Conference 7.286::digital

    I wouldn't fool with the IRS based upon information you get from a
    notesfile. Admittedly, I'm an ultra conservative, but if I were in your
    shoes I'd call an accountant, see if it would cost less than $254 for
    them to help you resolve this. If not, well, take the less expensive
    option.
    
    	BD�

>I thought I
>    didn't have to claim the DCRA amount as taxable income when I file my
>    return.

Normally correct, but.....

This is just a guess, but it almost sounds like IRS did an audit of the
receipts that you sent to John Hancock, and decided that you didn't have
a valid child care expense.

The only other thing I can think of is maybe you had more than $5000 taken
out.  For example, if both you and your spouse are contributing to a DCRA,
you still cannot exceed that $5000 for *both* of you.
If you do exceed it, the difference is supposed to get added back in as untaxed
income when you file.  

Guess you could also call IRS, they ought to be able to tell you what it's
all about.

--Scott

    The IRS is treated my total expenses I submitted for the year of $1500
    as taxable income.  There was no dispute with any of my claims, else
    John Hancock wouldn't have issued the re-imbursement.  In 93 I had over
    $4000 worth of expenses reported by Digital.  
    
    I've been calling the IRS 1-800 number for days and it's been busy. 
    Basically they are treated the Dependent Care benefit as taxable
    income.  I need to know from anyone who has used the DCRA account
    are you added this as taxable income on your tax forms.
    
    Regards,
    Tonya

>There was no dispute with any of my claims, else
>    John Hancock wouldn't have issued the re-imbursement.

I don't think I'd make a conclusion like that.  John Hancock is not the
IRS; they simply report the data that you send them to the IRS and disburse
the money to you.  JH *may* make a cursory effort to ensure that the claims you
make are valid, but I doubt it.

>I need to know from anyone who has used the DCRA account
>    are you added this as taxable income on your tax forms.

My understanding is that the money put into the DCRA account is withheld before
taxes, and is not normally taxed unless IRS doesn't think you have a valid
claim, or IRS made a mistake.  I have used the DCRA for 5 years now, and the
only time I had problems was when I screwed up and exceeded the $5000 - it
was a simple fix to add it back in as untaxed income when I filed.  I've
never had IRS come back and ask for more $$$'s.

I'm not sure what your options are to disupte this with the IRS; so in addition
to keep calling them, i'd also send a certified/return receipt letter
saying that you dispute the bill and asking for more information for them to
substantiate the bill (be sure to enclose a copy of their letter so they
know what you're talking about).

.1's suggestion might help you decide whether it's better to pay what they think
you owe and fight with them after they have your money, or let it go and fight
with them over what they think you owe along with what interest and penalties
they think you owe by not meeting their deadline.

fwiw,
--Scott

    Did you file the dependent care form with your taxes?  When using
    Dependent care account, you still need to send in that form.... Sorry
    can't remember the number (2441 is my guess).  Read the IRS 1040
    instructions, there is a line to enter your DCRA.
    
    DCRA funds are not tax, though you still need to report them on your
    taxes.
    
    

.5 would explain why IRS thinks you owe.  In which case the solution is
easy.  Pay them what they think you owe now, and then file an amended return
to get the money back.

Yes, you do have to file form 2441, though I admit that the instructions in
this area are not entirely clear.  This form mainly tells the IRS what your
actual dependent care expenses were - anything left over from your DCRA
deductions is taxable.  If you didn't file 2441, then as far as the IRS
is concerned you had no DC expenses and the entire amount is taxable.

I agree that the best approach is to pay the $250, then file an amended
return for the 92 tax year (go do it now for 93 as well) to get the
money refunded.

				Steve

    Did you also claim the $1500 as a deduction on your taxes?
    If you get a DCRA reimbursement, you can't use it as a deduction.

    re: .0
    
    Did you by any chance file as married filing separately?
    
    

    .8 has it right, I believe.  Sounds to me like .0 double-dipped.  DCRA
    contributions are automatically deducted from your taxable income that
    Digital reports to the IRS.  It show right up on the W-2 that you file
    with your return as a seperate item.  It's easy to think that you
    should then take this amount, file the IRS chile care tax credit form
    (previously mentioned in this string as form 2441 or something close to
    that number...) and deduct this from your taxable income!
    
    However, it's clearly spelled out in any literature or orange-book
    policy stuff that you can either do DCRA pre-tax deductions or the IRS
    form 2441 child care tax credits BUT NOT BOTH for the same child care
    expenses.  If you max out ($96/wk., if i remember correctly) on DCRA
    contributions, you can apply the excess toward the IRS credits.
    
    My $.02 (worth every penney...)

Re: .10

I don't think so.  While 2441 is used for computing the child care credit,
it is ALSO used for DCRA deductions and determining what part, if any, of
the deductions are taxable.  It's not easy to take the DCRA as an added
deduction - there's no obvious way to try to do that.  But if 2441 isn't
filed, the IRS assumes you had NO qualifying expenses and the entire
DCRA amount is taxable.  Note also that you can claim expenses not in excess
of the lesser of your income and your spouse's income.

					Steve

    I didn't file form 2441 with my taxes.  I didn't know I had to.  My
    mistake.  I'm still trying to get in touch with the IRS to find want I
    needed to file.  I also want to know if I could send this form in with my 
    dispute statement.  I have a 92 tax preparation book I'll read when I
    get home.  
    
    Thanks .
    
    

Don't mess with the dispute process.  Unfortunately you messed up, and
IRS wants what they think is owed to them.  If you delay payment to them at
this point, they will start adding penalties and interest (they may have
already done so), and things will rapidly escalate from bad to worse (witness
the problems people have had with 1 cent rounding errors, where IRS went
after them for everything they owned).

Pay them for the full amount they billed you, and submit an amended return for
the year that you forgot to file the needed form in.  Once the process the
amended return, they will refund you.

If you've already been assesed penalties and interest because of underpayment,
you're going to have to eat that cost as part of the learning experience.

My next suggestion would be that for Christmas, you invest in some tax
software for next year (and maybe a PC too ;-) - the tax software I use
wouldn't have let me make a mistake like this, and in your case, the software
may have just paid for itself.

Best of luck,
--Scott

It was particularly easy to goof this up in 92 as the DCRA benefits were not
separately listed on the W-2.  There were instructions in the 1040 book
that told you to fill out 2441 and write "DCB" next to your AGI on form 1040.
It got a bit clearer (but not much) in 1993, at least the DCRA amount was
now listed separately.

				Steve

I thought the DCB thing was only if you "overfunded" DCRA (anything over $5000
for married/joint).  The one year this happened to me, the tax software
took care of this - when I entered the DCRA info, it informed me that the
excess would be added to the AGI, and it stuck a little (DCB) right next to
it on the form that it printed.

Well, it's no small wonder that no one can understand this.  My tax software
also suggested that it might be to our advantage to *not* use a DCRA; i'm
not sure how it arrived at this conclusion, since the limits on using 2441
as a deduction are based on the lower of the two incomes, and DCRA doesn't
care.  Oh well.  OSI is almost as fun as tax laws, so I guess i'll just be
content with what I think I know now :-)

re .0

I think you probably paid the right tax, but failed to file 2441.
Get a 2441 (you can copy it at your local library). Fill it out and
return it with a nice letter saying you forgot to file it, along with
a copy of the nastygram that the IRS sent you, to the reply address
given on the nastygram. The IRS will probably accept your 2441, agree
with you, and drop the matter.

Information given to the IRS from various sources is increasingly
being cross-checked against all returns by computer. I've been getting
one or two of these nastygrams each year for legitimate tax items
where the tax reporting by third parties is confusing or incomplete. 
Invariably, when I send appropriate supporting documentation to the
IRS, they change their position.

On these nastygrams, the IRS routinely tells you how much "you owe". You should
take this with a grain of salt. It's merely the amount they will "make you pay"
if you don't provide the supporting documentation for the line item in question.
If they don't like your answer, they'll say so and demand the money
again. You can still pay it then.

You usually don't need a tax accountant for this stuff, provided that
you're not overwhelmed by the complexity of the forms. If you filled out
your own 1040, the 2441 should be no big deal.

--RS

    re: -1
    
    That's exactly what they told me to do, and that's what I did.  I
    didn't have to pay the "owed" tax upfront.