I have been trying to sort out an IRS problem for my 19 year old daughter. She earned a little over $5k in 2007. She initially filed a
1040 (she had some stock sales) with her not claiming herself as a deduction. This gave her a tax liability of $11 (because of the stock sales) and a rebate of around $130. When we did our tax return we realized she was eligible to claim herself as a deduction as she paid more than half her own expenses when we take into account the stock sales. So she filed a 1040x which should have given her another $11 refund (and we hoped the $300 stimulus payment though I have read since then that corrected returns don't get it).The original $130 refund from the 1040 was paid direct into her bank account. Then she got a check in the mail. Was expecting $11 so was very surprised to find a check for @ $2700! The attached explanation notice showed income figures that bare no relationship whatsoever to her income or anything that was on her returns. Tried sorting it out over the phone which was a waste of time. So wrote to the IRS in June explaining the problem and including copies of the tax returns, the IRS notices and the IRS check and asking what to do. Did not cash the check and told them that.
Late August got a notice saying she owes the IRS @ $2750 in taxes plus interest for late payment of taxes. Wrote back registered mail explaining the situation again and that she never owed $2700+ in taxes let alone paid them late and including the check, copies of all previous letters and IRS notices and tax returns.
Yesterday received a notice saying she owes nearly $2800 including more interest.
I called the Tax advocate office and they said it can take 45 days for the IRS to process the check (well cancel it presumably as it is their check) but when it is processed all the interest charges should go away. She said to give it 30 days (or if another notice comes) then fax all the info to the advocate plus a POA so they can talk to me instead of my daughter (poor kid is scared to death with these threatening notices and demands for thousands of dollars).
Is that the right way to handle this? I am so frustrated right now. She was doing the right thing by not cashing the check so to find her being told she owes thousands of dollars because of an error that completely originated with the IRS is infuriating. The fact that they completely ignore all our correspondence leaves us feeling very helpless. I have a pretty good understanding of figures and taxes and I am finding this incredibly stressful as whatever we do we get no response. I can't help thinking how even more appalling this situation would be for people who do not understand what is going on and for young people (like my daughter who will never have any faith in the IRS after this) or older people. Plus we have already spent more than the $11 she was actually due in copying documents and mailing them to the IRS.
Anyway - venting aside - is there anything else I should be doing? Is it ok to wait another 30 days as the advocate said? I am worried with all these penalties and interest being added.