Safe to say I know little of the federal and CA law but the story goes. My wifes step-father died several years ago to a freak accident at an apartment complex due to negligence. Year later after the lawsuit settle my wife walked away with a substantial lump some of money. She was 18 at the time and I was 20. 2 years later the IRS has audited us and has noted that we did not claim the money on our 2005 taxes. The reason we did not do this is because the lawfirm working the case told my wife and her mother that this money was non-taxable. I would have been happy to have claimed the money but we were under the impression we didn't need to do so. Well to sum it up the letter states we owe over $15,000 in taxes for a $45,000 lawsuit settlement. My wife and I are devastated and complete caught off gaurd, we have a 2/3 of this money in a CD but other then that we will have to do a payment plan. I'm so confused and stressed beyond belief....any help is appreciated. Just some clarification of the law would help. We just recieved the notice friday and wont be able to get in touch with the lawfirm or the IRS until monday.

well I think the only thing you could do is wit untill monday and tell them about the misunderstanding.......

would the IRS usually be sympathitic in a case like this our automaticlly deam ignorance as not an excuse and lay the penalties on. I figure if the IRS is right and we should be taxed....atleast wave the $3000 in penalties and $1500 in interest we would still owe like $12000...who knows will find out tomorrow.

Compassion decreases, A similar case, owed county a supposed 23,000. I talked with supervisor who actually stated, "I've been here for twenty five years and this year is my last, I understand your problem but the computers handle everything, I would have been able to help five years ago."

I borrowed the money to get the interest under control and sent them the total due, they returned over half of it. I don't know what happened, but she obviously did me a favor on her way out. Then they sent me a bill for $19, then 13 cents, then a dime! I finally got paperwork stating I was clear of the payments.

File a correction to your taxes claiming the additional funds and ask to set up a payment plan, they will work with you.