Personal experience: a stupid mistake in a tax return turned into nerves and problems

There are times in life when your own stupidity simply stuns you. Business Insider tells the story of Zach Jason, whose stupid mistake in his tax return cost him dearly.

Photo: IStock

The letter Zach Jason received from the IRS on his birthday left him absolutely devastated.
“Your tax return does not match the information in our file,” it began in bold type on three pages.

Unforced error

Confusion quickly turned to panic. Zach had to look at the document four times before his brain grasped the problem.

On a page titled “What Caused the Difference,” two numbers were listed side by side. One, under the heading “Reported by Third Parties,” was his salary at Business Insider. The other, under the heading “Reported on Your Return,” was $0.

“Oh, my God! Not only did I forget to attach a W2 to my return, but I didn’t even report my salary to BI, where I started mid-year. Without meaning to, I cheated on my taxes,” Zach thought.

On the subject: Personal experience: I didn’t pay taxes for 10 years, and this is how it ended

2023 has been a chaotic year for Zach's family. He and his wife changed jobs. The couple had a second child and they were sleep-deprived for the entire tax season. The couple had set up a college savings fund for their kids. So when it came time to file all their taxes, they missed one of the most important ones — Zach's W2 for the second half of the year.

The usual thing

Zach took a photo of the IRS notice and emailed it to Greta Whelan, his accountant for the past decade. She responded within three minutes.

“I’ll take a look and get back to you,” she assured. “This happens more often than you might think.”

Greta was right. Every year, several million Americans fail to file their taxes properly. The IRS sends taxpayers 170 million notifications a year.

“My therapist told me I was his third client to get an IRS notice this year. I heard about a guy who became the CEO of a major corporation but forgot to tell his accountant. He ended up not reporting over $3 million in income on his returns,” Zach shared.

Even tax professionals make mistakes and forget to include their W2s.

"I have to admit, it happened to me once," said Richard Rampell, a retired accountant from Palm Beach, Fla.

“The worst part is that it shouldn’t be this way. In the notice I received, the IRS told me that they already knew damn well how much I made from BI that year without my help,” Zach admitted. “So they could have solved my problem before it even happened by simply checking the W2 I got from BI. But instead of sharing that knowledge with me, they punished me.”

And what about others?

More than three dozen other countries already have systems that eliminate the need for taxpayers to file their W2s. Lobbyists at TurboTax and H&R Block have squashed efforts to bring tax sanity to America.

Countries as diverse as Chile, Denmark and Estonia are already automating tax filing. In New Zealand, you go to a website, see how much the government says you owe, and click “confirm.” In Japan, you get a postcard. The government calculates your taxes, you agree or disagree, and you’re done. It’s a win-win for everyone.

Less stress for taxpayers, more money for schools, roads and health care.

Happiness was so possible...

In 2005, Stanford law professor Joseph Bankman developed a pilot program in California called ReadyReturn. In it, single-income taxpayers received pre-filled tax forms based on information the state already had on them. It was a huge success. Ninety-nine percent of taxpayers gave it positive reviews. Arnold Schwarzenegger, then the governor, was a fan of the program. Other states followed closely.

But when Bankman tried to push ReadyReturn through the state legislature, lobbyists from the big tax accounting firms made sure it was rejected. Why let the government fill out your tax forms for free when you can pay $50 for software and figure it out yourself?

As a result, Americans are stuck with a system that is cumbersome and error-prone. A study by economists found that nearly half of all tax returns are so simple that the IRS could automate them. But instead of implementing this simple fix to America’s tax system, Elon Musk and DOGE are busy firing IRS employees. Without automated filings, it’s estimated that Americans were forced to spend an average of nine hours on their taxes last year. That’s a staggering 7,9 billion hours of unnecessary stress and lost productivity.

"Who will chicken out first"

When you get a notice from the IRS, it's a game of chicken. All the notice asked Zach to do was check a box asking if he accepted the difference in the amounts reported (admits he made a mistake).

The notice asked him to admit, “You got me.” There was nothing about how much he owed. With the IRS, only after you admit to your crime does the agency send you a bill.

The problem is, you could be waiting a long time for that bill. The agency has a three-year statute of limitations to process claims. But since the pandemic, Greta explained, the IRS has been taking longer and longer to process its work. Greta has had clients receive bills more than a year and a half after filing their taxes.

This is where the game “Who will chicken out first” comes from.

“We could refile right away and pay the extra taxes we owe, plus nine months of interest and penalties. Or we could wait for the bill and take our chances. Let the interest and penalties pile up for months, even years. We could hope to beg for mercy as first-time offenders,” Zach said.

Greta asked him what he wanted to do.

“Make it go away,” he replied. “Tell us how much we owe and let this nightmare end.”

She redid Zach and his wife's returns, then emailed them the revised calculation. In total, they owed $10, with just over a grand in penalties and interest.

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