An Unwelcome Surprise

Our Stateside mail is delivered to our daughter’s home; she kindly screens it and lets us know if we need to respond to anything important.  We visited her recently, so we got our snail-mail in real time. One afternoon, she said “you got a letter from the IRS…it’s probably nothing; they sent me a survey last week.”

I glanced at the envelope and noticed official notification language, and a an action identification number, and I knew this was no survey. Now everybody dreads hearing from the IRS: they don’t bring good news. I was especially upset because of a past experience; let me explain.

Twenty years ago when I was filing my taxes, I did a worksheet showing my child care expenses (using TurboTax), but when I finished compiling my income, the program informed me that I was not eligible for a child care credit due to how much we earned that year. So I went ahead and filed and received a notification my 1040 was accepted and later deposited my refund.  About three months later, I received an envelope from the IRS. In it was a notice informing me that I had incorrectly filled out my 1040, that I WAS eligible for the child care credit, and attached was a check!

I knew they were wrong. The check had a 30 day expiration date, and I spent that time trying to get ahold of the IRS (before the internet, and before 24 hour call centers). On the last day before the check expired, I cashed it, figuring maybe the IRS knew more than I did, and I sent them a letter re-explaining the whole episode. I soon received a response from the IRS claiming I should NOT have cashed the check, that I was NOT eligible for the child care credit, and that I owed the money back to the federal government immediately WITH INTEREST. Three cents interest, to be exact. I sent them a check; I was tempted to put three pennies in the envelope, but I knew the IRS had no sense of humor, so I added the three cents interest to the check. The next IRS letter acknowledged my payment, but claimed it was deficient, since I actually owed six cents of interest, and I should immediately remit the remaining payment.

I lost patience at this point, and I sent them another letter explaining it was all their fault, I did not owe them anything, and I was not going to respond to them any longer on this issue. Only then did I get a final note saying the matter had been “settled.”

It was with this history in mind that I confronted this new IRS missive. It said I had not accounted for the profits from the sale of my home in 2015, and I should file the appropriate forms and schedules and pay them the appropriate amount, including penalties. The good news was, I took a loss on that home sale, so I owed no taxes. Only in the loopy world of taxes is a loss good news. That was what I filled in on a TurboTax worksheet that year, but apparently it did not generate a form and schedule letting the IRS know, so as far as they were concerned, I owed them money. Here is where the tie-in to being an expat comes in. See, the IRS is very impatient, and since this issue dealt with my 2015 taxes, they demanded I respond within 21 days. And I was in the US on a visit for six weeks.  And my records were all neatly organized and stored in….wait for it…Mexico.

I was literally driving cross-country the next day, so when I arrived in the late afternoon, I called the IRS response phone number and dutifully waited until my call was answered by the next available IRS agent, about 30 minutes. I dreaded this call. I did not have any documentation with me, I did not have easy access to same, and I knew (by reviewing my 2015 1040) that I had not submitted the proper forms, so the best I could hope for was an extension, which would leave this issue hanging over me throughout my trip. I knew that while my paperwork was wrong, I did not owe any taxes. Still, based on my past experience, I did not relish proving that to the IRS.

When an agent came on the call, she asked me a few questions to get to the appropriate case materials, and then asked how she could help. I reviewed with her the instructions on the material the IRS sent me to ensure I understood them correctly. I mentioned that I noticed I had not properly filed the forms, due to an error in my TurboTax worksheet, so I understood why the IRS was looking for a payment.  The agent was silent. I mentioned my documentation was not readily available, but I could retrieve it next month. I said I could quickly file the forms, showing the loss I incurred.  The agent interrupted me at this point, “you took a loss on the sale? How much?” I replied with the sum, and she said, “oh, ok, well let me check this.” She paused for a moment, then returned with “I just took care of it. You will receive a notification that this action is cancelled within a week.” Now it was my turn to be silent. I probably should have said “thanks and good-bye,” but I stammered out “you don’t need any documentation?” She said no, and I relayed that this was most unexpected, but welcome. She laughed, and asked if there was anything else I needed. Pressing my luck, I told her “I bet you don’t hear this very often, but this phone call was the best interaction I could ever imagine with the federal government.” She laughed again, and said, “no, not very often.”

As she promised, the next week I received an official notification from the IRS informing me that the matter was now closed, and I owed them nothing. Judy attributes the near-miraculous outcome to her prayers to the Blessed Virgin; I would be hard pressed to disagree, since I invoked Our Lady of Guadalupe several times myself. On a practical note, American expats still owe federal taxes on all income, and are still liable to the long arm of the US federal government. If you plan to live outside the US, you need to establish a legal domicile in the States, you need a way to receive mail and official notifications, and you need to keep all the same tax records as if you were still in the States.