People like to complain about the government, especially the IRS, so I want to share our recent experience.
Several months ago, the IRS notified us that we failed to report a stock sale in 2009. They were right. Living in Australia, we didn't get the form, so we didn't report it. The IRS proposed a tax increase of $8000 plus a $1500 penalty.
Acknowledging our mistake, we quickly sent in the $8000, begging for mercy on the penalty. Later, the IRS represenative pointed out that their proposed increase assumed a zero cost basis--hint, hint.
Sure enough, in our haste to rectify our mistake, we missed their not-so-fine-print assuming a zero cost basis. We had obviously overpaid. No problem. Just send the cost basis information.
That was easier said than done. Our employee stock purchase plan changed agents 3 times. Over two months passed before we could establish the cost basis. We sent it in just before the IRS deadline.
A week later, we got a notice of deficiency and instructions for petitioning our case to the US Tax Court. Doh! Figuring that our cost basis information was lost in the mail or sitting in queue, we called the IRS.
No problem. We gave them our cost basis and capital gains information over the phone. They recalculated our taxes, determined that we owed nothing, and said they'd be sending out a check to refund our $8000.
Four weeks later, we got a check for $8000 + interest. The whole ordeal was our fault, yet they didn't even charge a penalty! In a world where everyone seems to be trying to screw you out of your money--more on that later--it's nice to know the IRS is not.
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