March 5, 2013 in Taxes

How to prove IRS wrong about a tax bill

Dear Tax Talk,

I had a charge-off that was apparently reported to the Internal Revenue Service in 2010. In April 2012 I paid back approximately half of this debt. In July 2012 I was informed that I owed the IRS extra tax for 2010 because of this income. I sent them a copy of the receipt to try and get the amount reduced by half, as half had since been paid; therefore it’s not income. They were not impressed and are still after me for the full amount. Will I be able to deduct the paid portion on my 2012 taxes? How can I resolve this tax bill dispute with the IRS?

— Ken

More On Tax Bills:

Dear Ken,

There are various defenses to fight this tax bill battle, but your best bet would be to hire an accountant to represent you so that you prevail in this matter. If I understand you right, you owed someone, let’s say, a bank, money that you did not repay in 2010. The bank charged this off as an uncollectible account and issued you a Form 1099. It sounds like you didn’t include this debt in your 2010 taxes and the IRS probably sent you a correspondence exam letter, known as a CP2000, asking why you didn’t record this as income.

For some unknown reason you paid off half of this debt in 2012 and you believe that you shouldn’t have to pay tax in 2010 on this debt. I agree with you, the IRS is not seeing it right. Your defenses would be:

Good luck and let me know how things turn out.

Ask the adviser

To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.