With years of record deficits, the government is more eager than ever to get every dollar of back taxes and IRS penalties from delinquent taxpayers. If you find yourself owing back taxes and IRS penalties, here are seven little secrets the IRS hopes you never see.
1) Don’t Pay IRS Penalties: The IRS has over 148 different types of penalties they can hit you with. And the worst part is that the IRS can also charge interest and additional penalties on the original penalty.
Penalties can be such a high percentage of the total amount owed to the IRS, it usually makes sense to consider requesting the IRS reduce all the penalties to zero before you pay the IRS. But if you’ve already paid the bill, it can’t hurt to ask for a penalty abatement and a refund. IRS penalties can often be reduced to zero if you have reasonable cause. What makes up reasonable cause? Well, the answer is, it depends, so long as it is reasonable.
The IRS can abate penalties for medical reasons, bad accountants, ignorance of the tax laws, ex-spouses, helping to provide care for loved ones, military call-ups, fires, floods, alcoholism, substance abuse, death and even for relying on IRS advice.
2) File All Legally Required Tax Returns On Time: Many people don’t realize that the IRS charges a penalty of up to 25% of what you owe if you miss the deadline for filing individual tax returns, payroll tax returns or corporate income tax returns.
Make sure you file your return(s) on time, regardless of the amount you owe. You will, of course, get an ugly letter from the IRS for not sending in the money owed but, you will have avoided a 25% penalty.
3) You Don’t Have To Live In Fear Of The IRS: Knowing your taxpayer rights gives you leverage when resolving your IRS problems. Instead of feeling powerless when up against potentially crushing back taxes and IRS penalties, knowing your rights as a taxpayer or having a qualified and experienced professional on your side is the best way to understand all the options available to you for permanently solving your tax troubles.
IRS tax troubles can cause an immense amount of fear and anxiety. Having proper representation can be an invaluable asset in negotiating the lowest possible IRS payment plan allowed under the law.
4) You Don’t Have To Talk To An IRS Auditor: As a matter of fact, interfacing with an IRS auditor is the worst thing you can do. The taxpayer Bill of Rights allows you to be represented by a qualified practitioner who can answer questions for you and provide documentation to the IRS.
Many attempt the do-it-yourself method or hire the tax preparer to handle the matter. This may not work out for the best. Neither the do-it-yourselfers nor the tax preparers are properly equipped to handle the IRS, which will most certainly result in an unfavorable outcome for the taxpayer.
5) You Can Beat The Odds When Facing An IRS Audit: Taxpayers are deemed guilty until proven innocent, which means the IRS can start an audit by disallowing every deduction made on a return until each one is proven to be legitimate. If a taxing authority has decided to audit you, it’s important that you don’t let yourself get pushed around by the IRS. Furthermore, if you don’t file your taxes, the IRS can file them for you. Proper representation for audits vastly improves your chances for successful tax resolution. As the proverb states, “He who is his own lawyer has a fool for a client.” Treat the IRS audit as seriously as you would a murder trial. Would you go to court without a lawyer?
6) IRS Audits Can Be Resolved Swiftly: The best way to end an IRS Audit with a great outcome is to end it at the first meeting. A qualified professional will complete a detailed and thorough examination of the issues prior to meeting with the IRS. Here is where all the pertinent data is collected in advance of meeting with the IRS. When the IRS audit occurs (without the taxpayer’s presence), the professional can provide the necessary documentation and answer any questions the auditor may have.
If you receive an IRS audit letter in the mail asking you to come in or to call for an appointment, keep in mind Secret #4: You Don’t Have To Talk To An IRS Auditor.
7) The IRS Cuts Deals: The IRS does make deals on taxes owed, including penalties and interest. The requirements are rigid, but if you qualify, the results can be incredible. The IRS makes these deals in order to get taxpayers back into the system as current taxpayers, while in many cases, collecting pennies on the dollar on back taxes. Most deals require filing of your returns for the next five years. If you don’t, then the IRS revokes the deal and bills you for the original amount.
If you or someone you know (ie., friends, relatives, partners, employees, co-workers, etc.) is currently facing financial IRS difficulties, you can find out how to get back on track with these insider secrets to tax relief.
Effective tax resolution relief will help you get a leg up on back taxes and delinquent tax returns so that you can avoid severe IRS penalties and financially debilitating levies on your wages and bank accounts, as well as getting a fresh start.
Ron Friedman is CPA who practices in Tarrytown, NY.