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Individual Entry With Comments

July 10, 2006

Audited by the IRS

Filed under WTF

I was greeted by a letter from the IRS about 3 weeks ago. It claimed I did not pay enough taxes in 2004. I owed an additional $4,000. I had three options:

  1. Pay in full
  2. Pay using an installment plan
  3. Disagree and pay the correct amount with supporting documentation

I was shocked when I received the letter. My taxes are usually pretty simple and I do them myself. It took some research to find out what exactly happened. The IRS said I did not report my wages from my W-2 from Computer Associates (CA). They are correct...I quit CA in 2003, so I did not have any wages for 2004 from CA.

I called CA and asked for a copy of the W-2 form that the IRS had used as the basis for the taxes I owed. I asked CA why I never received the W-2 from them and they said I did not give them an updated address once I moved, so they had no way to get me the W-2. They faxed me a copy of my W-2. I noticed three strange things on the W-2:

  1. The wages were less than $500 (I had no idea how they came up with that number)
  2. The address for me on the W-2 was in Massachusetts (I've never lived there!)
  3. Under my name, they had another name, Jan Lenihan, as if I was married (I'm not!)

Now things were starting to make sense. My name is fairly unique. The first time I met somebody with my same last name I was 20 years old. I never met anybody with my first name *and* last name...until I worked at CA. I guy in sales in Boston had my name. I used to get all his email and he got my paychecks for a month. I thought after I got the paycheck issue resolved, I would be done with mistaken identities! (Other than this time, which was actually really fun!).

This *other* David Lenihan was involved with a lawsuit against CA when he was required to improperly pay 40% of his commissions to his boss. His boss got in trouble with the IRS for not reporting income from commissions shared with subordinates.

So that explains why I didn't get my W-2 and why the IRS is monitoring me...but where did the money go? I never got it...or so I thought.

The money is from when I sold my shares of Computer Associates stock I purchased through the Employee Stock Purchase Program (ESPP). I got the shares at a 15% discount. That discount counts as income. The income from the discount is not reported until you sell the shares. I sold the shares at the beginning of 2004, so that is how I had wages from CA in 2004 even though I did not work there.

The last issue was the amount I owed. The IRS knows what you sold your stock for. They don't have documentation about what the purchase price was. You pay taxes on the profit (capital gains) you make from selling the stock. The IRS assumes you bought your stock for $0, which means my stock sale was all profit. I wish I could buy my stock for $0...but in this case, I didn't. I contacted my broker and got documentation about how much I paid for my stock.

I downloaded a new 1040 form from the IRS web site and did my taxes again with the extra income from the sale of my ESPP shares (15% discount plus capital gains).

I called the IRS to make sure I had everything correct. I was on hold 45 minutes before I got through to a live person. The lady was very helpful and patient. Her numbers did not agree with mine. I explained how I came up with my numbers. I found the difference between my numbers and her numbers were that her numbers also included the interest and the original tax refund I had already received...which I was going to get to *after* I had my correct taxes figured. Once we were on the same page and she agreed with what I owed, I told her when I would be mailing the check for the full amount. She figured out the interest owed since taxes were due in April of 2005. I did not have to pay a penalty other than the interest.

I am certainly to blame for this, because the IRS does not accept ignorance as a valid excuse. CA messed up, too, but I ultimately should have chased CA down and asked about my W-2. I'm just glad to be done with it...it was very time-consuming and stressful.

So now that I have cleared my good name (again!)...let me do a little preemptive work. I do not have a surprised expression, have a birthmark in the shape of monaghan on my left buttock, and I have NEVER ABUSED SHEEP!!!

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This page contains a single entry from the blog posted on July 10, 2006 10:03 PM.

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