HELP!! taxes

BIL passed away 03/23/11. we had to file a 1041,as his final income tax.His only income was from SSD.He recieved $5403.00 before he died,from SSD. Today,we got a letter from the IRS saying that we made mistakes in our math,and his income was $4803.00 and we owe $971.18 in taxes,to be paid immediatly.
How is that even possible? isn't $5400.00 not even taxable? Massachusetts sent us $100,because he had no taxable income. We cannot afford this even to pay it,and appeal it. I have felt sick since I opened the letter.

Gosh Andi!! Doesn't sound right! Maybe Deb can help! I think I'd fight it for sure!!

I'd have to actually see and read the letter. Some times, I just have to read and disect and each sentence the IRS just sent. I just went and picked up a woman's taxes I did as she received an IRS letter today saying they correct her taxes and she overpaid $1,087!!! I felt so bad and thought how in the hell did I make that big of a mistake. Now that I read the letter, in 2010 she was to receied $1,087 refund. They never sent it to her and she never told me she never recieved it!! No mistakes, just her refund that was due to her a year ago. The kicker is, they didn't give her interest! They gave her $3.?? interest on a refund of $122, due to n amended form due to her Stock Portfolio screwing up and sending incorrect info and that was just for a few months.

Anyway Andi, that really sounds outrageous. Could it be for the year before as well? Assets, interest? Did you put the SSD Income on the wages line or the Pension. I just went and looked at the Form 1041. The only place you would enter the SSD is on line 1 of Other Information on Schedule G. Also, you would include a separate sheet explaining what the income was spent on. Sounds like they are taxing 20% of regular income and therefore, I'm thinking the amount may not have been put in the right place. Did you receive a 1099 for this? The difference in their amount may be the amount that does not inclued Medicaid premiums. SSD in not taxable unless there is $25K of other income. If you can, scan and email me the 1041 that you sent. It shold not cost you anything to appeal and they give you a little time to get it together. Hang in there, we will figure this out. Hope you understood this, I was just writing as I was thinking.

I knew Deb could save the day!!

Deb,I will scan and email you the letter,and the forms that I sent in.