IRS error means some must file again Some farmers and other self-employed people who claimed the Earned Income Credit (EIC) on their tax returns mistakenly received notices from the Internal Revenue Service saying they were ineligible for the credit. The IRS is advising people who haven't already responded to these notices to contact the tax agency so they can get the credit they were entitled to receive.
The error involved EIC claims made by some taxpayers using Form 4797, Sales of Business Property. This category includes some dairy farmers who sold culled cows, farming equipment and other business assets. The EIC primarily helps low and moderate income working families.
According to the IRS, people who have not already responded to their ineligibility notice should call the phone number shown on the notice. Alternatively, a person can respond in writing to one of the following addresses.
* If the notice was sent from the Kansas City IRS office, respond to: Taxpayer Advocate, Mail Stop 1005, Internal Revenue Service Center, P.O. Box 24551, Kansas City, MO 64131.
* If the notice was sent from the Ogden IRS office, respond to: Taxpayer Advocate, Internal Revenue Service Center, Ogden, UT 84201
Refer to the Revenue Ruling 98-56, and to speed processing, include a copy of the notice and a copy of the tax return.
In the past, dairy farmers and others with gains from selling business assets frequently found themselves with too much investment income to qualify for the Earned Income Credit. Under current law, a taxpayer loses a credit if his or her investment income is above a certain level ($2,200 for 1996, $2,250 for 1997, or $2,300 for 1998).
But in November, the IRS ruled that gains from selling business assets are not counted when calculating the investment income limit for EIC purposes (Revenue Ruling 98-56). The ruling, which is retroactive to 1996, enables more farmers and business owners to qualify for the EIC.
Following the late change, IRS computers could not be reprogrammed in time to recognize the EIC revision for 1998. Also, the directions for Form 4797 had already been printed and did not reflect the changes. The combination of factors led to some taxpayers being erroneously denied EIC claims.
In addition, the IRS reminds people with investment income they may still be eligible for the Earned Income Credit for two previous years. Taxpayers who were otherwise eligible to claim the EIC on 1996 or 1997 returns � but had too much investment income on the Form 4797 calculation due to the sale of business assets � may still claim a refund.
Eligible taxpayers should file an amended return on Form 1040X for each of the years that the new calculation lowers their investment income below the limit for that year ($2,200 for 1996 or $2,250 for 1997).
People with questions can call the IRS toll-free at 1-800-829-1040. The lines are open 24 hours a day, 7 days a week.