12 Days of Giving Day 5: Unfiled Tax Returns, Dementia & $50K in Penalties: Now What?

If you think the IRS is always right because they “have the numbers,” this episode will shake that faith real quick.

In this 12 Days of Giving episode, I’m back with Enrolled Agent, Morgan Q. Anderson, and she walks us through a real-life tax horror story that somehow turns into a Christmas win. A client invests in an alternative fund, the administrator bails, and out of nowhere a bogus 1099-R for $196,000 gets dropped on his file. The IRS treats it like gospel and grabs $116,000 of his refund for a tax bill on income he never actually received.

We break down the whole thing: the original $90K investment, the reinvestment, the admin resigning because of an expired card, and then the lazy “we’re done, here’s a 1099-R, good luck” move. Morgan lays out how that one piece of bad paper turned into years of notices, threats, and stress—and how both the IRS and the account administrator basically played hot potato with responsibility while holding this guy’s six-figure refund hostage.

Then we get into the fight. Morgan walks through the timeline of building the case: documenting the transactions, proving the money was never distributed, pulling statements, getting a letter from the fund manager, and invoking the Taxpayer Bill of Rights—specifically your right to pay no more than the correct amount of tax. When the IRS dragged their feet for over a year with five “give us 90 more days” letters, she took it to the Taxpayer Advocate Service and finally forced movement.

The best part? Not only did her client get the $116,000 refund back, the IRS also had to pay over $30,000 in interest on money they sat on for almost two years. That’s why we call this a Christmas story. The system is messy and often unfair—but you’re not powerless, and you’re not crazy for questioning a notice.

We close by turning this into a playbook: how to pull your wage and income transcript, why you need to update your address with every financial institution you touch, and why you should never let a scary letter push you into quietly overpaying tax you do not owe. This episode will calm your anxiety, piss you off a little, and give you very real steps to protect yourself this tax season.

👉 Watch the full episode on YouTube: https://youtu.be/bNzyfPhUuWg

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Chapters

• 0:00 How a $90K Investment Turned Into a $196K Problem
• 2:10 When the Account Administrator Walks Away
• 3:15 The Bogus 1099-R That Started It All
• 5:02 IRS Notices, Captured Refunds, and Mounting Stress
• 7:18 Building the Case: Timelines, Proof, and Taxpayer Rights
• 9:45 Calling in the Taxpayer Advocate and Going to Battle
• 12:28 Winning Back $116K Plus Interest
• 12:47 How to Check What’s Reported Under Your SSN
• 12:48 What This Means for You Before Tax Season Hits

Transcript

Stoy Hall, CFP®: 0:10

Happy holidays and we're back with another one. And this time we're with Morgan and this one's gonna hit a little differently. Because not only I think, well, one, I've been through this, but others have been through it. And with an aging population it, we're gonna keep going through this even more. So, um, so I don't want to be the one to spoil the surprise, but I'll bring Morgan in and she'll be able to tell you all about it. So Morgan, welcome back to the show. Welcome to 12 Days of Giving. I hope your family's having a happy. Uh,

Morgan Anderson, EA: 0:37

thank you so much and to you and all the listeners out there. You know, I'm gonna talk about something that's gonna hit home for, I believe more and more people who are considered adult children. Um, and, and this episode is really for you all and, and something that I feel it's my duty. To talk about and bring to the forefront for everybody because it is hitting a lot of people right now. Do you wanna go ahead and And have me jump in?

Stoy Hall, CFP®: 1:09

Yeah, go ahead.

Morgan Anderson, EA: 1:09

Okay. Okay. So I am seeing a growing trend in clients coming to us as adult children after their parents pass and they say, oh my gosh. I was working through my mom's financials and I realized she didn't file her tax returns for the last several years, and we know she's going to owe and we don't know what to do. So. This is becoming more prevalent in my caseload and I, I wanted to share it here. Not so much to scare people, but to bring this awareness about, right. This is happening more and more so before estates can be closed, before assets can be distributed. You really have to tend to these, these types of situations.

Stoy Hall, CFP®: 1:57

Important piece there for everyone. Listening, it's not necessarily because of the tax returns and all of that, and it might not even be more than one. It literally could be the one that you're dealing with that year or the year previous, is the fact that the estates can't be closed, right? Most likely. Majority assets can't be. Distributed to beneficiaries until this issue is, is dealt with. And a lot of us don't know about it. A lot of people don't know about it in general. Um, but as we are adult children and aging population, we, that's kind of what happens. So talk us through, um, how you deal with that. How, how people come to you initially and what's the process. Help them with that situation.

Morgan Anderson, EA: 2:37

Yeah. Great, great. Lead in, um, is, is it okay if I use a, a recent case example with y'all? Um, so we had, uh, adult children reach out to us. It was a sister and brother and this si this situation came up. Their mom hadn't filed her tax returns for the last four years. She had growing dementia in her last years and became very paranoid and anxiety ridden about her finances and became very private about everything. So they were kept at arm's length and they didn't know what to expect and. She had, uh, she was blessed enough to have the ability to live on residual investment income that would just get transferred to her bank. Her banker had all of her expenses on auto pay. Um. No mortgage on the home, things like that. So they didn't have a way to have insight into the situation unless they started the conversation, but because she was getting agitated, they would back off. So she passes away. And they had four years of tax returns that needed to be done. Did those, and while they had a plan to pay the tax, they got assessed over$50,000 in penalties and interest for those last four years. And it was our job to see what we could do to, to minimize that. And we rolled up our sleeves with the IRS and the state, and it took 21 months to work through. And, and you have to remember these are people who are dealing with the passing of their mother and taking over all the responsibilities of her home and trying to figure out what was happening financially with her. So you have raw emotions and people are, are. One sibling is attacking the other sibling for not doing enough and, and you as a power of attorney, when we're trying to focus on a tax debt situation, we get involved just by proxy in these conversations. So it's trying to keep everybody's emotions calm and hate. There's always a solution. We're gonna figure it out. And it took us almost 21 months. To navigate this with the IRS and the state. Meanwhile, the, the estate is sitting there open. They can't do anything with it, but we ended up being successful improving their mother's dementia and her anxiety about the situation, and we were able to successfully save. The family, the estate,$50,000 in penalties and interest. Woo. Yeah, I know, right? It was a big win.

Stoy Hall, CFP®: 5:31

It's a big win, right? Um, yeah. These things that are going through. With the siblings are one that's also$50,000. That's not coming to them. Like, let's Correct. And that's a small amount of money. Yeah. Um, but also then again, like you had said, it goes, now we start going into blame games and all the things that are going on. I do have a question for you and I statement, and then it ends with a question. Okay. This is why, one of the better stories of why I have told everyone in your estate plan one, if you don't have one, let's get one created. Two. If you do have one, that loved ones should not be the executor, the trustee, the, you name it. They should not be in any power position or anything that deals with anything with the estate ever, in my opinion. And the reason for that is. Exactly that. The infighting, the right, the potential of things getting stolen too, right? Because if it's open for 21 months, someone has access things right happen. And that's why you always, in my opinion, should have a third party. Now, back to my question that I was gonna ask you is when you, when you were in this situation, was there an executor, was there a trustee, was there any other professional. Um, involved in helping or was it like ended up all being dumped onto you because you were one helping with$50,000?

Morgan Anderson, EA: 6:51

It was one of the siblings. Was identified, which it puts a lot of pressure on that one sibling over the other, and it, it just promotes infighting. I, I second your suggestion to have it be a third party, somebody who is not emotionally tied to the furnishings in the home. The fixtures, you know, they will turn to you and say, what should we do with this? But they're able to make a, a rational third party opinion and suggestion to people where, whose emotions are raw. Right. So, yeah, I I second your notion on that,

Stoy Hall, CFP®: 7:35

in your recommendation it doesn't get handled the grieving. Right, you're grieving, right? One. Most, most of others do not have our expertise. They are not thinking through the numbers, right? Regardless of emotions or not. They just don't have the education and the experience of what it takes in this situation. Then you couple that with the grieving process and we all have our own right? Um, everyone's relationship with their mother or their parents or whatever is gonna be different than their siblings and, and there's just so much to unwrap there that you never give them time to do so. And then you double it down with all of this, like I couldn't imagine when my mom passed in 21 if all of a sudden I found, now luckily this is my profession. But if I had been like, oh,$50,000, like during that time where I was emotionally. Like I would've put it off. I would've kept kicking the can down and it would've just kept going, and then I would've eventually, hopefully found you right? But even me being in my position, knowing what I know, there's no way I'm able to handle that correctly.

Morgan Anderson, EA: 8:36

Well, and, and. I, I think too, allowing people to have that grieving process, especially with all of us being such a, a dispersed family society, right? Like, how many of us actually live in the same city as our parents now? As we get older, we move away. So adding to that is the travel, the strain on your family while you're trying to juggle. Your home and then your parents and everything that comes with it. It puts a lot of pressure on you. So I agree. So,

Stoy Hall, CFP®: 9:13

right. We talked about the scenario, what happened? Mm-hmm. Solution that you worked through it. What, what's your advice or at least idea of how people can take care of this on the front end now? Right? There's a lot of listeners right now that have aging parents that may or may not have been having these conversations. What would you say to them that are listening? Say, Hey, this is what you should do to get ahead of. Potential situation.

Morgan Anderson, EA: 9:34

First things first. Get through the holidays, right? Get through the holidays, but make it a New Year's resolution that you sit down with your parents and say, listen, you know, I just, it's inevitable. We're all going to pass at some point. I wanna make sure we have all of our ducks in a row. Let's talk about what's here, what we will need to deal with, and, and let's at least start mapping out a strategy. I know a phenomenal financial advisor that we could sit down and talk to, and he has all these resources around you, uh, around him and, you know, have the tough conversation where you kind of open the door and step through. I had unfortunately. An uncle who passed away without children, and he was a stockbroker, right? This is a little bit of glimpse into my life. He was a stockbroker and he never got married, never had kids, and he passed away with no will, no direction of where anything should go. Everything he had amassed in his life went to the state and yeah. As a stockbroker, you're thinking what? You're around financial people all the time. Why? How would you not have things lined up? But it is, it is an older generation thought process. Well, it doesn't matter once I'm gone. No, it really does. It matters to everybody left behind. Um, we ended up having to front his funeral costs and then asking the state to reimburse us for it.

Stoy Hall, CFP®: 11:17

Is a time process and a resource suck on your own. Um, and just not, it took

Morgan Anderson, EA: 11:22

seven months to get paid back for it.

Stoy Hall, CFP®: 11:25

Yeah. Yeah. Which is crazy. Again, while you're grieving, you're paying for something that, that Exactly. Which shouldn't be there, but

Morgan Anderson, EA: 11:32

Exactly. Have those tough conversations. Correct

Stoy Hall, CFP®: 11:36

and reflect back to our Thanksgiving, um, episode as well. Right. We'll have it somewhere around here. I don't know where it will be on YouTube, but if those are listening, go back to our episode that came out around Thanksgiving, kind of around those conversations and how to have those conversations around this time. Better yet, when you're talking about state stuff, let's, let's wait until after the holidays though. Um, that one deep, that one gets really deep and emotional. And if you need help, um, my team, we're here for you. We have resources that are here for you within the NO BS Wealth Collective because we wanna make sure you get it handled before you have to get to Morgan. Now, granted, she makes money that way and that's her business, but I even know that she wants you to make sure it's handled before. Properly so that way you don't have to hire her. So Morgan, I appreciate you and everything that you do. Again, happy holidays to your family. Oh, thank you.

Morgan Anderson, EA: 12:27

And to yours and to all of our listeners.

Stoy Hall, CFP®: 12:30

Yes,

Morgan Anderson, EA: 12:30

happiest of holidays.

Stoy Hall, CFP®: 12:32

Happy holidays. We will see everyone again after the first of the year, which will be fantastic, uh, when we have a lot more coming at you.