IRS Tax Appeal Rights

Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal. The IRS appeals system is for people who do not agree with the results of an examination of their tax returns or other adjustments to their tax liability. In addition to examinations, you can appeal many other things, including:

1. Collection actions such as liens, levies, seizures, installment agreement terminations and rejected offers-in-compromise,

2. Penalties and interest, and

3. Employment tax adjustments and the trust fund recovery penalty.

Internal IRS Appeal conferences are informal meetings. The local Appeals Office, which is independent of the IRS office, can sometimes resolve an appeal by telephone or through correspondence.

The IRS also offers an option called Fast Track Mediation, during which an appeals or settlement officer attempts to help you and the IRS reach a mutually satisfactory solution. Most cases not docketed in court qualify for Fast Track Mediation. You may request Fast Track Mediation at the conclusion of an audit or collection determination, but prior to your request for a normal appeals hearing. Fast Track Mediation is meant to promote the early resolution of a dispute. It doesn’t eliminate or replace existing dispute resolution options, including your opportunity to request a conference with a manager or a hearing before Appeals. You may withdraw from the mediation process at any time.

When attending an informal meeting or pursuing mediation, you may represent yourself or you can be represented by an attorney, certified public accountant or individual enrolled to practice before the IRS.

If you and the IRS appeals officer cannot reach agreement, or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. Usually, it is worth having a go at mediation before committing to an expensive and time-consuming court process.

You Can’t Pay Your Taxes!

The end of tax filing extensions is quickly approaching. What do you do if you can’t pay the amounts you owe? You should still file your return by the due date and pay as much as you can. There are, however, additional steps that might help.

Credit Cards

You can charge your taxes on your American Express, MasterCard, Visa or Discover cards. If you go in this direction, you can use either of the following two sources:

Official Payments Corporation

1-800-2PAY-TAX (1-800-272-9829)

www.officialpayments.com

Link2Gov Corporation

1-888-PAY-1040 (1-888-729-1040)

www.pay1040.com

If a credit card is out of the question, you may be able to pay any remaining balance over time in monthly installments through an installment agreement. If you are completely wiped out and the future looks grim, you may also want to consider getting the tax amount reduced through the Offer in Compromise program.

To apply for an installment payment plan, fill out and attach Form 9465 to the front of your tax return. The IRS has streamlined the approval process if your total taxes (not counting interest, penalties or other additions) do not exceed $25,000 and can be paid off in five years or less. Be sure to show the amount of your proposed monthly payment and the date you wish to make your payment each month. Make absolutely sure you can make the payments.

The IRS charges a $43 fee for setting up an installment agreement. You will also be charged interest plus a late payment penalty on the unpaid taxes. The late payment penalty is usually one-half of one percent per month or part of a month of your unpaid tax. The penalty rate is reduced to one-quarter of one percent for any month an Installment Agreement is in effect if you filed your return by the due date (including extensions). The maximum failure to pay penalty is 25 percent of the tax paid late.

If you do not file your return by the due date (including extensions), you may have to pay a penalty for filing late. The penalty for failing to file and pay timely is usually five percent of the unpaid tax for each month or part of a month that your return is late. The maximum penalty for failure to file and pay on time is 25 percent of your unpaid tax.

In Closing

The IRS wants you in the system, even if you’re broke. Whatever you do, file your tax return in a timely manner. Once filed, the IRS will work with you on payment issues. Don’t get stressed. Keep in mind that millions of Americans have the same problem.

An IRS Solution If You Cannot Pay Your Taxes

The Internal Revenue Service wants you to pay taxes on time. That being said, it understands this is not always possible and has created a program for such situations.

The IRS Solution If You Cannot Pay Your Taxes

The Internal Revenue Service is very upfront about its goal in dealing with taxpayers. While it obviously wants to collect all taxes due, it is also focused on keeping you in the system. This attitude is a relatively recent change undertaken in the 1990s. The IRS essentially determined it made better financial sense to have you in the system versus spending hundreds of man hours hunting you down. In practical terms, this means you need not have a panic attack if you do not have sufficient funds to meet your tax obligation. If you panicked this past tax deadline, there was no need.

The IRS will put you on a payment plan if you cannot pay your taxes on time. The plan calls for monthly payments like a car loan, to wit, they are an equal amount each month so you know what you are obligated to pay.

You are only eligible for a payment plan if you file a tax return. Once you file, you want to use form 9465 to request the payment plan. It costs $43 to file the application. The IRS will then get back to you on what it is willing to do. The payment plan process is not an audit. Millions of people apply each year and the IRS considers it standard operating procedure. No red flags are raised when you file the application. To the contrary, the IRS tends to view you as an honest tax payer since you are acknowledging the full amount due and trying to find a way to pay.

Importantly, the payment plan should be viewed as a means to buy time. Making the monthly payments will eventually pay off the debt, but it will take years. Interest on the amount you owe will also continue to accrue. The best strategy for using the plan is to make the monthly payments while saving up money to make a lump sum payment to satisfy the debt.

If you cannot pay the taxes you owe, do not panic. The payment plan option will keep you out of trouble with Uncle Sam.

The IRS Industry Tax Issue Resolution Program

For roughly the last ten plus years, the IRS has made a fairly major effort to be more taxpayer friendly. The Industry Tax Issue Resolution Program is one such step.

Industry Issue Resolution Program

After years of living in denial, the IRS has come around to admitting tax forms and procedures may be a mess for certain industries. As one IRS agent put it, the agency doesn’t actually work in the industries, so it doesn’t have a lot of practical knowledge in how things work financially for the businesses on a day-to-day basis.

In a creative move, the IRS created the Industry Issue Resolution Program. This program essentially lets businesses complain to the IRS about burdensome tax issues. The IRS then considers the problem, researches alternatives and tries to come up with new regulations.

One of the better aspects of the programs is the guidance factor. If you’ve every filled out business taxes, you know there are areas that need serious clarity. You either can’t tell what the IRS is asking for or how they want it determined. Using the Industry Issue Resolution Program, businesses can seek clarity regarding many of the mystifying aspects of the tax regulations.

If a business wants to raise a topic with the IRS under this issue resolution program, it has to meet some criteria. Issued raised must have at least two of the following criteria or the IRS will reject the application.

1. The tax treatment of a common factual situation is uncertain.

2. The uncertainty results in frequent, repetitive examination of the same issue for businesses in the industry.

3. The uncertainty results in a tax burden.

4. The issue is significant and impacts a large number of taxpayers.

5. The IRS would benefit from gaining a better understanding of the industry by interacting with the industry.

The procedure for pursuing an issue in the resolution program is fairly simple, but fairly slow. Application is made to the relevant department dictated in the application instructions. You then wait until the IRS announces whether it will accept the application, announcements which only occur semi-annually! If it is accepted, the IRS will set up a team to investigate it and be in touch to get your viewpoint.

The Dumbest IRS Tax Problems To Avoid This Time Around

As the season to fill tax returns and forms approaches people get confused and nervy. The IRS dons the role of a huge brooding monster that is all set to devour you. Unfortunately most of us keep postponing filing of papers and putting our affairs in order until the very last minute and then confusion and stress reign supreme.

The last minute dash and the lack of knowledge of tax laws, depreciation formulas, and deductibility guidelines can land you in a soup. And, this means coughing up precious dollars that you could find better use for.

IRS Tax problem errors however small can result in payment of higher taxes and can mean a delayed or no refunds. As in everything, the way to smoothen things is to be systematic and file papers pertaining to tax returns carefully throughout the year. Do not throw away bills, vouchers, or receipts that support your tax forms. Next discipline your self to read the IRS rules and regulations. Do not depend on what others tell you or hearsay. Check out facts for yourself.

Everyone makes “tax” return mistakes even professors, CEOs, and VPs. Some common IRS Tax problems which are just plain idiocy or stupid are:

1. Benefits claimed pertaining to dependent children. Often if you fail to know the allowed exemptions you may fail to make a correct claim or make an incorrect one. To help clear confusion in 2006 the IRS created a uniform definition of a child and the broad outlines are at: http://www.bankrate.com/brm/itax/tips/20010208a.asp . However if you have any doubts or questions clear them before filing your return.

2. Most IRS Tax problems are calculation mistakes and wrongly filled in figures. Always check and recheck where the full stop or comma is applied. Go through the numbers patiently and do your totaling on two separate days. Better still ask a family member or friend to check the figures for you. Consider using “tax software programs” these ease many problems in filing your return. When filling details keep in mind the fact that the IRS will check entries against W-2, 1099 and other statements that pertain to your tax. If a discrepancy is found it just means trouble as well as delays.

3. Forgetting to sign and date the forms is a mistake that leads to the IRS just not processing your return. Be sure to check all the pages carefully and ensure you have not missed anything however small and insignificant. Another common error is forgetting to write your social security numbers or tax ID numbers.

4. Often tax payers forget to submit all relevant forms like W-2, 1040, or 07, or 16. Check the relevant schedule for each claim and ensure that all relevant and supporting forms are attached to the return.

5. Failing to keep track of investments, allowed deductions, interests paid or earned and so on. You need to maintain details of when you invested, what dividends were paid, whether any taxes were deducted on maturity, any capital gains, taxes paid on sums earlier. If you clearly keep track of taxes paid you could avoid paying tax on amounts already taxed. The calculations must be done carefully and systematically to avoid faux pas.

6. Choosing the EZ form 1040Ez rather than the long form. If your earnings, expenditure and other things are simple then just take the trouble of filling the longer form. You will be surprised at the amount you can save in taxes. The longer form allows subtractions from taxable income like student loan interest, alimony paid, donations of charities and so on.

7. Missing the deadline and asking for an extension. This means paying late penalties as well as interest. In case a personal problem prevents filing in April you need to submit form 4868 by the April deadline to get an extension.

8. Using a wrong table to make calculations. Two things need care filing status and the right tax tables. Using wrong ones or filing under a wrong status will put you in more trouble than you need. And, the mistake could mean paying taxes on taxes or on investment earnings. Be astute and compute your tax using the work sheet at the back of the booklet.

9. Three laughable mistakes tax payers make is to fill out the check wrong and forgetting to sign it. Posting the forms without the proper postage on the return package. And, worst of all not using the pre-printed label and envelope provided by the IRS.

The IRS has modernized its systems and some of the silly IRS Tax problems can be avoided if you opt for electronic filing. Last year almost over 50% of the taxes were filed using e-filing. The advantages are many. All the forms you will need are on tab, the software takes you step by step through the filling process, the electronic calculators rarely make errors, and most of all e-filing forms get processes quicker the turnaround is 14 days. If in doubt, you can e-file using the services of an authorized tax professional.

File on time and correctly. Avoid heart burn and hypertension.

When the IRS Sends a Letter for Payroll Tax Penalties

“Payroll Taxes are Due, with Penalties and Interest”
At least that is what the letter from the IRS says. First thing, don’t panic. Quoting Daniel J. Pilla’s study for the Cato Institute “About 40 percent of the revenues the IRS collects through penalty assessments are abated when citizens challenge the penalties.”

So we now know the odds are good that the IRS is wrong or will blink first. What do we do?

The normal problems with payroll taxes are.

Failure to File.

Taxes under reported.

Taxes under deposited.

Taxes deposited late.


Any of these can create a situation where the services charges penalties and interest against a business and then sucks up subsequent tax deposits creating additional late and short payments simply exacerbating the situation. We will get to that later.

Read the notice from the IRS. It should tell you why they are charging a penalty and interest and how it is calculated. If the notice does not lay out that information, you have missed the first notice from the IRS. That is not at all unusual. If you don’t have the first notice call the IRS and get all the information from them. Also ask them to fax you a “Statement of Account” for the period and type of tax in effect. This will show you what they have on the IRS file, without regard to whether it is correct or not.

Failure to file.

The IRS says you never filed a return and they have created a return for you. They will estimate taxes due in an amount they know exceeds what would be reasonably due based on your account. They do this to get your attention. Many people, if the estimated amount were too low, would just pay it. The IRS does not want that to happen so they always over estimate if they create a “Substitute Return” and file it for you.

The answer to that is to send a copy of the return. If you filed it certified mail send a copy of the receipt when it was sent proving the date and a copy of the return receipt showing it was received. One tip is never sending more than one return in an envelope. The clerk opening the envelope may staple them together and only the top return will ever be reported as being received. If you didn’t send it certified in your accompanying letter talk about your history of filing on time and this one was surely just misrouted. If you have collateral proof of the filing date like a cancelled check that was sent with the return quote that information or even include copies. If the return was due on the 15th and the check attached cleared your bank on the 18th that is pretty convincing that the report was actually there by the 15th.


Taxes under reported.

Find out why they say that. Have they transposed a number when they hand entered the return? That happens with regularity. Have they just pulled a number out of their hat? That happens periodically. Once we received two notices for two different customers on the same day saying they had overpaid their 940 taxes and offering them each a refund of over $36,000.00 each. The total 940 tax deposits for the two clients combined were less than $2000.00. And no, I did not let them apply for and receive the checks.

Again send the IRS a copy of the return that you filed. If the return is wrong then send the IRS a corrected form such as a 941-C to correct the original filing. For instance, if you put second quarter figures on the third quarter report. There won’t be a penalty for late filing if in fact you filed an original return on time even if it was incorrect. A tip is if you cannot prepare the actual return on time, estimate it and file it. Then file a corrected return when you can, this avoids a late filing fee.

Taxes under deposited.

They say you made fewer or smaller deposits than you reported. Check their list and dates of deposits against yours. Don’t accept their word for when it was made. You have the proof in your files. We have noticed a real problem recently. EFTPS payments are not being shown with the date in the electronic file the same as on the "IRS Statement of Account." How some programmer messed that up is beyond me. So prepare the data showing your proof that the payments were made on time, bank deposit slips, EFTPS confirmations or whatever proof you have. Package up copies and send them to the IRS with a letter of explanation, and a request for them to update their records.

If in fact you missed a deposit, it happens, make it immediately and ask for abatement anyway. Site valid reasons why the deposit could have been inadvertently missed. Discuss steps you have taken to make sure it won’t happen again.

Taxes deposited late.

See taxes under deposited and do the same thing with dates. Document and send letters. Don’t give up. Just because the first person at the IRS turns you down literally means nothing. They almost always turn down the first request for abatement of a penalty. Dealing with the IRS is a long series of no’s followed by a single yes. When you do get the yes, shut up and walk away.

One of the favorite tricks of the IRS involves a string of deposits. Let’s say you were suppose to make 12 deposits of $1000.00 each the 15th of each month starting Feb 15 and ending Jan 15th for January through December. The second deposit is missing, and the check never got cashed. You don’t know what happened. The IRS will take the third payment and apply it to the second month’s taxes but it is late so they charge a penalty. Now the fourth month’s deposit gets applied to the third month’s taxes but it is also a month late so there is another late paying penalty. You will quickly have 10 late payment penalties and the 12th month penalized as not being paid at all. The penalties exceed the taxes missing. The service cannot due this though they will try. If you designate the third deposit for the third month taxes they must apply the payment there regardless. If they don’t record them that way you can force them to do so, it is their regulations that say they must follow it. Accept the penalty only on the one month and then ask for abatement anyway. If you have never had a late payment the IRS is suppose to give you a free one anyway.

If you have a valid business reason that a penalty has occurred in spite of good due diligence on your part the IRS is suppose to abate the penalty. Understand that IRS employees may be gauged by how much revenue they bring in (the IRS vehemently denies this but ex IRS employees don’t always). When that is true they don’t want to abate penalties regardless. Another trick they have is to offer a reduced penalty as a favor, when in fact they should have zeroed it out. Or they will offer to abate penalties on two quarters if you pay the third. It is normally not a good idea to accept these offers. You can do better. Keep writing letters and filing documents at the higher and higher levels until one person gets reasonable and says yes. Then take that yes and run.

Can an ordinary citizen do this? Sure! Is it easier for a payroll tax professional? Sure! The IRS is far more likely to listen to a CPA than a citizen. The CPA knows what buttons to push and how to go to the next level. An ordinary citizen may not. The CPA is far less likely to get emotionally involved than the citizen whose pocket is being emptied.

Your payroll service provider should have CPAs on staff to handle these situations for you. If not, seriously consider a payroll service provider that does. Because when, not if, the IRS crews up your regular CPA will charge you full rate to solve problems that should be solved by your payroll provider for free.

Audit-Proof Your IRS Tax Return Forever

Congress has passed legislation that is supposed to result in a more "sensitive" Internal Revenue Service. You know, not such a lean, mean, tax-collecting machine.

Hmmm . . . . What do you think?

A few months ago, one of my clients (let's call him Mr. Jones) got one of those IRS "love letters" requesting more information about his return, and the IRS wanted to meet with Mr. Jones in person to discuss the situation.

Mr. Jones (a local small business owner) was required to show up at the local IRS office with all his records. The IRS was questioning the legitimacy of several business deductions -- and so the IRS was doing what it is allowed by law to do -- demand that the taxpayer prove that those deductions were valid.

Turns out that Mr. Jones lost the audit and ended up owing the IRS a significant amount of money -- the additional tax, plus penalty and interest for late payment of that tax. Why did Mr. Jones' lose the audit? Mr. Jones made two "classic" taxpayer mistakes:

MISTAKE #1: "NO RECEIPT, NO DEDUCTION"

Mr. Jones lost several deductions simply because he didn't have the proper documentation to prove the deductions.

What do I mean by "documentation"?

Well, if the IRS requires you to substantiate a deduction on your tax return, you must be able to provide written proof that the deduction really happened. The easiest way to prove a deduction is to hang on to:

a) The receipt or invoice, and

b) Proof of payment, which can be a canceled check, cash receipt, or credit card statement.

Mr. Jones reported numerous deductions for which he simply didn't have the documentation. No receipts, no canceled checks, no nothing. Turns out that Mr. Jones was one of those "cash guys". Maybe you know what kind of guy I'm talking about -- he never wrote a check in his life, just carried a wad of cash around in his pocket. He paid for everything with cash, and never kept any of his receipts.

Every year he'd sit down with his wife and "remember" how much he spent on different things. No way to prove any of this, of course. He just had a "feel" for how much cash he had spent, and he had run his business for so many years that he just "knew" how much it cost to purchase certain things.

Well, this is the kind of taxpayer that the IRS loves! It really is true -- if you can't prove that you paid for something (with receipts, invoices, canceled checks, etc.), then you run the risk of losing that deduction in the event of an audit.

One of the most common questions I am asked by clients is this: "I know I paid for something, but I don't have a receipt. Should I still report the deduction."

My response is usually this: "You only need a receipt if you get audited."

At first, people don't know if I am joking or not. Well, I do make that comment with my tongue planted firmly in cheek, but there really is a lot of truth to it. If you don't have the documentation to prove a deduction, you can still report the deduction (if you want), because you only have to prove the deduction if you get audited.

But if you do get audited, knowing that there are undocumented deductions on the return, be prepared to lose the deduction. Fair enough?

And here's the other major mistake that Mr. Jones made:

MISTAKE #2: BOGUS DEDUCTIONS

It turns out that Mr. Jones wasn't completely honest with me about some of his deductions. He reported deductions that simply were not real deductions. Here's one example: Mr. Jones owned several rental houses. These rental houses, of course, required maintenance and repair work. Many times Mr. Jones would do the work himself rather than pay someone else to do the work.

Well, Mr. Jones would estimate what he would have had to pay someone else to do the work that he did himself, and then he would report that amount as a deduction, even though he didn't actually pay anybody to do the work.

In other words, Mr. Jones deducted the value of his time -- which is non-deductible.

This is an important point -- you can never legitimately deduct the value of your time for work you did. You have to actually pay someone else to do the labor.

If you ever get a letter from the IRS demanding additional information, you'll have nothing to worry about if you do exactly the opposite of what Mr. Jones did. If you can properly document your deductions and assuming you have no bogus information, you'll pass the audit with flying colors.