Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

Collection Appeals: Why You Must File Your CDP Request

When the IRS sends you a notice about a lien or levy, time is of the essence. You have only 30 days to file a Collection Due Process (CDP) request. Missing this deadline can lead to serious consequences. You could lose protections and your chance to challenge the IRS’s actions. Here’s why it’s crucial to file your CDP request on time.

1. Immediate Protection from IRS Actions

Filing your CDP request forces the IRS to pause collection actions. This includes levies on your bank account or wages. This pause gives you time to address your tax situation. Without it, the IRS can seize your assets. However, this protection only applies if you file within the 30-day window. Miss the deadline, and the IRS can move forward with their plans.

2. Your Right to Be Heard

A CDP hearing is your chance to present your case. You’ll meet with an independent Appeals Officer who wasn’t involved in the initial decision. This is your opportunity to explain why the IRS’s actions are unfair. You can suggest alternative solutions or dispute the tax debt itself. But you only get this chance if you file your CDP request on time.

3. Negotiating Better Terms

The hearing also lets you negotiate more favorable terms. You might secure an installment agreement or an Offer in Compromise. If you’re struggling financially, you can request temporary relief. The hearing is your opportunity to discuss these options. But to negotiate, you must file your CDP request promptly.

4. Preventing Further Financial Damage

Ignoring the IRS’s notice won’t make the problem disappear. If you don’t file a CDP request, the IRS can continue its collection actions. This could lead to severe financial consequences, like extra penalties, interest, and the loss of assets. Filing your CDP request is a critical step in protecting yourself from these outcomes.

5. Preserving Your Legal Rights

Filing a CDP request also keeps your right to take your case to court. If you don’t agree with the outcome of the hearing, you can appeal in the U.S. Tax Court. This legal option is only available if you file on time. Miss the deadline, and you lose this important right.

Act Now—Don’t Miss the Deadline

If you miss the 30-day deadline to request a Collection Due Process (CDP) hearing but file within one year, you can still request an “Equivalent Hearing.” This allows you to present your case and discuss your situation with the IRS. However, unlike a timely CDP hearing, an Equivalent Hearing does not automatically stop collection actions, and you lose the right to appeal the decision in the U.S. Tax Court. While you can still negotiate payment arrangements or alternative resolutions, the absence of judicial review and other protections means acting within the initial 30-day window is crucial whenever possible.

What is a CDP Hearing and Why You Should Use It

Dealing with the IRS can be stressful, especially when facing liens or wage garnishments. But there’s a process that can help: the Collection Due Process (CDP) hearing. It’s a way to protect your rights and give you a fair chance to resolve your tax issues.

What is a CDP Hearing?

A CDP hearing allows you to challenge certain IRS collection actions, like a tax lien or a levy on your bank account. The IRS must send you a notice before taking these actions. Here are the main triggers that allow you to request a CDP hearing:

  1. Notice of Federal Tax Lien (NFTL): This notice tells you the IRS has filed a federal tax lien against your property.
  2. Notice of Intent to Levy: This Final Notice of Intent to Levy and Notice of Your Right to a Hearing alerts you that the IRS plans to seize your assets or wages.
  3. Notice of Levy on Your State Tax Refund: If the IRS plans to take your state tax refund to cover a federal tax debt, they will send this notice.
  4. Notice of Levy on a Federal Contractor Payment: If you’re a federal contractor and the IRS plans to levy payments owed to you, they will issue this notice.

When you receive one of these notices, you have 30 days to request a CDP hearing by filing Form 12153. During this period, the IRS must generally stop collection activities, giving you time to respond.

Why Should You Request a CDP Hearing?

  1. Temporary Relief from Collection: Requesting the hearing stops the IRS from taking immediate action against you, like levying your bank account or garnishing your wages. This pause provides you with some breathing room.
  2. A Fair Chance to Be Heard: The CDP hearing allows you to present your case to an independent IRS Office of Appeals officer. You can explain your situation, propose alternative payment options, or even challenge the tax amount if you haven’t done so before.
  3. Explore Negotiation Options: The hearing is your chance to negotiate. You might secure an installment agreement, request an Offer in Compromise, or ask the IRS to mark your account as Currently Not Collectible (CNC) if you face financial hardship.
  4. Prevent Further Penalties: Resolving your issues during the CDP hearing can help you avoid additional penalties and interest, which can add up quickly if the IRS continues collecting.
  5. Keep Your Right to Go to Court: If the CDP hearing doesn’t favor you, you can still take your case to the U.S. Tax Court. This means an impartial judge will review your case.

In short, a CDP hearing is a powerful tool. It gives you a fair shot to protect your assets and resolve your tax issues on better terms. If the IRS is coming after you with liens or levies, requesting a CDP hearing could be a smart move.

The Long-Time Non-Filer: Issues to Consider

It’s nice to feel wanted until you find out it’s the IRS that wants you. If you haven’t filed your taxes for some years, The IRS has launched a new program to identify and collect from non-filers who owe $100,000 or more. If this is you, here’s what you need to know:

Big Time Penalties

You’re looking at a minimum of 25% in failure-to-file penalties. For example, if you owe $100,000, that’s an extra $25,000. Let it go too long, and you could face a 100% civil fraud penalty, effectively doubling your debt.

Missing Out on Refunds and Credits

If the IRS owes you money, you have just three years to claim it. After that, it’s gone. Plus, you’re missing out on tax credits that could lower your tax bill or even result in a refund.

Impact on Social Security and Loans

Not reporting your income affects your future Social Security benefits, potentially lowering what you receive when you retire. Also, good luck getting a loan or mortgage—lenders want to see your recent tax returns.

IRS Actions

The IRS can file a return for you, but it won’t include any deductions or credits you might qualify for, so you’ll owe more. They can also place liens on your property or garnish your wages.

How to Fix It

If you haven’t filed for many years, the problem might seem insurmountable, but maybe not. The Internal Revenue Manual has a special just for you.  You are only required to file the last 6 years of returns. Voluntarily filing those 6 years will almost certainly remove the possibility of criminal actions and the civil fraud penalty.  Can’t pay it all at once? An Installment Agreement lets you pay over time. If things are really tough, you might qualify for an Offer in Compromise to settle for less than you owe.

Get Professional Help

This can be complicated, so consider getting help from a tax professional or attorney. They can guide you through the process and deal with the IRS for you. It’s always safer to have someone else do the talking with the IRS for you.

The Criminal Factor

Ignoring this problem can lead to criminal charges. By acting now, you show good faith, which can help if things get serious.

In short, dealing with years of unfiled taxes is tough but doable. Take action now, get some help, and you can get back on track and breathe easier.

Understanding Common IRS Problems and How a Representative Can Help

Navigating the complexities of IRS issues can be daunting for individuals and businesses. The challenges are numerous, from receiving unexpected notices to dealing with hefty tax bills. Fortunately, IRS representatives can provide valuable assistance in resolving these issues. Here, we’ll explore some of the most common IRS problems and how a representative can help alleviate them.

1. Unfiled Tax Returns

Unfiled tax returns are a significant problem that can lead to severe penalties, interest charges, and even criminal prosecution in extreme cases. Many individuals and businesses fall behind on their tax filings due to various reasons such as personal emergencies, financial difficulties, or simple oversight. An IRS representative can help by:

  • Analyzing your tax situation to determine which returns are missing.
  • Gathering necessary documentation and information to prepare the delinquent returns.
  • Communicating with the IRS to negotiate a manageable resolution plan.
2. Large Tax Bills

Owing money to the IRS is a common issue that can result in wage garnishments, bank levies, and tax liens. Taxpayers often struggle to pay off their tax debt due to financial constraints. A representative can assist by:

  • Assessing your financial situation to determine the best course of action.
  • Helping you apply for an Installment Agreement to pay off your debt in manageable monthly payments.
  • Exploring eligibility for an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed if you meet certain criteria.
3. Audits and Examinations

Receiving an audit notice from the IRS can be intimidating. Audits can be triggered by various factors, including discrepancies in reported income, unusually high deductions, or random selection. An IRS representative can:

  • Provide guidance on what documentation and information you need to prepare.
  • Represent you during the audit, communicating with the IRS on your behalf.
  • Help you understand and respond to IRS findings, ensuring your rights are protected.
4. Penalties and Interest

The IRS imposes penalties and interest for various reasons, including late filings, late payments, and underreporting of income. These additional charges can quickly add up, making an already challenging situation worse. A representative can:

  • Review the reasons for the penalties and determine if any can be abated or reduced.
  • Help you file a reasonable cause request to have penalties removed if you have a valid reason for not complying with tax obligations.
  • Assist in negotiating payment plans that include provisions for reducing interest accruals.
5. Innocent Spouse Relief

Spouses who file joint returns are jointly and severally liable for any tax debt. However, if one spouse is unaware of errors or omissions made by the other, they may qualify for Innocent Spouse Relief. An IRS representative can:

  • Evaluate your situation to determine if you qualify for Innocent Spouse Relief.
  • Help you gather and present evidence to support your claim.
  • Guide you through the application process, ensuring all necessary documentation is submitted.
Conclusion

Dealing with IRS problems can be stressful and complicated, but you don’t have to face them alone. IRS representatives have the expertise to navigate the intricate tax laws and procedures, helping you find the best possible resolution for your situation. Whether it’s filing overdue returns, negotiating tax debt settlements, or representing you in an audit, a representative can provide the support and guidance you need to resolve your IRS issues efficiently and effectively.

The Importance of Timely Communication with the IRS: Demonstrating Good Faith

When dealing with the IRS, timely communication is key. This is especially true when it comes to demonstrating good faith. No one likes being ignored, including the IRS. While the government’s response times can be glacially slow, they still appreciate and take note of taxpayers who communicate promptly and transparently.

1. Building Trust with the IRS

Demonstrating good faith is about building trust. When you respond promptly to IRS notices, inquiries, or requests for information, you show that you are serious about fulfilling your tax obligations. This proactive approach shows the IRS that you are willing to cooperate and not trying to evade your responsibilities. This can lead to more favorable treatment, as the IRS is more likely to work with you to resolve any issues.

2. Avoiding Aggressive Collection Actions

If the IRS doesn’t hear from you, they may assume you’re unwilling to pay your taxes. This can trigger aggressive collection actions like liens, levies, or wage garnishments. These actions can severely impact your financial stability and credit score. However, communicating with the IRS early and showing good faith can often prevent these actions. The IRS is more likely to grant additional time or negotiate a payment plan if they see that you are trying to resolve your tax issues.

3. Potential for Penalty Abatement

Another advantage of demonstrating good faith is the potential for penalty abatement. The IRS may waive penalties if you have a reasonable cause for not paying your taxes on time or filing late. This is more likely if you have a timely communication and cooperation history. Showing you’ve been responsive and proactive can strengthen your case when requesting penalty relief.

4. Facilitating Better Communication

Timely responses help facilitate better communication between you and the IRS. This can be especially important if your tax filings have misunderstandings or errors. By responding quickly, you can clarify discrepancies and ensure your records are accurate. This can prevent minor issues from escalating into more significant problems.

5. Enhancing Your Negotiating Position

You enhance your negotiating position with the IRS when you demonstrate good faith. If you need to negotiate an Installment Agreement or an Offer in Compromise, showing that you’ve been responsive and cooperative can work in your favor. The IRS is more likely to consider your proposal seriously if they see that you have a good faith communication track record.

In conclusion, demonstrating good faith through timely communication with the IRS is crucial in managing your tax affairs effectively. While it’s true that the government’s idea of a timely response can be slow, your proactive approach can make a significant difference. By staying responsive and transparent, you build trust, avoid aggressive collection actions, potentially qualify for penalty abatement, facilitate better communication, and enhance your negotiating position. So, if you receive any correspondence from the IRS, make it a priority to respond promptly – your financial health and peace of mind may depend on it.

Strategic Strategies to Dealing with IRS Debt Requires Strategic Timing

When facing potential tax issues with the IRS, developing your strategy as early as possible is crucial. Proactive planning can help you avoid the intense pressure from enforced collection actions, such as levies. But how much time is considered strategic timing? At least three months are needed to implement key strategies that can help manipulate the Reasonable Collection Potential (RCP) formula to your advantage. The IRS uses the RCP formula to determine how much they can reasonably expect to collect from you, considering your income, expenses, and assets. Here are some steps to take early on:

  1. Catching Up on Allowable Expenses

One essential strategy is ensuring you’re up-to-date on payments for allowable expenses like child support and student loans. These payments are considered necessary living expenses by the IRS and can reduce your disposable income, which in turn lowers your Reasonable Collection Potential (RCP). The IRS looks for a history of making these payments before including them in the RCP formula, which is why establishing a consistent payment record for at least three months is crucial.

  1. Replacing an Old Car

If you’re driving an old, unreliable car, consider replacing it with a new or more reliable vehicle. The IRS allows for a reasonable vehicle expense as part of necessary living costs. By purchasing a new car before engaging with the IRS, you can ensure that this significant expense is factored into your financial analysis. This step not only improves your daily life but also strategically reduces the amount the IRS considers available to pay off your tax debt.

  1. Signing Up for Life and Disability Insurance

These types of insurance are considered allowable expenses by the IRS and can also reduce your RCP. The IRS will look for at least three months of payments before it includes them in the formula.

  1. Maintaining Records and Documentation

To effectively present your case to the IRS, it’s essential to maintain thorough records and documentation of all allowable expenses. This includes keeping receipts, payment records, and contracts related to child support, vehicle purchases, and insurance policies. Early preparation of these documents will make it easier to substantiate your claims and negotiate with the IRS.

Conclusion

Getting your strategy down early is crucial for negotiating the best deal possible with IRS Collections. Time is the magic ingredient that makes this happen. By proactively managing your allowable expenses, documenting necessary costs, and making strategic financial decisions at least three months ahead, you position yourself for a more favorable resolution. Don’t wait for the IRS to apply pressure—start your strategy planning today to take control of your tax situation.

Navigating the IRS Appeals Process

Dealing with the IRS can feel daunting, especially if you disagree with a decision or assessment they’ve made. Luckily, the IRS offers an Appeals process that lets you challenge decisions in an informal yet structured setting. Here’s a step-by-step guide to help you navigate the IRS Appeals process smoothly.

Know Your Appeal Rights

First, understand that you have the right to appeal most IRS decisions. This includes disagreements over tax assessments, penalties, and other IRS actions. Ensure your appeal is timely and based on a legitimate dispute over facts or the law’s application.

Review the Notice

When the IRS makes a decision you can appeal, they’ll send you a notice. This notice details the decision, the reasons behind it, and your right to appeal. Read this document carefully and note any deadlines. You typically have 30 days from the notice date to file an appeal.

Prepare Your Appeal

To start an appeal, write a protest that clearly states your intention to appeal, the specific items you disagree with, and the reasons for your disagreement. Be detailed, providing supporting documentation and referencing relevant tax laws or IRS procedures.

For smaller disputes (generally under $25,000), you can use a simpler, less formal written request. IRS Form 12203, “Request for Appeals Review,” is typically used for these cases.

Submit Your Appeal

Send your written protest or Form 12203 to the office that issued the decision. Ensure your appeal is postmarked by the deadline specified in your notice. Late appeals are generally not accepted, so timeliness is critical.

Attend the Appeals Conference

Once you file your appeal, an Appeals Officer will be assigned to your case. The Appeals Office operates independently of other IRS offices, ensuring a fair review. The Appeals Officer will contact you to schedule a conference, which can be in person, by phone, or through correspondence.

During the conference, be ready to discuss your case in detail. The goal is to reach a mutually acceptable resolution without going to court. Present your evidence clearly and professionally, and be open to negotiations and compromises.

Receive the Decision

After the conference, the Appeals Officer will review all information and make a determination. If you reach an agreement, the IRS will issue a closing agreement that outlines the terms. If no agreement is reached, you’ll receive a “Notice of Deficiency,” allowing you to take your case to the U.S. Tax Court.

Benefits of the Appeals Process

The Appeals process can save time, reduce costs, and offer a less formal avenue for resolving disputes compared to court litigation. It also provides a chance to have your case reviewed by an independent party, increasing the likelihood of a fair outcome.

Conclusion

Navigating the Appeals process can improve your chances of a successful appeal. Stay organized, be thorough in your documentation, and seek professional advice if needed. The goal is to resolve your tax issues fairly and efficiently, ensuring you can move forward with peace of mind.

Benefits of the Appeals Process

Navigating the Appeals process can save time, reduce costs, and offer a less formal avenue for resolving disputes than court litigation. It also provides a chance to have your case reviewed by an independent party, increasing the likelihood of a fair outcome.

Conclusion

While the IRS Appeals process can be complex, understanding your rights and following the proper steps can significantly improve your chances of a successful appeal. Stay organized, be thorough in your documentation, and don’t hesitate to seek professional advice if needed. Remember, the goal is to resolve your tax issues fairly and efficiently for the benefit of both sides.

But I Don’t Owe This! When to Use a “Doubt-as-to-Liability” Offer

Have you ever received a notice from the IRS claiming you owe taxes but are certain there’s been a mistake? Maybe you believe the IRS has assessed the wrong amount, or there’s an error in your tax return. In such situations, you might consider submitting a “Doubt-as-to-Liability” Offer in Compromise (OIC-DATL). Let’s dive into what this means and when it’s appropriate to use this option.

What is a Doubt-as-to-Liability Offer?

A Doubt-as-to-Liability Offer in Compromise is a proposal you can submit to the IRS when you genuinely believe you don’t owe the tax debt in question. This type of offer asserts that there is a legitimate dispute over the accuracy of the assessed tax liability. The goal is to settle your tax debt for less than the full amount based on evidence that demonstrates you are not responsible for the total liability.

When to Use a Doubt-as-to-Liability Offer

  1. Erroneous Assessment: If you have solid proof that the IRS has made an error in assessing your tax liability, such as misinterpreting your tax return or using incorrect data, a Doubt-as-to-Liability offer may be appropriate.
  2. Documentation Issues: Sometimes, the IRS may lack proper documentation or misplace your submitted information, leading to an incorrect tax bill. You may use this type of offer to resolve the issue if you provide the missing or corrected documents.
  3. Audit Mistakes: If your tax debt arose from an audit and you believe the auditor made mistakes in calculating your liability, presenting a Doubt-as-to-Liability offer with supporting evidence could help rectify the situation.
  4. Legal Disputes: When there’s a disagreement on the interpretation of tax laws or regulations that led to the assessment, and you have a strong legal argument, this type of offer can be your pathway to resolution.
  5. Incorrect Third-Party Reporting: If third parties, such as employers or financial institutions, have reported erroneous information to the IRS, leading to an inflated tax liability, you can use a Doubt-as-to-Liability offer to correct this.
  6. Errors in Tax Credits or Deductions: If there are mistakes in applying tax credits or deductions that have resulted in an erroneous tax liability, you can present a Doubt-as-to-Liability offer to resolve these discrepancies.

Final Thoughts

The key to a successful Doubt-as-to-Liability offer is thorough documentation and a clear, compelling argument substantiating your claim. By taking these steps, you can address and resolve disputes with the IRS, potentially saving yourself from paying a tax debt you don’t owe.

Understanding Florida’s Voluntary Disclosure Program: A Path to Tax Compliance

You know you have been skirting the sales tax laws forever. You’re at a point where this plan is riskier and dumber than ever. What can you do to get back in compliance before fate sets in? Like the IRS, the Florida DOR has a program to let back into their good graces.

Florida’s Voluntary Disclosure Program provides a proactive way for taxpayers to come forward and rectify their tax obligations with reduced penalties and potential relief from interest and criminal prosecution. The primary goal is to foster a cooperative environment where taxpayers can rectify their mistakes without fearing severe repercussions.

Who Can Benefit from the Program?

The program is available to businesses and individuals, whether registered with the DOR or not. One key eligibility requirement is that the taxpayer must not have been previously contacted by the Department of Revenue regarding the tax liability in question. This ensures that the program is genuinely voluntary and not a response to an audit or investigation.

How to Apply:
  1. Submit a Disclosure Request: You can submit this online through the Florida Department of Revenue’s website or by mailing a written request. The application should include comprehensive details about the tax liability, such as the type of tax, the period of delinquency, and the amount owed for the last three years from the date of the disclosure request.
  2. Provide Complete Information: Full disclosure is critical. The Department of Revenue requires accurate and complete information to assess your case and determine the terms of the disclosure.
  3. Await Response: After you submit your request, the Department will review it and provide terms that may include reduced penalties and interest. Compliance with these terms is essential to benefiting from the program.
Benefits of Participation:
  • Limited Lookback: DOR only looks at taxes for the 3 prior years.
  • Penalty Reduction: One of the program’s most attractive aspects is the potential reduction or waiver of penalties associated with unpaid taxes.
  • Interest Reduction: In certain cases, the interest on unpaid taxes can also be reduced.
  • Avoid Criminal Prosecution: Taxpayers who fully comply with the terms of the voluntary disclosure agreement are generally not subject to criminal prosecution for the disclosed tax liabilities.
Conclusion:

Want to sleep better at night? This is the first step. For More Information

What to Do If There Is a Substitute for Return: File It or Leave It?

You receive an IRS letter informing you they are proposing changes to your tax return. However, you never filed a tax return, so how can they correct it? The answer is that the IRS filed your return using Substitute for Return (SFR). An SFR is the IRS’s way of estimating your tax liability using the information they have on hand, such as W-2s, 1099s, and other income reports. While this might seem helpful, it most often results in a higher tax bill because the IRS doesn’t include deductions, credits, or exemptions you might be eligible for.

There are 3 possible outcomes from this process:
  1. The IRS is bang on right with its calculation of the tax.
  2. The IRS overstates the tax due.
  3. The IRS understates the tax due.
What should you do?

In the first case, they got it right.  You do not need to do anything other than pay the assessment.

Usually, though, they overstate the tax due. The answer here is simple: File your actual and correct return (not an amended return).

But what should you do if the IRS understates the balance due? My recommendation is usually to do nothing. After all, you did not file a false return, and it’s on the IRS to audit and correct the assessment.

The Statute of Limitations

The 10-year Statute of Limitations for collecting the tax due runs as of the assessment date, regardless of whether it is an SFR. There is a small downside. Since you never filed your return, the 3-year Statute of Limitations for auditing and assessing additional taxes never runs. Given the IRS audit rates, this would seem like a small risk.

Conclusion

It’s better to file your return timely and avoid the IRS using its Substitute for Return process. Dealing with the inevitable letters can be irritating, and you risk additional interest and penalties. However, correcting the IRS assessment can be easily done by simply filing the correct return.