I'm losing it (IRS related) - Update!

[Deleted]

I don't know if my husband isn't explaining the story right to me or I'm just not getting it. Maybe the IRS is punking me.

We got a notice a few months back that we had a tax deficiency because we took money out of an HSA for unqualified medical expenses. We didn't. We sent them this response in November: PDQ but including everything for now in case I'm missing something

Dear Sir or Madam:

We disagree with the IRS’s proposed recalculation of our federal income taxes for the year 2014.

The distributions from the Health Savings Account (HSA) we had in the year 2014 were for qualified medical expenses. No unqualified withdrawals were taken and therefore the distributions should not be treated as taxable income and no penalties or interest should be levied.

We have attached a copy of the statement from the HSA account for the 2014 tax year. We have marked, with a green tag, all the distributions, totaling $4174.33, which were paid directly to medical providers for services rendered during 2014.

Additionally, we have marked, with a yellow tag, those disbursements that were paid to us for payments made to medical providers for 2014 made with our credit card. Please see the attached copy of the credit card statement showing the payment “Redacted Hospital” for $5351.87, of which $3383.47 was paid back to us via withdrawals from the HSA account.

The $4174.33 for direct payments to providers and $3383.47 for withdrawals for payments made with the credit card constitute the $7557.80 that was disbursed in the 2014 tax year, with all disbursements made for qualified medical expenses.

In light of this supporting evidence, we ask that you reconsider the proposed calculation of our 2014 federal income tax.

____________

And they asked for receipts a few months ago and now we get a certified letter saying the distributions were $7,557 and that the entire amount is taxable income.  I don't know what we did wrong.  All of the payments were for our insanely high medical costs that year.

Help.  It says we owe $4,000 and we haven't even paid this year's taxes yet so I'm really going to crawl into a hole and die now.]

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Update 4/25 - got the notice in the mail yesterday that we don't owe anything!!!!!!!!!!!!!!!!!!!!  And the case was closed.  Hurray.  One less tax drama, now onto 2016.

[puppylove64]

Have they responded to the letter you sent yet? Did you send copies of the receipts, cc and the original disbursement tax form? How long have they had since you sent the letter?

IRS is notorious for getting items crossed in the mail. They need a good six weeks or more to process the letter you sent.

[Deleted]

Apr 4, 2017 9:05:43 GMT -5 puppylove64 said:

Have they responded to the letter you sent yet? Did you send copies of the receipts, cc and the original disbursement tax form? How long have they had since you sent the letter?

IRS is notorious for getting items crossed in the mail. They need a good six weeks or more to process the letter you sent.

I guess not? I thought this was the response but maybe you're right and it did get crossed in the mail. It is dated over two weeks ago but I just got the notice yesterday to pick it up at the post office, which I did first thing this morning.

Just talked to my husband. He said somehow the e-file was missing the box for our HSA and he sent an amended form. I hope this is just a big mistake but now I'm going to call and hopefully find out more information.

[Deleted]

Update: spoke to IRS. The woman actually sounded like she was sick and it was hard to understand but she said they are still reviewing our amended form. They have 30 days to do so and received it on 3/24. Not sure why this letter was created on 3/20 and not mailed out until at least a week later but we'll see.

[thatgirl2478]

E filing is great, until it's not. It doesn't surprise me that the 2014 tax forms were missing boxes, that was the year everything changed. I would just keep at it. If they STILL don't get it maybe find a qualified tax pro to take it over (it will suck to pay them for something stupid like that, but it might make it go away).

[moolarkey]

We had problems several years ago. My H scheduled a meeting with the IRS, he took all our forms and met with a guy. They were able to straighten it all out in an hour. I'm sure not every meeting is as quick or successful but it was so much better than emails and phone calls. If your amended form doesn't resolve it, you might want to consider a one-on-one meeting.

[jwright]

Glad that you called. That way they can tell you where you are in the process. Don't be surprised if you continue to get escalating letters from the original issue before they review your response.

It is nerve wracking, but this happens to our clients all the time.

[foxmulder]

The IRS is notorious for taking forever to straighten out things like this and in the meanwhile sending letters that cross in the mail. I have seen small issues like this take two or three letters, each essentially saying the same thing. I'm glad you spoke with someone. If you get too overwhelmed it doesn't hurt to call a CPA and pay them to take care of it.

[Deleted]

The IRS is the worst. I had an issue a few years ago where my XH had cashed in a 401k, without my knowledge, shortly before we split up. About a year after we split up, I suddenly got a bill in the mail from the IRS saying we owed taxes on his withdrawal since it was made while we were still together. Insert long story about how my XH handled it like the jackass he is, but I ended up submitting an innocent spouse relief form to get my name off the debt. It took something like 8-9 months to be resolved, and in the meantime I had 1 letter saying it was being processed and still kept getting more and more threatening letters from apparently a different IRS department saying I owed the money (even though my letter about the form I submitted said not to pay anything until I hear an accept/reject on my appeal).

Anyway, in the end they let me off the bill and stopped sending letters, but it was pretty clear one hand didn't know what the other was doing and this went on for many, many months. I have a feeling you're seeing something similar. I hope so!

[whiskeytails]

Apr 4, 2017 8:56:28 GMT -5 @notquiteblushing said:

We have attached a copy of the statement from the HSA account for the 2014 tax year. We have marked, with a green tag, all the distributions, totaling $4174.33, which were paid directly to medical providers for services rendered during 2014.

It sounds like you've done everything correctly -- I agree that now you are just playing the waiting game.

FYI-- When you take a distribution from an HSA, it doesn't actually have to be from that year.

Example:

HSA is opened in 2011
Medical expenses occurred in 2013
You take a distribution in 2014.

Nowhere in the current law does it say you have to take the distribution in the same year as an expense (only for an FSA, not an HSA). 

Just in case some document is denied.

ETA: I work for a tax association. 

[Deleted]

case closed, we won!

[thatgirl2478]

YAY! So glad it worked out for you! What a worry off your back.

[calico]

Awesome news!

[Raggedeannie]

Good update!