppose to get…I need a new path for making money…but I’m institutionalized like the prisoners from Shawshank Redemption…

  2. I once received a letter audit because the IRS thought I had not reported a 401(k) distribution. I sent back proof showing it had been rolled over to my IRA within the 60-day limit. Problem solved.

    It’s really essential though that people make themselves familiar with tax law. Some people are so afraid of the IRS that they’ll head over to H+R Block when they’re making $12K a year and have to file a 1040-EZ. It’s not necessary, and costs you extra money. There are plenty of printed and Internet sources you can consult to learn the tax implications of any financial situation.

  3. You just never know! I had Revenue Canada (Canadian equivalent of the IRS) audit me for something stupid (to do with scholarships I received-they said they didn’t have proof I was in school… duh? How many people get scholarships when they’re not enrolled in school?) Anyway, I sent them the form they wanted, and they ended up sending me about $350 out of the blue. I think they screwed up (long story) but couldn’t get a straight answer from anyone when I tried to clarify, so my accountant told me to enjoy the money and view it as payment for the hassle of their stupidity. 🙂 Hence, communication with the tax man is not always negative 🙂

  4. Never dealt with the IRS, but I do this all the time when my credit card payment is late. Saved me $25 each time it happens. One simple call fixes the issue.

  5. I have had to deal with the tax people both professional as a tax preparer in my area but also had to deal with them personally this year. Since my neices and nephew came to live with me and I supported them I went from having a single return to having a head of household return with 4 dependents on it. They just wanted proof that they were living with me and that I was supporting them. It turned out to be really easy just a 6 month wait on my refund which went towards paying bills and paying off a student loan completely. Needless to say, I now have 2 years that I will not have to worry about being auditted by them.

  6. I’ve never dealt with the IRS, but your experience was surprising (from what I’d expect from any interaction with a government agency, lol). Can’t say this makes me WANT to talk to the IRS, but I’m happy you had a positive experience.

  7. I am a CPA, and I deal with the IRS and state agencies all the time. I honestly have never had a problem with the IRS agents; they are typically very considerate and they’re doing a job just as anyone else does. State agencies, particularly New York, are a completely different story…

    Just for future reference, there is also a revenue ruling out there particularly for small partnerships (under 10 partners) that can also be used to fight penalties and interest for late filings, even if it isn’t your first offense.

    Now that you’re becoming landlords, have outside partnership interests, and are homeowners, maybe you should think about getting a CPA involved?

  8. I did when I got a an estate distribution and didn’t find out that taxes hadn’t been paid. I owed another 12,500 and earned 45,000, so I had to do a payment plan. It took a while to pay off since I had already used my inheritance for private student loans and a few other stupid things (too bad I blew the money on a car, etc…). They were very nice every time I called or had to stop in. They’re just people too, trying to earn a living.

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