When dealing with the IRS, get everything in writing. Do not count on any verbal communication as being true or correct. I have been struggling with the IRS on a similar issue at my business, in which the IRS claims that we did not file a particular quarterly statement. The funny (well, not so funny) part is that we always send these in by certified mail, return receipt. They were not impressed whatsoever when we produced USPS verification that we had indeed sent the return. They merely claimed that all the USPS certification could prove was that we sent [i]something[/i] to them, not that we actually filed the return. Nit-wits.
On a related note, there is a fairly major IRS training facility in my office building. They have 1 1/2 floors of the building, yet there is no signage to indicate that they're here. Judging by the typical appearance and general demeanor of the average IRS trainee I see come and go from the building, the IRS in not particularly landing our best and brightest to occupy cubicles.
Further to the story, the first Mrs. DzlBenz's mother worked for the IRS, in the Criminal Investigation division. At the time, the early to mid eighties, almost all of her investigatory work was on professional athletes. It seems that a lot of these guys were getting paid millions and never filing returns, or filing bogus returns through offshore shell corporations. The IRS always strives to resolve all disputes with a settlement, and more often that not, that's exactly how disputes work out. It is the very rare case in which an IRS dispute actually makes it to court, before a jury.
There is a lot of folklore and outright untruth that is propagated regarding the filing of income taxes, ranging from arguments that the 16th Amendment was never ratified to arguments that only foreign corporations are required to pay income tax. Most, if not all, of these arguments are thin enough to read a 1040 through, and are based on oft-contradictory but overlapping assumptions and spurious interpretations. One fact about the IRS is an unmitigated truth, though: the division has virtually unlimited power to exercise its authority, and is generally accountable to no one.