Written by Scott Allen

I GOT A LETTER FROM THE IRS

When clients come into their initial appointment and I ask them if they have received any correspondence from the IRS, they usually hand me a stack of letters that have never been opened.  I call this the “Pandora” letter syndrome—“If I don’t open it then the bad stuff inside can’t hurt me.”

 The reality is that  unopened IRS letters can and will hurt you.  When you receive a letter from the IRS, there is adequate time to deal with the problem in most cases.  Requests for extension of time to deal with the matter are relatively easy to obtain as long as deadlines have not been missed or past promises for action not kept. 

Most letters are requesting some action or information on your part.  There is a deadline involved.  If you provide the information requested within the deadline period, you will have developed a repore with the IRS that will greatly improve your ability to move on to the next step in the process with more latitude. 

The important thing is to not make promises you know you can’t keep.  Promise a little less that what you know you can do and then over perform.  IRS agents rarely get more from taxpayers than what they expect.  When they do, it is almost like you get forgotten.  Agents have so many people making every effort to avoid them that those who are following through are given much better treatment.  Don’t get me wrong, they will still expect you to pay back the taxes owed if you have the ability to do so, but the process to get to an agreed upon settlement that you can live with are much better.

So gather up those letters and come in.  I have the best damn letter opener in Arizona.  Together we can come up with a plan that will resolve your IRS matter.  You have nothing to lose if you come in and have almost everything to lose if you don’t open those letters.  Take the leap of faith and schedule your free one hour consultation toady.

 Scott Allen E. A.

 Tax Debt Advisors, Inc.

info@taxdebtadvisors.com

Written by Scott Allen

WHAT CAUSED MY IRS PAYMENT PLAN TO DEFAULT?

When you default on an installment arrangement there is no explanation.  The most common reasons are: 

  • You didn’t send in your payment or your payment was late.  If you call immediately upon receiving the notice, you can usually be reinstated as soon as your payments are current.  Don’t depend on the IRS vouchers as a reminder to make your payment.  Vouchers can come to you after the due date or not at all.  Have a note on your calendar to make your payment whether or not the voucher shows up.  If you send in a payment without a voucher, include your social security number, the tax year to apply the payment (2006-1040) and have your phone number on the check.  
  • You filed your return late or did not pay your taxes in full when you filed your return.  One of the conditions of having a payment plan with the IRS is that you don’t get behind on filing or paying in the future.  Again, the IRS will likely reinstate the agreement if you can bring your payments current and you contact them immediately after receiving the notice of default.  To prevent this from happening in the future make sure your estimated taxes are paid timely if you are self employed or that your withholdings are sufficient if you are an employee.  

If you default and you have to renegotiate your payment plan with the IRS it is unlikely you will get the same payment amount.   If your financial situation has worsened, your payment amount will be reduced.  Likewise, if your financial situation has improved, your payment amount will go up.  Rather than just go back into another installment arrangement, I advise our clients to reevaluate to see if there is another settlement option that would be better now that their situation has changed.  

There are legitimate situations where I advise clients to strategically default on purpose so that a better settlement can be reached with the IRS.  This should only be done with the help of a professional representative who can guide you through the renegotiation process.

Scott Allen E. A.

Tax Debt Advisors, Inc.

info@taxdebtadvisors.com

Written by Scott Allen

WHAT DO I DO WHEN AN IRS AGENT CONTACTS ME?

What should you do if an IRS officer shows up at your business, place of employment or your home.  The best thing to do is to tell the Officer that you wish to consult a representative before proceeding any further.  If you ask this, the IRS must stop the interview immediately.  If the IRS agent does not allow you to have representation they are violating Internal Revenue Cope Section 7521 (b) (2) which says.

“If the taxpayer clearly states to an officer or employee of the Internal Revenue Service at any time during any interview (other than an interview initiated by an administrative summons issued under subchapter A of chapter 78) that the taxpayer wishes to consult with an attorney, certified public accountant, enrolled agent, or any other person permitted to represent the taxpayer before the Internal Revenue Service, such officer or employee shall suspend such interview regardless of whether the taxpayer may have answered one or more questions.”

Requesting representation does not make you look guilty.  In most cases the IRS representative will feel that you know your rights and that you are serious about following through.  In a nice way, it notifies the agent that you are not frightened by their efforts to catch with your guard down.  The agent will give you a card and a deadline to get back to them with your representative, who will need to file an IRS form 2848.

Your representation needs to contact the IRS as soon as possible to find out specifically what the IRS is seeking—filing back tax returns, pay back taxes, etc.  I can represent you before the IRS without you being present and in most cases that is the best way to work with the IRS.  In certain cases the IRS can issue a summons that requires you to be present whether or not you have a representative.

One final suggestion.  Never get mad or argumentative or issue any threats.  This is a signal to the Agent that you are not going to be cooperative and will make things harder for your representative and perhaps increase the extent of the work needed to get a settlement with the IRS.

Scott Allen E. A.

Tax Debt Advisors, Inc.

info@taxdebtadvisors.com

Written by Scott Allen

WAGE GARNISHMENT AND IRS LEVY

When clients contact us about a garnishment or levy by the IRS on their wages they want it removed as quickly as possible. I understand that, but it is also prudent to make sure that any “posturing” that will help the situation long term is done first.

The IRS will allow reasonable amounts for living expenses before considering what amount is available for one’s historical tax debt. Before agreeing to a monthly payment plan to get the levy released, there are a number of posturing items to resolve as quickly as possible.

First, make sure your withholdings on your pay check is correct. If you are claiming too many exemptions, correct you W-4 form immediately so that you will not owe any taxes when you file the current year return. Every additional dollar you have withheld will reduce your monthly payment by exactly the same amount.

Second, if you have a car that needs to be replaced or one that you own free and clear, you may want to consider getting a new or newer vehicle. Once you are locked in on a monthly payment amount, the IRS will file a tax lien and the lien will make it next to impossible to get a car loan. If you have an old vehicle that you own free and clear and you turn it in for a newer car, the payments you make will reduce the amount you have to pay on your historical tax debt dollar for dollar up to a certain amount. Right now that amount is $496.

Thirdly, if you don’t have health insurance consider getting a policy. Again, you reduce your monthly payment to the IRS on your past tax debt dollar for dollar on the cost of your insurance premiums. If you want health insurance instead of making a higher monthly payment to the IRS you will need to do this before the installment arrangement is entered into.

It is not possible in a short blog to list all of the items one needs to consider. Posturing can lower the amount the IRS will consider for an Offer in Compromise. It can qualify you for non-collectible status, and it can make it possible for you to discharge your taxes in bankruptcy and make no payment at all to the IRS on your past debt. Remember that these suggestions are not universal and need to be reviewed with a professional after making your representative knowledgeable of your financial affairs.

Scott Allen E.A.

Tax Debt Advisors, Inc.

info@taxdebtadvisors.com

Written by Scott Allen

IRS AUDITS

Receiving a letter from the IRS notifying that one or more tax years are being audited is unsettling to say the least.  I find that most clients fall into two categories with IRS audits.  Those that properly filed their returns with support for their deductions and those that knowingly took deductions that they knew were questionable or they lack support for deductions on the tax return.

Let’s look at the first group.  No problem here.  If one contacts the IRS as soon as possible after receiving the notice, the IRS is very agreeable to work around your schedule.  Calling right before the appointment to reschedule is considered a red flag by auditors. 

Keep your appointment and being prepared will be appreciated by the IRS auditor.  Being prepared means having the support for your deductions in a format that is easy to verify.  For example if you are being audited for office rent, have all of the invoices and checks attached to one another with a machine tape of the total.  If this is done for each item under audit, your audit will be over in minutes and the auditor will have less time to ask probing questions into other areas not under review.  If the auditor sees that you are organized and that deductions on the return are supported properly, the review process will be minimized and the chances of the audit expanding into other years will be avoided.

If one is in the second group, where you either took inappropriate deductions or do not have the documents to support you deduction can be a problem.  These situations require the use of a professional to advise or represent you.  Let me share one example to illustrate.  A former client in the trucking business was being audited for his truck expenses.  He lost all of his records when the contents of his storage unit were confiscated for not paying his storage fees.  The auditor denied all of his fuel expenses amounting to an audit assessment of over $250,000 for the three years being audited.  Much of that being interest and penalties.  The auditor denied the expenses because there were no fuel receipts.

Fortunately, the client came to us for help at this point.  We requested a meeting with the IRS Appeals office.  We secured mileage logs from the companies that paid his for deliveries.  Our client was paid so much per mile.  We established support for the average miles per gallon his truck used and the average cost of fuel though out the year.  We then calculated the total cost of the fuel by backing into the number with these “other support” documents.  The figure was very close to the amount taken on the return.  Our client was given the deduction and the assessment eliminated. 

Each case should be reviewed on its own facts and circumstances.  I do not charge for this initial review and recommendation.  In most cases it is obvious whether professional assistance should be considered.

Scott Allen E. A.

Tax Debt Advisors, Inc.

info@taxdebtadvisors.com

Written by Scott Allen

IRS SETTLEMENTS

I often hear clients say, “if you can just get me out of this mess with the IRS, I will never get back in trouble again.”  The truth is that 100% of our clients will be given a settlement with the IRS that in most cases exceeds their expectations.  Many say, “If I knew it was going to be that easy, I would have done this years ago.”

Getting the settlement is not the hard part.  The hard part is breaking the habit that caused the problem in the first place.  In most cases that requires adjusting one’s life style to adjust to a new expense in one’s life–income taxes–Federal, State and payroll.  This amount varies, especially between individuals who are employees vs. self-employed.  But let’s use a round number of 30%.  If one is making $100,000, adding $30,000 in additional expenses means cutting out something else that they were used to spending money on.

The IRS estimates that about 80% of the individuals put on an installment arrangement default withinin one year.  Experience has shown us that when clients see the reality of paying taxes, it is too easy not to pay in the “volutary” estimated taxes, or to adjust their withholdings when “emergencies” arise.  Then when it comes time to file and full pay by April 15, to keep their settlement valid–they default when funds are not available to stay current on their tax liability.

Successful resolution with the IRS is not just getting the settlement; it means that one must break habits pertaining to spending, living within a budget and making the tax payments as important as other monthly expenses.  One must avoid seeing the IRS as a credit card, in the sense that you pay other expenses by not paying the IRS.  Unfortunately the easiest expense not to pay is the IRS.  However, it is also the hardest one to catch on as well.

Scott Allen E.A.

Tax Debt Advisors, Inc.

 

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