Saturday, June 9, 2012

National Running Day and the IRS

Unbelievable, I went to bed at 11 p.m. Friday and was already awake at 2:30 a.m. Saturday.  After lying in bed for another half hour and unable to fall back to sleep, I thought I might as well get up and finish this post which I started writing last Wednesday.
Wednesday, June 6th was National Running Day but running was not even on my schedule that day because I decided to take a few extra days off since my ankles were still hurting from the three hour birthday walk the previous week. That all changed after I opened my mailbox and found a letter from the almighty IRS. So on National Running Day I dealt with an audit notice from the Internal Revenue Service. How did you spend yours? What does one have to do with the other? Well, other than most people trying to run as far away as possible from the IRS, nothing whatsoever.
Basically, this is what the letter said: please send us a check for $32,800 if you agree with this audit for tax year 2010. Good heavens, I don’t even make that much in a year! So I kept on reading and saw what they said was additional income I had in 2010. Due to the recession which started in 2008, I lost a lot of money in the stock market and moved my regular IRA and Roth IRA to safer bank CD’s which were still earning a decent yield at that time. Well, those retirement CD’s matured in 2010 so I closed my account from this particular bank and immediately brought the checks to another bank with a not so decent interest rate (but slightly better than the previous bank). I opened the same type of retirement accounts – regular and Roth IRA’s so I would not be penalized by the IRS. Their rules state that you have to rollover these types of accounts within 60 days or you would be taxed for the extra income and given an additional penalty of 10% for early withdrawal of a retirement plan. The earliest you can withdraw without being charged the 10% penalty is when you turn 59 ½ years old. I certainly met the 60 day rule since I rolled over the money within 30 minutes of getting the checks.
So this is how my National Running Day started – by digging out my 2010 income tax return, bank statements from that year, copies of the check stubs from the bank I withdrew the money from, and printouts showing me opening accounts of the same type in the new bank. In my 2010 tax return, I indicated this amount in line 11a as a rollover. Apparently this was not enough for the IRS since the previous bank sent them a notice required by law that I withdrew that amount. To the IRS auditors, this just came out as extra income which brought my tax bracket to what for me was the stratosphere. For what they are trying to collect from me, I can’t even imagine what kind of annual income I would have to make. I was given approximately a month to respond to the audit and if I was not a meticulous record keeper, I might have been up sh*t creek trying to contact a couple of banks to get copies of the paperwork because that would have taken time and money. Believe me, they charge you fees for just about everything nowadays. Well, to make a long story short, I found all the supporting paperwork, made copies of them, called the IRS to verify that those were adequate, and typed up a letter of explanation for the discrepancy.
I can see how this happens though. The bank you close your account from is required to report the withdrawal to the IRS while the next bank where you deposit the check doesn’t have to. You will have to do it yourself which I did on line 11a and marked it as a rollover, but apparently, the humans and computers of the IRS missed it. This is apparently the peril of using tax software and electronic filing. Not all the supporting documents are sent to the IRS so they have to question where some inputted numbers come from.
I had to spend several hours dealing with the above situation instead of working out on what was supposed to be a relaxing day off from work. Afterwards, I had to find a compacted stress relieving workout to decompress. So despite not planning on it, I went out for a run on National Running Day to work off the IRS caused stress. Because of the problems with the ankles, I thought I’d just do a 1 minute run with 1 minute walk recovery for 30 minutes so as not to aggravate the injury.  After the first minute and feeling not much discomfort, I kept going to the next minute then the next until I finished a loop back home with my watch indicating that I had run non-stop for 32 minutes. Well that certainly helped a lot with the stress J. At least I was able to contribute to National Running Day even though it wasn’t planned.
Finding the supporting paperwork and running = great stress relievers. Now let’s just hope the IRS agrees with me.
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