IRS and Small businesses

I have a 1 person S-Corporation. I have an accountant do my taxes. They are not very complicated as far as businesses are concerned. It is just a one person consulting business with a minimal balance sheet.

I seem to get one letter after another from the IRS arguing that I owe them money. The number of letters seems to have increased this year. I have to go through all kinds of hoops to justify things. These are simple things such as my HSA expenses for my medical plan. I had legitimate medical expenses that I paid through my HSA. The IRS claims that it is taxable. I have to fill out form 8889 and then go back to my HSA to get a list of all my expenses. Then to make sure they go away, I need to go through my expenses and provide a contact and explanation for each expense.

I used to have a SEP-IRA. Like alot of small businesses owners, I over contributed. My accountant told me about this and told me how much to withdraw. He assured me that this was common. My taxes only took a deduction for the amount I am legally allowed to deduct. However, the IRS argued that I have to pay taxes on my withdrawal(I already paid taxes on this money since I never took a deduction for it). I had to go back and get all of my SEP-IRA statements for that year. Then show them how much I deposited in total and show them that this amount matched what was in my taxes. This happened to me 2 years ago and I just had to send a letter.

Last year I got a letter from the IRS claiming I owed them $25. I just paid it since that was not worth the hassle. A few months later I got a check for about $25 with no explanation. I then got another check for about $1 (that is not even worth the paper to print it on).

If you ever get one of these letters from the IRS, you get a phone number to call. They are completely unhelpful and just give you the run around.

Anyone else have these issues? It is really annoying.

The IRS often sends out letters for small amounts of money, especially now that the government is financially distressed. In my experience when the IRS sends a letter or an audit and collects money for incorrect reporting, they often do so again because they know they can collect money. Audits that generate income usually occur approximately three years later, or sometimes in less time. On the contrary, audits that generate zero income often do not happen again. Keeping good records and having paperwork to back up your position is the best way to go here as if you do not owe a liability, usually the government does not spend resources attempting to collect money from you twice.

Note: This is not legal advice, nor is it a representation of IRS policies and procedures, and does not create an attorney-client relationship.

I don't owe them money. The hard part is figuring out what I need to do. They provide a phone number to call, but the person who answers the phone does not know anything and refuses to provide you with someone who does. One time, I was directed to the wrong form. Took days for me to figure out what I needed to fill out.

As I said, some of it is stupid. I got a letter last summer demanding a fine for paying my taxes late. Then a week later I got another saying "oops, you paid on time".

Now they are actually demanding that I pay taxes on HSA payments (high deductible medical insurance where medical payments are tax deductible). Now there is a standard form I need to fill out to declare that these expenses are legitimate. The problem is they don't bother to tell you. I think they make it more difficult to just get you to pay them rather than figuring it out.