You Have Rights When Dealing with the IRS!

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When dealing the the U.S. Government, you have rights such as the right against unreasonable search and seizure and the right to free speech as guaranteed by the Bill of Rights. Dealing with the IRS is no different but in addition to the rights guaranteed to you by the Constitution you have certain additional rights, aptly named the Taxpayer Bill of Rights. Nina Olsen, the National Taxpayer Advocate, advocated for years to have the IRS explain in plain simple terms the rights that each taxpayer has when dealing with the IRS and so in 2014, the IRS published the aforementioned rights, grouped into ten broad categories, such as the Right to be Informed.

While most of these rights tend to be aspirational, such as language used by the IRS to explain the Right to Quality Service which states that the IRS will provide taxpayers with “prompt, courteous, and professional assistance in their dealings with the IRS….” Still the idea is sound, which is to provide taxpayers with an understanding of what they can expect when dealing with the IRS and in that regard it works. Listed below are the Rights and a brief description of each:

The Right to Be Informed. You have the right to know what is required to comply with the Tax Code. To that end, you are entitled to clear explanations of the tax laws by the IRS, to include IRS procedures, forms, instructions, publications, notices and correspondence. Finally, the IRS must inform you about any decisions it makes regarding your account and to receive a clear explanation of the outcome of their decisions.

The Right to Quality Service. You have the right to prompt, courteous and professional assistance from IRS staff. Similar to the Right to Be Informed, you have the right to receive communications from the IRS that is clear and easily understood; if you receive inadequate service, you have the right to speak to a supervisor.

The Right to Pay No More than the Correct Amount of Tax. You have the right to pay the right amount of tax (to include penalties and interest) and no more. You also have the right to expect the IRS will apply all of your tax payments properly.

The Right to Challenge the IRS’s Position and Be Heard. You have the right to challenge any IRS determination in your case. You are to be provided an opportunity to provide additional documents in response to any formal or proposed action by the IRS. If you do object, the IRS needs to consider your timely objections and additional documentation in a prompt and fair manner; if the IRS disagrees with your objection, you have the right to receive a response from the IRS.

The Right to Appeal an IRS Decision in an Independent Forum. You have the right to appeal an adverse IRS decision, whether it be to the IRS Office of Appeals or to court.

The Right to Finality. You have the right to know how long you have to challenge an IRS decision. Conversely, you have the right to know how long the IRS has to audit your tax return or collect any taxes, interest and penalties due; if the IRS is auditing your return, you have the right to know the audit is finished.

The Right to Privacy. You have the right to expect the IRS will respect your privacy. The IRS’ inquiry, examination or enforcement action must comply with the law and be no more intrusive than necessary.

The Right to Confidentiality. You have the right to be protected from unauthorized disclosure of your tax information unless authorized by you or by law. If the IRS or third parties disclose your tax information you should expect the IRS will take appropriate action to punish wrongful disclose or misuse  your information.

The Right to Retain Representation. You have the right to be represented when dealing with the IRS, whether it be by an enrolled agent, CPA or attorney.

The Right to a Fair and Just Tax System. You have the right to a tax system which considers all of the facts and circumstances in your situation fairly and which provides for a just result. If you are having difficulty dealing the IRS, you have the right to seek assistance from the Taxpayer Advocate Service.

While this explanation does not put much meat on the bone, you can see in a nutshell what rights you can assert if the IRS takes an aggressive position in your case or unnecessarily delays action on your matter. I will leave a more in-depth exploration of these rights to a future post but if you want to know more about each of these rights you can follow this link to the Taxpayer Advocate’s website and read about each in more detail.

If you feel you are not being treated fairly by the IRS, you should contact my office to learn about your rights. You can call my office at 207-299-0515 or by email using my contact form.

Photo courtesy of Eugene Chan at flickr.

What to Know if the IRS Levies Your Assets.

If you owe money to the IRS, you face possible seizure of your assets such as wage garnishment or a bank levy. In some rare cases, the IRS can even foreclose on your home. This post is intended to give you some basic knowledge of what an IRS levy is and what you can do if your are the target of an IRS levy. To keep things simple, I will confine my discussion to wage garnishments and bank levies. Just be aware that the IRS can levy on almost every asset imaginable.

What is a levy?

A levy is simply a seizure of a taxpayer’s assets to pay a tax debt. It should not be confused with a tax lien, which is a claim placed on real estate or personal property. Liens are passive collection measures; the IRS will place the lien on your property and then wait for you to sell it, at which point the IRS will be paid. Levies, on the other hand, are an active collection measure; the IRS can take action immediately to seize property to satisfy your tax debt. Often levies are intended to be a wake-up call to delinquent taxpayers, the idea is to encourage the taxpayer to take immediate steps to address their tax liability. I can tell you from personal experience that a levy does indeed get a client’s attention.

Under what circumstances can the IRS levy my assets?

As I said earlier, the IRS uses tax levies to either get assets to pay any taxes due or to force the taxpayer to enter into some payment arrangement to address the delinquency. So in deciding whether or not to levy a taxpayer’s assets the IRS will consider the following circumstances:

  • The taxpayer’s financial condition, including whether the levy will create an economic hardship for the taxpayer
  • The taxpayer’s responsiveness to attempts at contact and collection
  • The taxpayer’s filing and paying compliance history
  • The taxpayer’s effort to pay the tax
  • Whether current taxes are being paid

As you can see, you are more likely to face a levy if you have not been reactive to prior attempts to settle your tax debt. Even more so if you are in the habit of not being compliant with filing your tax returns and paying any taxes due.

Once the IRS has identified a taxpayer who is fit for a levy, the IRS will take certain steps to encourage the taxpayer to get compliant and avoid the levy. First, the IRS will ensure that were sent CP 501, a Notice and Demand for Payment regarding you tax liability. Second, the IRS will confirm that you either failed or refused to pay the tax due. Finally, the IRS sent you CP 90, a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.

TIP – Often taxpayer will tell me that they had no idea the IRS intended to levy their assets. It is a very rare circumstance that the IRS levies on a taxpayer without prior notice. So don’t ignore any IRS notices! Attempt to resolve your tax debts and make sure to do your taxes on time and pay any amounts due. This will significantly reduce the likelihood of a levy. You can see a sample notice here.

What happens after the IRS determines my assets should be levied?

After the IRS determines a levy is appropriate and it confirms that it has followed all the required steps, the IRS will send paperwork to your employer or bank informing them that there is a levy in place.

Where the IRS garnishes your wages, the IRS will take a portion of your wages each pay period until you make arrangements with the IRS, the taxes are paid in full or the levy is otherwise released. Your employer will receive information on how much should be withheld from your paycheck and forwarded to the IRS.

To properly determine the amount to withhold, your employer is required to provide you with a Statement of Exemptions and Filing Status to complete and return within three days. Failure to return the statement within the required time frame means the employer is required to withhold the maximum amount possible. You also need to be aware that if you are to receive a bonus then 100% of the bonus may be payable to the IRS! This depends on whether or not you were paid in the same pay period as the bonus payment.

In the case of a bank levy, your bank will receive a levy notice from the IRS, requiring it to hold the balance of your account for 21 days. The reason for the hold is to allow you, the taxpayer, time to make payment arrangements or contest the levy. After the 21 days have passed the bank will pay the funds seized, as of the date of the levy, to the IRS. Funds subsequently deposited into your account, after the date of the levy, are not seized and so you can use the funds as you did before the levy. For example, if you have $1,000 in your account on the date of the levy, with another $1,000 deposited the following day, then the bank will hold the first $1,000 for 20 days; the remaining $1,000 is free to use by you.

What can I do to have the levy released?

The IRS will release the levy under the following circumstances:

  • You pay what you owe
  • The time period for collection ends
  • You enter into a payment arrangement with the IRS
  • The levy creates an economic hardship
  • The value of the seized asset is sufficient to cover any tax due and releasing the levy will not hinder the collection of the tax due

Economic hardship requires some explanation. It does not mean you are inconvenienced by the levy or that you can’t pay all your bills. Instead, economic hardship means the IRS has determined the levy prevents you from meeting basic, reasonable living expenses. Emphasis on the IRS determination. You will need to provide proof that you qualify for economic hardship before the levy will be released.

The best way to have a levy released is to not allow the levy in the first instance. The notice of intent to levy provides appeal rights, which means you have an opportunity to work something out with the IRS or challenge the IRS’ determination to levy your assets. The key is to be proactive before the levy is filed.

Is there anything else I can do?

Yes, call a tax professional immediately. If you owe taxes and the IRS has filed a levy against your wages or bank account you are at risk of future levies. Quick action is demanded to obtain the return of your money or to stop any wage garnishments. You should not take a levy action lightly!

Gifts Can Be Taxing: Tax Consequences of Making a Gift

Gifts are a part of everyday life. Birthdays, holidays and special occasions. Who doesn’t love getting gifts! This includes Uncle Sam. You may not be aware of this but when you make a gift you are engaging in a taxable transaction. This gift tax is an excise tax assessed on individuals who make a gift and it is based on the fair market value of the property transferred. Now just because you make a gift and it is taxable does not mean you will owe anything to Uncle Sam. I intend to give you the broad strokes of how the gift tax works so you know before you make a gift the potential tax consequences of your actions.

First things first. What is a gift? A gift is a transfer of property or an interest in property for less than fair market value. Simple enough. The gift tax applies to lifetime gifts, whereas the estate tax only applies to gifts made after death. While I am only discussing the gift tax today, it is important to point out that both types of gifts share what is called an applicable exclusion amount. The idea is that even though a gift may be subject to tax, the tax should only be paid if the total gifts, during life and post-mortem, exceed the exclusion amount, currently $5.45 million in 2016. If the total gifts exceed the applicable exclusion amount then it will be subject to tax. Right now the tax rates range from 18% to 40%, with the 40% bracket starting when taxable gifts made during life equal to or exceed $1 million dollars.

Before you start worrying that every gift you make is a hidden tax trap, not all gifts are treated as taxable gifts. For example, gifts to political organizations, gifts made directly to an education institution for tuition, gifts made to medical institutions on behalf of another and gifts that qualify for the annual exclusion are excluded from the IRS definition of gift and there is no requirement to report such gifts. Similarly, gifts to charity and gifts to spouses are allowed a deduction equal to the fair market value of the transfer (though there are some small exceptions) so while they are treated as taxable, in essence these gifts will not reduce the applicable exclusion amount.

Let me focus in a bit on the annual exclusion (this is different than the applicable exclusion) because it comes up quite frequently. When an individual makes a gift of a present interest, the gift will be treated as non-taxable up to the annual exclusion amount, currently $14,000 per recipient. Theoretically, this means an individual can gift an unlimited number of people $14,000 and he or she would never use a penny of their applicable exclusion. Now the rub here is that the gift must be of a present interest, which means the recipient has the right to use, possess and enjoy the property or income generated by the property without restriction (think gifts of cash or tangible property like a car or home).

Closely related to the annual exclusion is gift splitting. Married individuals can double up the annual exclusion by agreeing to treat a gift as being made by both individuals. So let’s use an example. Joan and her husband Earl are well off but Earl wasn’t as thrifty as Joan and as such most of the wealth is owned by her personally. Their son David has just graduated from school and they would like to give him a gift of some stocks Joan has bought over the years (worth $20,000). Now if the gift-splitting rules did not apply, if Joan makes a gift of the stock, her gift would be treated as part taxable and part non-taxable. The first $14,000 of the gift would be covered by the annual exclusion, leaving $6,000 to be treated as a taxable gift. Now if Earl consents to gift-splitting, the gift can be treated as if made equally by both parents (even though Joan owns 100% of the stock) which means that none of the gift will be taxable because the combined annual exclusion amount of $28,000 exceeds the fair market value of the stock. Used wisely, gift-splitting can be a very powerful tool in estate planning. Imagine if Joan and Earl want to move assets to their son over time; over the course of five years, the couple can gift David $140,000 worth of assets without incurring any gift tax consequences.

One of the big caveats of making a gift is that individuals need to consider the potential future income tax consequences of making a gift. The recipient receives the same basis in the gift as it had in the hands of the gift giver. So returning to our earlier example, if Janet gives her son, David, stock worth $20,000, which she purchased 15 years ago for $5,000, then if David later sells the stock his gain will be calculated using a basis of $5,000. Now if Janet had died, David’s basis would be $20,000 rather than $5,000 because assets received from an estate get a step up in basis. So with highly appreciated assets there may be a good reason to keep the asset in the estate rather than gifting it during life but that really depends on an individual’s circumstances.

So in summary, a gift tax is assessed on the fair market value of taxable gifts made during a person’s life. No tax will be due unless the taxable gifts, in total, exceed the applicable exclusion amount, currently $5.45 million. Not all gifts are taxable and so you need to check if certain exclusions apply, such as gifts that qualify for the annual exclusion. You also need to see if the gift qualifies for a deduction such as gifts to charity or to a spouse. Finally, remember that the applicable exclusion amount is shared with the estate tax and so taxable gifts will reduce the applicable exclusion amount available to the individual’s estate when he or she passes.

Whether or not planned gifting can benefit your estate depends on your particular circumstances, so if you have questions you should speak with an estate planning attorney or tax planner.

Getting Divorced? Here are Some Tax Traps to Avoid.

Divorce is tough. No doubt about it. So avoiding more bad news is probably a good idea. While I can’t make divorce any easier here are some tips on avoiding tax troubles in your divorce:

1. Filing a joint return in your final year of marriage.

The instinct that often prevails during divorce is to file as married filing jointly one last time. The reason is that most separating couples want to take advantage of the lower tax liability and the availability of certain credits one last time. There is a downside, however. Filing a joint return makes you liable, jointly and severally, with your soon-to-be ex-spouse. That means the IRS can come after you for the full amount of the tax liability shown on the return or if additional taxes are assessed after a later audit.

By filing a joint return, the IRS now has the right to collect all of the tax debt from both of you, even if the source of the liability was your ex-spouse. For example, you have a regular job but your husband is self-employed and he took deductions he shouldn’t have. The IRS later audits the return and assesses additional taxes. Now you are on the hook for those additional taxes. What’s worse is that even if the divorce judgment allocates a tax debt between you and your ex-spouse the IRS does not need to honor it because Federal law trumps state law. The better course of action may be to file married filing separately in certain cases. The takeaway here is don’t just assume that filing jointly is the way to go merely because it means you have to pay less taxes overall. Speak with your accountant first.

2. Alimony recapture.

The IRS has a quirky rule regarding alimony. If you are required to pay alimony to your ex-spouse and your payments decrease within the first three years following your divorce than you might run into some tax trouble. Normally, alimony payments are taxable to the recipient and deductible by the payer but where the alimony recapture rules apply than the payer may have to report some portion of those alimony payments as income in the third year.

The rules for alimony recapture are a bit complicated to explain in a blog post but watch out for the following situations which may indicate you have an alimony recapture problem: (1) there is a change in your divorce judgment, reducing payments; (2) you fail to make your alimony payments timely; (3) there is a reduction in either your ability to pay the alimony or in your ex-spouse’s need for alimony payments. If you find yourself in one of these situations you may want to talk with your accountant to determine if you may have to pay some unexpected taxes to Uncle Sam.

3. Dividing an individual retirement account.

Many marital estates contain a retirement plan that has to be divided, usually in the form of individual retirement accounts or IRAs. Unlike 401ks or a military pensions, IRAs do not require a special order from the court (called a qualified domestic relations order or QDRO) for the IRA to divided between the parties. This ease of transfer is, of course, a trap for the unwary. While no court order is required to divide your IRA it does not mean that you can simply write a check to your ex-spouse from your IRA and the matter is done. No, nothing is quite that easy in life or taxes. The IRS has specific guidance on how the IRA is to be divided.

To accomplish the transfer, the IRA must be divided among the divorcing couple under a divorce or separation instrument, which means the IRA should be divided in the divorce judgment or through a written agreement between the parties. Once that is done then the IRA must be transferred by a direct trustee-to-trustee transfer. If you take the money out of the account and transfer it then transfer is treated as a taxable distribution. Which means that the recipient spouse must set up his or her own IRA and provide instructions to the IRA trustee to make a proper transfer. If 100% of the IRA is going to be transferred than the owner merely needs to have the name changed.

Failure to follow these procedures may mean you may be facing additional income taxes and an early withdrawal penalties (10%) on the amount transferred.

4. Not considering the tax consequences of a property division.

Property divided in a divorce does not trigger a taxable event and so property can be freely transferred between divorcing spouses. Again, while this all sounds good, this is a trap for the unwary. Just because you can transfer property among divorcing spouses tax free does not mean that it is without tax consequences.

Consider the following. A couple has two jointly assets to divide: stocks worth $100,000 (with a tax basis of $50,000) and $100,000 in cash. The husband wants the stocks while the wife wants the cash. After the divorce is finalized, the husband changes his mind about keeping the stock and sells the whole lot for $100,000. Come tax time the husband gets a surprise when he has to pay taxes on the gain from the sale of the stock ($100,000 less $50,000 basis equals a gain of $50,000). So while his wife got $100,000 in cash, he will only receive whatever is left over after paying taxes (which is certainly less than $100,000). Laughing all the way to the bank, the ex-wife owes no taxes on her $100,000 in cash because cash has a basis equal to its face value ($100,000) while other property may have a basis that is less than fair market value, especially where you purchase appreciating property like stocks and collectibles. Changing hands does not increase the basis to fair market value because it was a tax free transfer.

Now let’s say the couple gets cute and decides to have the wife “sell” her interest in the stock to her husband in exchange for cash. Sadly, that will not work either as transfers, to include sales, are not taxable between spouses for a period of time after the divorce (while this presumption doesn’t go on forever, it goes for a number of years after divorce). So pay attention to the potential tax consequences of dividing up your marital property, there may be hidden taxes due!

5. Marital status.

Finally, the issue of marital status comes up quite frequently. Many divorcing couples believe that if they are separated (but not divorced) at the end of the tax year than they can choose the tax status that provides the most benefit, usually head of household. The reason for this is obvious: married filing separately has restrictions on the credits that can be taken, such as the child care credit, education credits and earned income credit. All of which can have a big impact on your taxes.

Your tax status is determined by your married status as of December 31. If you are still married at year-end than you cannot file single and there are restrictions on filing head of household. For the most part, you must file married filing joint or married filing separate. To be able to claim head of household the taxpayer must meet the strict requirements of the statute. Again, if you are not divorced at year end, speak with your accountant to determine what filing status’ are available to you.

IRS Fumbles the Ball in Tax Court Case Involving Former NFL Star

George Lawrence Starke v. Commissioner T.C. Summary Opinion 2015-40, Filed July 7, 2015

George Starke had an illustrious career in the NFL. During his time with the Redskins, he went to three Superbowls, including the Redskins 27-17 win over the Dolphins in 1983. Nicknamed the “Head Hog”, he was part of the Redskins famous “Hogs” offensive line. In 1984, Starke finished his career in the NFL and became a businessman. In his post-NFL career he: started a car dealership; co-founded a non-profit to provide vocational training for at-risk individuals; and opened a restaurant, appropriately, called “Head Hog BBQ”.

It is Starke’s involvement in the non-profit that is the cause of his IRS troubles. In 1997, he founded the “Excel Institute” (the “Institute”) to train at-risk individuals to be automotive service technicians. When his co-founder died, Starke started handling fundraising for the Institute and he stayed in this capacity until 2010, when he resigned; the opinion suggests that this was due to conflicts with a board member and allegations of financial improprieties within the Institute.

In his capacity as a fundraiser for the charity, Starke was paid a base salary along with a company credit card, which he used to pay personal and business expenses. Important for this discussion, from 2003 to 2006 Starke made personal charges that were treated as advances for future wages or business expenses. In 2005, the Institute began to withhold money from Starke’s paycheck to pay back these advances. In 2010, however, when he resigned there was still a balance due of $83,000. As a result, the Institute issued Starke a 1099-MISC form in 2010, treating the whole amount as miscellaneous income. It was not explained why, but Starke did not include the $83,000 as income on his return. Subsequently the IRS audited in 2012 and assessed additional taxes and penalties for the 2010 tax year.

What makes this opinion interesting, besides Starke’s nickname, is that the court’s opinion is short on details about what arguments the parties made. Starke handled this case pro se and his position on the $83,000 of income is not clear, except to say that he told the court that he did not know he owed the money to the Institute. The IRS, on the other hand, argued that the $83,000 was an advance, and not a loan, and thus taxable. That’s it. After the court recited the basic law on this issue, the court then agrees with the IRS that the money taxable to Starke…but not in 2010. Advances, the court said, are taxable in the year received which in this case is between 2003 to 2006. The court then states that those years are not at issue in this case and finds in Starke’s favor. Case closed.

Ouch! The IRS won on the issue that the $83,000 in advances was taxable but loses because it made the assessment for the wrong year! Generally, the IRS has three years from the due date of the tax return (April 15th), unless extended (then on October 15th), to assess additional taxes. If the assessment date passes then the IRS is barred from assessing any additional tax (and hence collecting that tax), unless the assessment period is extended through such things as fraud (forever) or a substantial understatement of tax (up to six years after the due date). Tough break.

Likely, the IRS tried to make a Hail Mary pass to keep this case alive; it probably knew that 2003 to 2006 tax years were closed to assessment and so it had to go forward with the case. Honestly, I am not sure how the IRS could have been clued in sooner about these advance but them’s the breaks. Unless the IRS can show that fraud was involved then even if there was a substantial understatement those tax years are closed.

Postscript: here is the gorgeous George “the Head Hog” Starke now, making a pitch for Bubbles Haircutters. Not often you see Bubbles and Hog together, probably a good thing.

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Can’t Pay Your Taxes? File Your Tax Return Anyway!

As a tax attorney I often hear the lament, “I can’t file my taxes because I don’t have the money!” Not having the money to pay your taxes is not great but IRS stormtroopers are not going to flood into your home to carry you off to some black site in Nebraska. At worst, you will get a love letter from the IRS asking you to please, with sugar on top, pay the outstanding balance. Now please do not misunderstand me, I am not saying there are no consequences for filing a return with a balance due. If you file your return on time but you owe taxes you will be assessed penalties and interest on the unpaid balance until it is paid (or the 10 year period for collection expires). I am saying that failure to file your taxes on time can make a bad situation much worse.

First, the “failure to pay penalty” is only one-half of one percent for each month the tax remains due, up to a maximum of 25% on the amount of tax owed. The “failure to file penalty” is five percent of the tax owed for each month the tax remains due, up to a maximum of 25% of the amount of tax owed. I do not think you have to be a MIT grad to know that there is a big difference between a 5% penalty versus .05%, especially where a substantial tax is due; it only takes 5 months to reach the maximum 25% penalty for the failure to file versus the 50 months to reach the maximum 25% penalty for failure to pay. As an aside, the failure to file penalty is reduced by .05%, if the failure to pay penalty is also assessed on the taxpayer. Not much of a consolation but it is something.

Second, the IRS has ten years from the date of assessment, usually the tax return filing date, to collect unpaid taxes. Failure to file the return means the clock does not start tick until you eventually file your tax return. Worse, if the IRS contacts you to file a return and you fail to do so it will prepare what is a called a substitute return. The ten year statute of limitation does not apply to this return and the IRS can continue collection efforts against you as long as it likes. Even worse than that, substitute returns are generally prepared with little effort to minimize the taxes due from the taxpayer resulting in a higher balance due than if the taxpayer prepared his or her own return.

Third, if you file for bankruptcy and you filed your taxes on time then you may be able to discharge certain income tax liabilities. Fail to file on time, however, precludes you from getting those same taxes discharged and you will have to wait out the ten year statute of limitation period. Right now I am working with a client who owes a substantial amount in income taxes. He might otherwise have been able to discharge his taxes in bankruptcy but for his failure to file his tax returns on time. Now he must do his best to pay his taxes until sometime in the 2020s. Not good.

Finally, the IRS offers certain programs to assist you if you cannot fully pay your taxes. The IRS offers installment agreements that allow you to pay your taxes over time, albeit with penalties and interest. It also offers the ability to make an offer in compromise to settle your unpaid taxes for less than the full amount. The IRS even offers an online application for an installment agreement so you do not have to leave the comfort of your home (nor spend hours on the phone waiting for an IRS representative). There is a limit on how much can owe to the IRS and use the online application which I believe is $50,000 for individuals and $25,000 for businesses. My experience thus far with the IRS has been good and I yet to meet an IRS employee who is out to destroy someone’s livelihood whether it be by garnishing a person’s wages or seizing property so there is no downside to being proactive about entering into a payment agreement with the IRS.

In summary, if you owe Uncle Sam it is foolish not to file your tax return on time, whether it be on April 15th or extended to October 15th. The IRS will eventually catch up to you and when it does the consequences will be much worse than if you faced your taxes head on in the first place. Hey, while you are at it why not talk to your local accountant or tax attorney (PLUG!) to get a second opinion. You may have missed a tax deduction or credit which would turn your balance due into a refund?!

One Simple Mistake Taxpayers Make When Contacted by the IRS

This one taxpayer mistake is so simple and sadly so common that taxpayers who make it should kick themselves. Here it is: read your IRS notice. If you receive a notice from the IRS, read it. It’s that simple. Throwing the notice into a pile of other papers, where it will promptly be forgotten, or finding shelter in a concrete bunker is the worst thing you can do. Ignorance is not bliss when dealing with an IRS notice. Typically, IRS notices used to request certain actions by the taxpayer (e.g. agree or disagree with any changes the IRS makes on the return) or seek additional information regarding a tax return (e.g. please provide proof of certain expenses claimed on the return). By ignoring the notice, the taxpayer is often giving up certain rights including the right to later contest any IRS actions. Simply reading the notice can preserve important taxpayer rights.

Now I understand that IRS notices are not always models of clarity so if you don’t understand what the IRS is looking for you can go to the IRS website and read about the notice (the link is provided below). In the upper right hand corner of the IRS notice is a notice number, let’s use CP05A, as an example. CP05A is a common notice number and if you look down the list you will find a quick description of what the notice is for, in this case the IRS states that it is examining the taxpayer’s return and it needs additional documentation. If you click on the notice number you will see additional information on the notice, including what the taxpayer can do to resolve the notice. How very nice of the IRS!

So if you find yourself in possession of an IRS notice don’t panic, just follow the link provided below. Once at the IRS website, find the notice number and read about what the IRS needs from you. If things are too complicated for you, then you should contact an accountant or tax attorney but hiding from the problem or ignoring it is the worst thing you can do. Do not miss out on an opportunity to quickly and inexpensively resolve your IRS matter!

Here is the link to the IRS website with information about IRS notices: http://www.irs.gov/Individuals/Understanding-Your-IRS-Notice-or-Letter