Procedure for amending/correcting after audit

Technical topics regarding tax preparation.
#1
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Sorry in advance for the long-winded post, just trying to get all the facts out so I can hopefully get proper guidance here. Thanks in advance to anyone who can help...

I started working with a new client last year and am having an issue resolving a situation which started before I became involved. Since I don't normally work with cleaning up serious problems or dealing with audits after they have been closed, I'm hoping I can get some clarification here as to our options and/or proper procedures. My normal experience with audits, notices, and amended returns are always very straightforward and resolved with one letter or an appeal to the tax court (in the case of pending expiration of the 90-day NOD).

The taxpayer's 2016 tax return was originally filed on time on extension with a significant balance due which was paid. He is self-employed and had insurance through the ACA which was not included on the original return.

In February 2018 IRS issued notice requesting From 8962. The previous preparer replied with Form 8962 and the SEHI worksheets showing that in addition to reconciling the PTC, the AGI was reduced by the SEHI deduction, bringing the modified AGI below the 400% FPL (it was over 400% on the original return at about $90,000) and entitling the taxpayer to the PTC.

IRS responded in May 2018 with an audit notice and Form 4549 showing that they had to pay back the entire advance PTC because their modified AGI was over 400% FPL. It is unclear to me whether this notice was signed and submitted, but according to the transcript the tax was assessed in July 2018 and the tax was paid in June 2018. client stated that they paid the tax to stop the bleeding while the issue got sorted out. Prior preparer then gave up and refused to go any further, so TP came to me in October 2018 to file 2017 on extension and get this cleaned up.

I prepared and the client filed in October 2018 an amended tax return showing the audit change in the original (or as adjusted) column, and my desired results in the corrected column. A few minor calculation corrections aside, I was only trying to get the SEHI deduction allowed so that the AGI would be about $78,000 and the PTC would be allowed as it should be. IRS responded in March 2019 saying it couldn't be processed because we didn't include anything that wasn't already on the original return. This is just plain wrong because I provided all forms and necessary documentation, along with a very detailed explanation of what happened. Well that was during tax season so it sat for a bit until now when I am trying to get this cleaned up.

So my questions are:

1. Is there relief available? The 2016 tax period is still open, and the tax was paid within two years, but the whole blown notice response and subsequent "audit" makes me wonder the proper procedure for amendment.

2. Did I waste my time filing the amended return to begin with? The letter I received in March 2019 states that I could submit another amended return with additional information, but I did give them everything the first time. There is nothing more that I can give them, I just need them to look at what we have.

3. Can a Tax Court claim be filed at this time? when I've filed claims in the past for CP2000 notices that couldn't be resolved the appeals officers were wonderful to work with.
 

#2
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Bringing this back up for any advice as the deadline for filing an amended 2016 tax return is nearing. In addition the TP was medically unavailable for several months, so this has been lingering but I sure don't want to miss out on saving this client $15,000.

Really I'm just wondering if I can file another amended return, or does this need to be done through audit reconsideration? I've never gone that route and unfortunately have gotten no help from the IRS.
 

#3
dave829  
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This is a claim for refund, not a deficiency case, so you can’t go to Tax Court. In addition, since the tax was paid, you can’t request Audit Reconsideration.

If the last notice from the IRS (March 2019) was that the amended return couldn’t be processed, then I say file it again, along with all the attachments as before. If there’s no response, then file an appeal. If there’s still no response, contact the Taxpayer Advocate.
 

#4
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Gray, TN
Could it be an iterative calculation issue?
 


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