Written by Amber Westover | Last Updated November 7th, 2019Amber is currently a Digital Marketing Strategist at Best Company. She is passionate about learning and researching. Her interests include traveling, eating sushi, painting, and reading Agatha Christie novels.
(This article is 1 of 15 chapters in The Definitive Guide to IRS Debt Forgiveness. Return to the guide to get the full explanation of IRS Debt Forgiveness.)
As Benjamin Franklin said, "In this world nothing can be said to be certain, except death and taxes." Every April, federal taxes bring a sense of dread and anxiety, especially if you are facing an audit or struggling with tax debt.
In 2016, 1.2 million Americans were audited by the IRS. This situation can be stressful, especially if you are unfamiliar with federal tax laws and policies. Owing taxes is equally frustrating. Unpaid taxes carry severe consequences such as liens, levies, wage garnishments, and asset seizures.
If you receive a letter from the IRS claiming unpaid taxes or performing an audit, what should you do? Should you seek help or represent yourself? Here are some tips from top tax professionals for dealing with the IRS and specific advice to help you determine if you need to seek representation:
How Should I Deal with the IRS?
As soon as you receive a letter from the IRS, take action. Grace Molo-Ang (@taxdefense), a licensed tax professional for Tax Defense Network advises, "Don’t be overwhelmed. If you get notices, don’t wait to act. Start coordinating, and strategizing how to deal with the notice."
He says, "The audited taxpayer must understand the scope of the audit, have clear copies of the supporting documents such as mileage logs, invoices, statements and proof of payments. These should be grouped and organized by category with a clear description of the deduction."
The same principle applies to overdue taxes.
"To get the best deal, taxpayers must be ready with full financial information regarding their living expenses such as housing expenses, food and clothing, medical, etc. This way they cover their expenses and only pay the tax agency with what's left over from their disposable income," recommends Habib.
Preparation should start even before you are contacted by the IRS. Molo-Ang suggests,"Keep a good record of your back-up for what you claim on your taxes and a copy of the tax return filed (it is a good practice to hold on to your returns filed and the back-up, for three years after you file them, such as receipts showing what you paid, canceled checks, bank statements, logs (example: mileage log), bills/statements showing the amount paid. If you did not keep this information, you can back track and try to collect as much back-up as possible prior to the examination/audit."
Part of your preparation should include research. The IRS's website may be able to answer some of your questions.
The more you understand the laws that govern your specific situation, the better prepared you will be to fight for your rights.
"Research the issue you have with the IRS, do some reading so that you have some knowledge on the issue and what rights you may have.
To know whether you received a notice that is an actual audit or not, call a tax professional (attorney, accountant, enrolled agent)," Molo-Ang advises.
Josh Kahn (@Anthemtax), co-founder of Anthem Tax Services says, "It is important that a tax payer know what expenses the IRS allows and disallows based off of which state and county where tax payer resides. These are called national standards and could be located easily on the internet."
If you have tax debt it is extremely important to understand your payment options. Habib counsels, "...consider an alternative such as payments plans, or partial pay agreements or possible a compromise as a lump sum settlement."
Study your options so you don't get stuck with the first offer presented by the IRS.
Learn your rights
Americans are entitled to certain rights outlined the in the IRS' taxpayer bill of rights. It is critical to understand these rights and your options. One important right is the ability to appeal IRS decisions.
Molo-Ang states, "If you decide to go through the process alone, know that, if you disagree with the handling of your matter, you can ask for a supervisor.
If you do not agree, the examiner will explain your appeal rights. If the examination occurs at an IRS office, you may request an immediate meeting with the examiner’s supervisor, or possibly do so after, within a certain period of time.
"Generally, if you cannot reach an agreement with the supervisor, or if the examination took place outside an IRS office or was conducted through correspondence with an IRS employee, a report is generated explaining your position and the IRS’s position.
You will receive a 30-day letter notifying you of your appeal rights, which is followed by a 90-day Notice of Deficiency letter, if you do not respond, or respond and do not reach an agreement with an appeals officer. This letter gives you 90 days to file a petition to Tax Court."
Chris Hardy (@chrishardyatl) managing director of Paramount Tax and Accounting, LLC recommends, "If a taxpayer is being audited, they should immediately seek representation from a qualified professional.
From personal experience representing taxpayers, IRS auditors are paid to extract as much money as possible during an audit and a taxpayer can very easily be boxed into a corner by a line of questioning. Many times a taxpayer may try to be a "nice guy" and offer up items voluntarily only to realize later those are being used against them.
When a taxpayer has back tax debt and trying to work out an arrangement for repayment, they do not need to accept the IRS's demands. It is beneficial to have a tax professional build the case on what is reasonable for repayment and take into account any extenuating circumstance that is outside the norm."
Taxpayers do not know what to say or when not to say something. Once it is out of their mouth, they cannot retract it. They also do not know the laws and how the process applies to them.
The taxpaying public has to understand that IRS employees work for the government and everything they do, is with that in mind. My job, as an Enrolled Agent and a Certified Tax Resolution Specialist, is to be the advocate for the taxpayer."
When Can I Represent Myself?
You only owe a small balance
The amount of tax debt is one of the biggest factors when deciding if you need professional assistance. Kahn believes, "It makes sense financially for a taxpayer to deal with the IRS or state if they generally owe less than 5k.
IRS and state taxing authorities are a lot more lenient with the taxpayer due to the small size of the debt. Most tax resolution specialists charge at minimum $1500 or more to represent a taxpayer, it does not make sense to incur a cost that is about one-third of what’s owed in tax debt."
Your tax issues can be resolved quickly
The time period is another big factor. Hardy suggests, "If a taxpayer has a small balance and they are able to pay it off in full in a short period of time, they can certainly handle it themselves." If the tax debt can be resolved quickly, you may be able to hand it on your own.
When the IRS only needs proof of something
Schneider cautions, "The only time that a taxpayer can deal with the IRS on their own is when the IRS asks them for proof of something (like a missing 1099 or W-2). Nothing more complicated than that. Even if it is a consultation to ask professional questions, is worth the fee."
When Do I Need to Seek Representation?
You have a large balance or cannot pay in full
Hardy says, "Once a taxpayer realizes they have a large balance or have received collection letters from the IRS and don't have the ability to pay in full, they should immediately contact a professional for guidance.
Even though a taxpayer can call the IRS and ask questions regarding their case, the IRS is under no obligation to explain to the taxpayer all of the options of repayment and the benefits of each.
Working with a professional, the taxpayer can fully understand their options and protections allowed under the IRC."
There are several repayment options, such as installment agreements and offers in compromise. Professionals can review your circumstance and determine which option best fits your needs.
You are unsure of the tax laws
Habib suggests, "Tax representation is a very powerful tool to even the odds when facing a tax controversy. Taxpayers should consider representation if they can not research the tax laws that would protect their rights based on their particular situation."
You have special circumstances
Molo-Ang also suggests seeking representation when you have major life changes. She cites separation or divorce, a newly opened business, or self-employment.
She recommends if you seek help if you have "life changes, which may affect your ability to pay tax debt still due and owing, even if you are already on a payment plan with the IRS. Don’t wait, get help to prevent the situation from getting worse than it needs to be."
Anytime you feel uncomfortable
Finally, Molo-Ang recommends seeking professional help "when the IRS has notified you of an audit, if you do not feel comfortable representing yourself, or need assistance preparing for the audit or responding to an underreporting notice."
Whether you represent yourself or work with a tax professional, be sure to act quickly, gather the appropriate documentation, and educate yourself on tax rules.
The more educated you are, the better you can defend yourself. If you are unsure for any reason, you may benefit from speaking to a professional. Many tax relief companies offer free consultations. If you are audited by the IRS or have tax debt, now is a great time to receive help.