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Case in Point: Why You Shouldn't Immediately Give In to the IRS

As discussed in the previous post, one may consider simply surrendering when the IRS comes calling with news of a tax audit and/or informs you that you owe money to the federal government. Just because the IRS says you owe money, however, it does not mean they are right.

In How to Fight the IRS, The Wall Street Journal offers the story of Elizabeth Chapman, a 66-year-old poet and writing consultant living in Northern California. Ms. Chapman had made the smart and highly recommended move of hiring a thorough, top-knotch, and highly experienced tax preparer, and it made all the difference when the IRS decided to examine her 2005 federal income-tax return and later sent her a note that said they found she owed more than $15,900. Ms. Chapman decided to fight the IRS findings, and when it was all said and done in March of this year, Ms. Chapman ended up getting a check from the IRS.

With the smart, well-prepared tax expert on her side, Ms. Chapman had an advocate to deal with the IRS on her behalf who knew how long they could push their fight. Ms. Chapman's tax professional immediately met with the IRS and presented evidence on behalf of Ms. Chapman and her case. Eventually, the IRS revised their calculations to say that Ms. Chapman owed them $151. Ms. Chapman's tax professional, however, did not give up because she still believed the right answer was that Ms. Chapman owed $0.

Eventually, an IRS Appeals officer agreed that Ms. Chapman owed nothing. Ms. Chapman took the case next to U.S. Tax Court where a judge ordered the IRS to pay her $3,475.06 to cover fees she had paid in her defense. He said that the IRS had not presented any evidence to show it was even reasonable to have claimed Ms. Chapman owed them anything. In the end, Ms. Chapman was glad she fought the IRS findings and was pleased to receive her check when it finally came.

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