First Person: My $139,000 Tax Bill

Abstract: I recount my shock at receiving a letter from the IRS stating that I owed more than $139,000 in back taxes. I discuss what I did to remedy the situation.

In March 2007, I submitted my income information to my tax planner. During 2006, I had tinkered with day trading stocks and had made a small ($2,000-$3,000) profit on sales of over a million dollars. I received my tax documents back and was overjoyed to note that I only owed the Internal Revenue Service around $200 and the Commonwealth of Virginia even less. I promptly mailed my tax forms to the appropriate agencies and forgot about the matter.

I was shocked to receive a final notice from the IRS in October 2008 which claimed that I owed more than $139,000 in back taxes along with several thousand dollars in penalties. The statement threatened legal action if I did not respond within a certain number of days. I do not recall receiving any previous statements; the IRS may have sent them to an old address.

Courtesy of Microsoft Office

I called the IRS and asked for an extension. My tax planner and I analyzed the documents and noticed that we had neglected to include several pages worth of stock transactions on the original return. By his own admission, my tax analyst worked for many hours to fix the errors caused by my oversight. Once he had completed this task, I sent an amended tax return to the IRS and settled with them for around $200-$300. At that point, I thought the nightmare had ended.

Little did I know that the IRS had informed the Commonwealth of Virginia about my supposed tax debt; however, the agency did not notify the state about my amended tax return. In the spring of 2009, I received a notice from the Commonwealth of Virginia asking for me to pay tens of thousands of dollars in back taxes. It took me a few months to fix this issue, partly due to my negligence in submitting the proper forms on time. In the end, the Commonwealth of Virginia charged me twice as much as the IRS in taxes and penalties.
My experiences with both the IRS and state tax authorities changed the way I prepare my taxes. Even in years where my tax returns are fairly straightforward, I spend some time making sure that I have collected all the pertinent information, and I carefully review my returns for errors. I learned my lesson the hard way.

-- Anthony Hopper

#personalfinance #personalinterest #finance #business #taxes #IRS #debt #stocks #markets