Insanity-trying to reason with the IRS

I spent an hour and a half on the phone with the IRS today, all the while wanting to beat my head against a wall.

At issue was an $800 penalty I paid in 2005 for cashing out my 401k. I'd been called up for Iraq, and money was tight. I took the money from my 401k and paid income tax as well as the 10% early withdrawal penalty when I filed my taxes the next year.

In 2007, Congress changed the law retroactively back to 9-11 to exempt National Guard and Reserve soldiers called to active duty from paying the 10% penalty.

I noticed the change while filing my taxes this year, so I dutifully followed the instructions on the IRS website and sent in an amended tax return for 2005 with the documents listed on the IRS site. I received a from letter in reply, directing me to contact the issuer of the 1099 for an amended 1099 that showed the disbursement to be exempt from taxes. This was never mentioned on the IRS website.

So I called the 800 number on the letter and tried to explain the problem. But the person on the other end said that she wasn't versed in tax law and couldn't answer any specific questions. She transferred me to an amended tax return specialist.

The specialist listened to my story, and then advised me to print a copy of the web page I was looking at and send it in to the IRS. I asked him to repeat that statement, and he replied that yes, sometimes the IRS processors don't fully understand the tax code involved.

The IRS doesn't fully understand the tax code.

I was transferred to a pension tax law specialist with the IRS, so that I could confirm that the disbursement exemption listed on the IRS website was accurate. After explaining the situation for almost 10 minutes, the 'pension specialist' asked me to spell out the URL of the page I was looking at. After a few minutes on hold, she came back and informed me that there was no such exemption in the tax code. I quoted from the page I was looking at. She replied 'oh, that'. She then read to me from the very page I was looking at and pronounced that yes, there was an exemption for Guard and Reserve soldiers. She said that she had never heard of that clause before, but from reading it on the IRS website she could see that it applied to me.

The IRS doesn't fully understand the tax code.

I guess I shouldn't be surprised, considering the Secretary of the Treasury doesn't fully understand the tax code. If there was ever a better argument for a simplification of the income tax, whether it is a flat tax or a sales tax, I haven't heard it.

Tomorrow, I venture into the belly of another government bureaucratic behemoth, the Veterans Administration medical hospital for my first physical therapy appointment. I have my fingers crossed that I will find a little more common sense.