Has anyone ever experienced being emotionally and fincially "raped" by the IRS?

Question

I work hard and about two years ago, I took that "leap of faith" and changed jobs. The 2nd job change did not work out for me and my third job is now in to almost two years.

I feel that I was advised wrongly by my 401K. I took the entire amount out (looking back now I was desperate and feeling job insecurity). The IRS took a huge amount and Ameriprise reported not only what I received in 2006 but went further and reported a $12,000.00 loan that I did take out and repaid back . Terefore,the $12,000.00 was reported to the IRS as if I received it when I withdrew. Yes, I am paying the IRS, yet I just feel sick at my stomach and angry everytime I think about it. Is there any recourse I can take...I just cannot afford lawyer's fees right now. I received a letter two days ago on my stimulus payment coming soon and that that payment would not have to be reported for 2008. The next day I receive a letter from the IRS that the amount was an overpayment on 2007!

Answer 1

First of all, the IRS stands for "internal" national taxation, not for "service".  Originally the IRS was a tax bureau, but today it is a huge spy agency that turns its information over to big buisness.  It really is not so much interested in tax collection since businesses and rich people hiding behind trusts and their corporate establishments are exempted from fair taxation.

One person whose wages were "attached" due to a divorce, in which her husband had a business that went into bankruptcy before their divorce and owed taxes, ran into the IRS mentality one day in an Alaska grocery store parking lot!

After her divorce, she drove her Volkswagon beatle with her infant child to the grocery store, purchased her groceries, and after getting into her car, IRS agents removed her and her daughter and infant child from the car, put her groceries on the parking lot, and confiscated her car, leaving her with two children and a week's groceries about a dozen miles from home!  This was in the newspapers sometime in the 1990s!

It sounds to me that someone at the IRS is treating your loan as if it is income.  That is illegal.  The loan, even if on your retirement account, is just that, a loan drawing interest payable by you.

In this Republican mafia country today, I do not know how you can appeal this, because in our USA today, we the people have no rights.  Just like with the draft that has now been discontinued (and the Republicans want to bring back the draft), the government has proven that it owns us as the US Government's property.

An attorney will cost you big bucks ($400 per hour!) and may not give you legitimate answers because the law prohibits citizens from having any redress.  There are some token procedures to protest this short of actually appealing it, but the chances of your getting any justice in our nation's present mentality are slim.

Answer 2

You state that you had a $12,000 loan from your 401K and then paid it back, restoring you 401K to it's prior balance.  You also state that you took a distribution of the entire 401K.

You seem to think that the 1099-R reporting your 401K distribution was $12,000 larger than it should have been.  I don't see how that could be the case since a) people take loans from their 401Ks all the time, b) people do in fact pay them back even when laid off and c) it would have left the trustee's book unbalanced.

I also believe that your plan told you the same thing mine did.  It said I had three choices:  leave the 401K where it was, take it as a distribution or roll it over to a traditional IRA.  My trustee put in the standard language advsing me to "consult your tax advisor" before making a decision.  

Any tax advisor would have told you that taking the money would be expensive.  With a few narrow exceptions the money would be hit with a 10% penalty *and* in all cases would be added to your current year's income, surely pushing your taxable income into the 25, 33, or 35% tax bracket.  When the money was distributed to you, the 10% withheld for taxes would have been woefully inadequate.

If you failed to contact a tax person and understand the tax impact, that's YOUR fault.  That's not the IRS's fault, that's not your employer's fault, that's not Ameriprise's fault.  And, no, you can't sue yourself either.

You've also managed to misread the letter from the IRS.  The letter was correct, the money is not income in 2008.  The money was OFFSET (overpaid) to 2006.  You did get the money, but it was taken and used to pay down your debt.  This reduces future penalties and interest, so this is a good thing.

Answer 3

Sorry, but the IRS did not "rape" you.  You screwed yourself.

Answer 4

don't blame the IRS for something you didn't do research on.  Everyone know if you withdraw from your 401K you will have to pay taxes with and additional 10% for early withdrawal.

Look over the entire pamphlets when you get into a 401K.  Read the fine print.

Hopefully this is a lesson learned and learned from your mistake.

Answer 5

I don't believe rape is a fair comparison here. Remember, the IRS only enforce rules made by congress. Would you feel raped by a policeman if you got a ticket for exceeding a speed limit set by a city council?

Answer 6

You say that you took a loan against your 401k and then paid it back.  Do you have any proof of this?  Did you pay it back before cashing in the 401k?  If you did these things, and Ameriprise and the IRS are claiming the $12,000 as extra income, then you should be able to get that fixed.

Let's look at an example.  Let's say that your 401k was worth $50,000 before you took the loan.  Assuming the value of the 401k basically did not change and you did not make any additional contributions, if you cashed out after taking the loan, you would have cashed out $38,000 of the 401k and the $12,000 would also be treated as a disbursement.  So taxable amount of the cashout would be $50,000.

Now, let's say your 401k was worth $50,000 and you borrowed $12,000.  Ignoring interest, increases and decreases in value, and ignoring contributions, if you paid back the loan in full and then cashed out the 401k, you would cash out $50,000.  In both cases, the total cash-out amount would be $50,000.  

If the 401k account was worth $50,000 and you took a loan for $12,000.  If Ameriprise is saying that you cashed out $50,000 and you also cashed-out $12,000 for a total of $62,000.  This would be wrong.  Companies can make mistakes.  If you have current statements from your Ameriprise account, you should be able to fix this.  If you don't have statements, you should be able to request them.  Even if you aren't a current customer of Ameriprise, your account was with them two years ago and they should provide that information for you.

Good luck,

Answer 7

Don't blame IRS it is just following the law.  You did it to yourself.  You don't state how you were advised wrongly by your 401(k) plan but I suspect whatever you had was carefully written and reviewed by an army of lawyers before being published.

Answer 8

I read this stuff every day and have to shake my head. When anyone asks how we lost our freedoms, I have to tell them we didn't: we threw them away. Not only do people seem to enjoy getting hit over the head, but then they apologize to the stick. The way it looks now, I might be better off voting for McGoo and driving myself to the cemetary, while gas prices are stiil low.