FAQ’s
What if I have not filed all my returns?
If you have unfiled tax returns, you should have a professional prepare and file your delinquent returns as soon as possible. If you make an effort to get back into compliance before the IRS takes action to force compliance, then you will have less chance of having the IRS (or state tax agency) prepare a return for you that can result in a greater liability than what you really owe. More concerning, taxpayers may face criminal prosecution if the agency believes the delinquency can be proven in court to be a willful failure to file!
In most situations, you will face owing a failure to file penalty. This can be up to 25% of the balance of tax due per the return. Interest computed from the due date of the return will also be included. Additionally, if your withholding and other credits exceed your liability for a non-filed year, you will lose that refund and credits if you do not file the return within three years of its due date!
If you need help getting into filing compliance for your individual returns, please contact me at your earliest opportunity.
I can’t afford my tax bill. Can I make payments?
The IRS will almost always allow you the option of paying your tax liability in installments. To qualify for an installment agreement, you must have filed all your returns for the past six years. You will pay a reasonable one-time fee for the agreement. Once approved, you must remain compliant until your liability has been paid in full. Please see the page on Installment Agreement for more information. If the amount of tax you owe is far greater than you could ever pay with installments, you may qualify for an Offer in Compromise (OIC). This program enables taxpayers deep over their heads in tax debt to settle for less than face value. There are strict rules and procedures you need to follow before an OIC is accepted. I highly recommend you retain a qualified representative to guide you through this process.
I received a notice my return has been flagged for exam. What do I do?
First thing, do not panic. Most examinations are routine and occur because your return did not quite match the “norm” for a taxpayer in your line of work reporting approximately the same income. It does not mean that anything is wrong but from the IRS’ perspective, the probability of you having made a mistake is worth checking out. The general rule is you never – repeat, never – want to ignore this notice! In most situations, the best advice is to fully cooperate with the IRS. If you make the auditor’s or agent’s task difficult, they will be far less agreeable to giving you the benefit of the doubt when deciding what evidence or oral testimony to accept in reply to their questions.
While you will have the ability to appeal any proposed deficiency resulting from the audit, it is a costly process to be avoided if possible. If you are aware of a significant error or omission on your return (such as income you did not report), seek professional advice immediately! In limited circumstances, you may even need to retain a tax attorney if your error or omission could possibly be viewed as fraudulent with possible criminal prosecution.
There are four types of audits: Correspondence, Office, Small Case/Self-employed (SBSE), and Large and Mid-sized business (LMSB).
• Correspondence audits begin with a letter sent to you from an IRS Campus (Service Center) which identifies a few specific deductions or credits the IRS wants you to verify. You mail or fax copies of your documents to substantiate the deductions or credits the IRS is questioning. At the conclusion of their review, the examiner will send a letter either notifying you that the IRS accepts your return as filed or proposes changes to your return by adding income, reducing deductions, or reducing credits. If you believe the proposal is wrong, you can appeal the deficiency but the time to file that appeal is limited.
• Office Audits begin with a letter containing a pre-scheduled appointment to visit a local IRS office for a face-to-face meeting with a Tax Compliance Officer (TCO). The letter will include an Information Document Request that lists specific items you need to bring for review.Examples may include bank statements, automobile business mileage log, specific invoices or receipts, and other documents. If you bring everything requested to the first meeting, that is typically the only meeting you will have to attend. If the TCO discovers information that merits further review, you may be asked to return with more data or to simply mail in copies of additional records. NEVER mail originals!!! At the conclusion of the audit, the TCO will give you a report listing the proposed changes to your return if there are items he or she feels were erroneous. If you agree, you sign the report. Otherwise, you have a short period of time to review the report in more depth. You can then agree and sign or file an appeal.
• SBSE Audits begin with a letter signed by an Internal Revenue Agent. These are often called “field audits”. They are in-depth and typically take place at either the taxpayer’s business or residence, or if the taxpayer is represented by an Enrolled Agent, CPA, or attorney, at the representative’s office. These are face-to-face examinations. The Revenue Agents who conduct these audits provide an Information Document Request informing you of the items to present at the initial meeting. These audits often require more than one meeting. If you operate a business but the audit is conducted elsewhere (such as the representative’s office), the Agent will often want to visit the place of business to get an idea of the scope and nature of the business operation. At the conclusion of the audit, the Agent will provide a copy of his or her report. If changes are proposed, you have the option to agree or appeal all or some of those changes. Appeals for these audits are more sophisticated and usually prepared and submitted by professionals.
• LMSB Audits are face-to-face examinations that usually involve a team of general Revenue Agents and specialist Revenue Agents who are experts in employment tax and computer sciences. Regardless of the type of audit, taxpayers should seriously consider seeking professional help. Saying the wrong thing to an IRS employee or mailing material without knowing what issues it could trigger, may lead to an erroneous proposed adjustment or an expanded audit. Either scenario could well exceed the cost of representation.
With decades of inside and post-retirement experience with IRS audits, I am worthy of consideration to represent you in this process. A brief conversation about the audit you are facing is offered without cost so you have nothing to lose by contacting me.
My bank account was just levied! Help!
If the IRS levies on your bank account, your bank must hold the funds you have on deposit on the particular day the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS) and send it to the IRS in 21 days. This 21-day holding period allows you time to resolve any issues about account ownership of the bank account and also provides time to negotiate with the IRS for a release. After the 21-day holding period, the bank must send the money plus interest earned on the seized amount to the IRS.
A levy on your wages is far more serious! This is a continuous levy, meaning the IRS will CONTINUE to take a substantial amount of your take-home pay until they have collected all that is due or a “deal” is worked out for an alternative payment plan (installment agreement or offer-in-compromise most likely). Of further concern, many employers have personnel policies that can result in employee termination if their wages are subjected to a government levy.
Regardless of the type of levy you must act quickly! I strongly suggest you secure the services of a tax professional to represent you before the IRS. The levy will be released either by working with the IRS or State tax agency directly or by paying the full amount of the tax debt.
Common IRS Notices you may receive.
CP 504 – Urgent!! We Intend to Levy on Certain Assets. Please respond NOW.
Do not ignore this notice. A CP 504 is usually issued before the Letter 11 or the Letter 1058. You still have time to respond. However, if you ignore this notice you will soon receive one of the final notices mentioned above. The CP 504 warns you that collection action such as wage garnishments, bank levies, or tax liens and seizures of assets are next.
CP 92 and CP 242 – Notice of Levy upon Your State Tax Refund – Notice of Your Right to a Hearing
These two nearly identical notices inform you that the IRS levied your state tax refund to pay your unpaid federal taxes. This notice and referenced publications explain how to request an appeal if you don’t agree. You should file a Form 12153, Request for A Collection Due Process Hearing, and send it to the address shown on your levy notice within 30 days from the date of the letter to appeal the action with the Independent Office of Appeals.
CP297 and CP90 – Final Notice, Notice of Intent to Levy and Notice of Your Right to a Collection Due Process Hearing
These two notices and the Letter 1058 – essentially the same language – notify you the IRS hasn’t received full payment despite sending you several notices about your unpaid federal taxes. The IRS may seize (levy) your property or rights to property. To appeal the proposed seizure (levy) of your assets, you should file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter to appeal the action with the Independent Office of Appeals.
CP 523 – IMF Installment Agreement Default Notice
If you don’t make a payment as promised or you incur a new tax liability, this may cause your installment agreement to default. This letter puts you on notice that the IRS intends to terminate your agreement in 30 days. You have the right to file a Collection Appeal Request (CAP) to ask for an appeal if you disagree.
CP 2000 – Proposed Adjustment
This is one of the most common letters issued by the IRS. When returns are filed, they are computer-matched against the IRS database that contains copies of W-2’s, 1099’s, K-1’s, and other information documents. If the computer identifies one or more items (like interest income or dividend payment received) that was not included in your return, the IRS will recompute your tax liability and notify you of their plans to change your return as filed. You are provided a computation of the proposed adjustment to your return based upon this information. If you agree, you sign and return the agreement forms. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. You have a limited time period within which to file the request. If you had your return prepared by a professional, be sure to contact them immediately for assistance and to verify the item or items the IRS identified were not already included in the return. If you prepared the return yourself and do not understand what the IRS is proposing, get help quickly. The information presented is general in scope, may omit many details and special rules, is current only as of its published date, and cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
Letter 1085 – 30-Day Letter Proposed 6020(b) Assessment
If you fail to file a tax return voluntarily, the IRS has the authority to prepare a return on your behalf using information they have received (such as copies of forms W-2, 1099, K-1, etc.) and industry standards for your job or business. You have a 30-day window to protest the IRS proposed assessment which is most often a balance due that is more than what you truly owe as the IRS never includes deductions or credits for which you may be entitled. Get help quickly.
Letter 73 – Notice of Levy and of Your Right to a Hearing
This letter notifies you that the IRS hasn’t received payment of your federal employment tax and has issued a notice of levy to collect your unpaid taxes. The IRS has determined you are not entitled to a pre-levy hearing because you (or your predecessor) previously requested a collection due process hearing under Internal Revenue Code (IRC) Section 6330 that included an employment tax period that fell within the two-year period that ended with the beginning of the period shown on the notice.
Letter 525 – General 30-Day Letter
You will get this letter with a computation report of proposed adjustments to your tax return. It outlines your options if you don’t agree with the proposed adjustments. If you agree with the adjustment, sign and return the agreement form. If you don’t agree, you can submit a request for appeal to the office that sent you the letter. The letter contains information and lists IRS publications on how to file an appeal/protest. You should file your protest within 30 days from the date of this letter to appeal the proposed adjustments with the Independent Office of Appeals.
Letter 531 – Notice of Deficiency
You will get this letter if you owe additional tax or other amounts for the tax year(s) listed in the letter. The letter explains how to dispute the adjustments if you don’t agree. If you want to dispute the adjustments without payment, you will have 90 days from the notice date to file a petition with the United States Tax Court.
Letter 692 – Request for Consideration of Additional Findings
You will get this letter with a computation report of proposed adjustments to your tax return. It outlines your options if you don’t agree with the proposed adjustments. If you agree with the adjustment, sign and return the agreement form. If you don’t agree, you can submit a request for appeal to the office that sent you the letter. The letter contains information and lists IRS publications on how to file an appeal/protest. You should file your protest within 15 days from the date of this letter to appeal the proposed adjustments with the Independent Office of Appeals.
Letter 915 – Examination Report Transmittal
This letter explains adjustments in amount of tax. If you agree with the adjustment, sign and return the agreement form. If you don’t agree, you can submit a request for appeal/protest to the office that sent you the letter. The letter or referenced publications explain how to file a protest. You should file your protest within 30 days from the date of this letter to appeal the proposed adjustments with the Independent Office of Appeals.
Letter 950 – 30-Day Letter-Straight Deficiency
This letter is used for un-agreed, straight deficiency, straight overassessment, or mixed deficiency and overassessment cases. This letter may be used for various types of tax. If you agree with the adjustment, sign and return the agreement form. If you don’t agree, you can submit a request for appeal to the office that sent you the letter. The letter contains information and lists IRS publications on how to file a protest. You should file your protest within 30 days from the date of this letter to appeal the proposed adjustments with the Independent Office of Appeals.
Letter 1058 – Final Notice Reply Within 30 Days
This letter is an alternative to the CP297 and CP90. It notifies you of unpaid taxes and that the IRS intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if you don’t agree. You should file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter to appeal the action with the Independent Office of Appeals.
Letter 3172 – Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320
This letter notifies you the IRS filed a notice of tax lien for unpaid taxes. If you disagree you can request appeals consideration within 30 days from the date of the letter. The letter and publications explain how to request a hearing from the Independent Office of Appeals. You should file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your lien notice within 30 days from the date of the letter to appeal the action with the Independent Office of Appeals.