BAD, BAD IRS and 6042C Letters

Now, I know this is late summer - autumn 2020, and we are in the middle of a Covid-19 pandemic. We should respect everyone's efforts at getting their job done, no matter how ineffectual.  But when the IRS starts to practice creative incompetence, I think it is time to speak out -- write out.

The IRS frequently has a summer project-- things for agents to do in the middle of the summer when there is otherwise not enough work to do. But to come up with such a project this year, when they cannot even process many income tax returns (including my own), such a project is BAD, BAD BAD.

One of my long term clients is a trust. It is a very small trust, and that this point, probably has less than $100,000, which for a trust, is actually rather small. The trustee is a not professional and I typically cannot get accurate income information from her. As a result, the trust 2019 Form 1041, fiduciary income tax return, filed in late March 2020, showed a refund of $3,858.

I am going to be particularly careful in the future not to have my clients overpay the IRS aka the U.S. Treasury. Paying the IRS is not like putting money in a bank. If the U.S. Treasury holds you money, you may have to go through a guantlet to get your own money back.

If you do not believe me and want to see the notice I am talking about, you can follow this link .

My records indicate that I sent this return to my client on March 13, 2020. It took the IRS until July 22, 2020 to send out this 6042C letter demanding additional information. They write that they need this information within 30 days.

I will discuss the information demanded by this request. I am not going to provide the information that they say they need -- which is either in their files or in fact they do not need-- although I will provide them with 2012 and 2014 Forms 1041 which is in their files and therefore they should have access to.

1. They want the social security of the grantor. This was set up more than 20 years ago and I may have or have had his social security number at one point. But after I got the F.E.I.N. for the trust, I did not keep it hand. I started doing fiduciary income tax returns when I started in public accounting in 1978 and have been doing them since then and I am quite certain they do not need this information. BAD BAD IRS.

2. They want the month and year the F.E.I.N. was obtained from the IRS. Again totally irrelevant and not germane. BAD BAD IRS.

3. They want a photocopy of the notarized trust. (1) We have been filing 1040's for something like 20 years, and (2) am I seriously to believe they are going to have someone competent to read trust agreements to read this trust agreement and to ascertain what?? Seriously irrelevant and not germane. BAD BAD IRS.

4. They want to know whether the trust needed to file W-2's and forms 1099-MISC. So they are going to hold up the trust refund in order to check whether we needed to file W-2s and Forms 1099-MISC. SHAME ON THE IRS AND THE U.S. TREASURY. There is nothing on the tax returns that I can easily find (2012, 2014 and 2019) to suggest that there are or were W-2 wages, and the only payments that might require Form 1099-Misc reporting are my fees which are below the need for reporting threshold.

Happily the IRS interest rate was 5% for the quarter ended June 30, 2020 although it has dropped to 3% for the quarter ended September 30, 2020, so as long as they keep the money it is earning interest.

Part of the problem with the IRS is the attitude that has developed in tax practioners and in the IRS about tax return preparers. When electronic filing was set up, it was done with the prescription that tax return preparers were not to charge clients for it. Since the IRS is not paying us either, this is a violation of our rights under the 13th Amendment of the U.S. constitution, involuntary servitude.  I guess so many tax return preparers are going along and acting like co-dependent house negros, that the IRS thinks it can demand anything from us and we will go along. I think we need to stop this behavior.

If you think that this or any other behavior of the IRS needs to be changed, do call them at the telephone number on the notice and talk to them about it.

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