It's that wonderful time of year again. Tax season. A time when a CPA is overworked, or people are pulling their hair out trying to figure out the latest wrinkle in the tax code.
Who has a good story about the mess that taxes can create for us? I've got one to share.
Last year, my wife and I did our joint return fairly early and tried to e-file. The IRS took our return, no problem, but the good ol' State of California refused our return and made us file by paper. Even after that, we had to call in to get our refund moving to us. Why? Someone had already e-filed a return with the state in my wife's name and SSN. That's right, a fraudulent return was filed for my wife, who is a stay-at-home mother with no reported wages.
Lots of phone calls and leg-work from there to do: check credit reports, notify the IRS (turns out that the same person tried to file a fraudulent federal return two days after we e-filed our joint return), etc. We even went to the local police, but they wouldn't take a report unless we could show we had suffered damages. Effectively, the state lost the money, not us, so the onus was on the state to go after the fraudulent filer.
Fast forward to this year. Getting together all the paperwork for our taxes and, lo and behold, there are two 1099-G forms from the state! One for myself and 'X ID THEFT', and one for my wife. The one for the joint return shows the correct amount we received for our refund last year, the one for my wife shows the amount of the fraudulent refund. We are supposed to claim BOTH as income for the last tax year.
So I spent over half an hour on the phone to the state this morning. What are they going to do to fix this? One would think the most reasonable way would be to amend the fraudulent return to show that it was not my wife who received this, especially as she had no W-2 or income.
They are changing the 1099-G for our joint return to show that we got a lower refund amount, by the amount that my wife supposedly received from the fraudulent return. So this balances the dollar amounts going into the tax forms this year, but it still leaves one major issue: the fraudulent return is still there! This now means that any major financial transactions (home purchase, refinance, etc.) that would review the returns are going to be an absolute mess since we have a double return for my wife for tax year 2011.
Ah, the high level thinking that goes on in our government. So refreshing, is it not?