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Dead in the system (and other tax horror stories)

NEED TO KNOW
  • Hate this time of year? Wait until you get a load of these tales of tax woe
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Forget October 31 and Friday the 13th. For many Americans, the scariest day of the year is April 15 -- the IRS tax deadline. But rather than ghouls or gruesome luck, the spooks on Tax Day come in the form of things like missed deadlines, dropped decimals and daunting IOUs to the IRS.

If there’s anything reassuring about tax-time terrors, perhaps it’s in knowing that you’re not the first person to experience them. HLN put out a call for readers to share their own tax season horror stories. Here are a few that sent chills up our collective spine.

DEAD IN THE SYSTEM
Danyel Cassidy, 37, New Port Richey, Florida
The Story: About five years ago, I went to file for my homestead exemption for my house and I came up in the system as deceased. This happened because Social Security had put an actual dead person’s Social Security number in wrong. The closest I got to an explanation was when I was told that when they logged in the Social Security number the deceased person they "may have" incorrectly typed a number. (This in turn also cancelled my driver’s license.) When I went to file my taxes the following year, someone else had gotten a hold of my Social Security number, and the only way I knew was when I went to file mine and the system caught the two filings. Every year since, I’ve had to wait for a special pin number to file my taxes, and I don't get the number to a week or two before the tax deadline in April.
Lessons learned: I could only say check up on your credit to see if there are any weird requests. In this situation, I really had no control over what happened.

TAX PREP PANIC
Mellissa Smith-Kolpien, 44, Chippewa Falls, Wisconsin
The Story:
My tax preparer screwed up my tax returns one year. In about 2005, they told me that I didn't have to pay taxes on a large lawsuit I won because it was considered "personal injury" and that taxes did not have to be paid on personal injury cases.  So we filed, got our tax returns, spent them and moved on. Three years later, I found out they were wrong, and I owed almost $15,000 in state taxes on the lawsuit money that I had won. Of course being shocked and upset I immediately went spoke with the girl that did our taxes, she argued that it should have been personal injury and that she would have to consult with her supervisors and get back to me. Finally, four months after receiving the letter from the state, my tax preparer finally agreed they were at fault and informed me that they would cover $5,000 of what I owed. So, that left me with about $10,000 left to pay myself out of pocket. Mind you, this was almost four years after I won my lawsuit, and the winnings were long gone. Being that I have always lived on a very limited income, I did what anyone could do -- I panicked! I set up payment arrangements, and it has taken me four years to finally get it paid down to just over 500 bucks.
Lessons learned: Have KNOWLEGABLE tax preparers do your taxes every year. Everyone wants to save a buck, but I say save a buck at the grocery store. When it comes to taxes, spend a little extra to make sure you get a tax expert who knows what they are doing, rather than going with the place that's the cheapest.

ROLLOVER WOES
Greg Szymanski, 49, Woodinville, WA

The Story: I rolled an IRA into an employer's 401(k), and did not check the 1099 sent by the IRA company. They miscoded the roll over as a total distribution and not a rollover. In 2009, the IRS notified me that I owed $5,639 on the distribution. The IRA company sent letters to the IRS explaining the error, but it did not work during the initial IRS paper reviews and telephone conferences.  I did almost all the work. I went through several paper reviews; the results of which were "we've (the IRS) reviewed the matter and determined you still owe the money" or words to that effect. I went back and forth with the IRS and was two weeks away from the inquisition (tax court date) in July 2010 when the IRS finally dropped the matter.
Lessons learned: If you're not guilty of what the IRS has accused you of, stand up for yourself. Be prepared to fight till the end, including going to tax court. And keep copies of everything in chronological order.

FRAUD FRIGHT
Betsy R., 60, Maryland
The Story
: More than 20 years ago, I lost 10 years of investments, savings, and tax shelters after my financial planner turned out to be a crook. About 20 of us lost everything and got slammed with tax bills in the hundreds of thousands of dollars (tax plus interest plus penalties). I was in two class action suits against the IRS on this. We did get the penalties dropped by showing we were defrauded, but we still had to pay the taxes and interest. The guy hadn't actually made the investments with our money, but had sent us forged deeds, etc. Note: the investors in this case were science researchers, doctors, dentists and other professionals – smart people who were too trusting.
Lessons learned: Verify everything and diversify. We thought we were diversified since the investments were different types, but they were all through the same guy.

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