NEVER talk to the IRS. This will not help you. They are trained interrogators and have undergone IRS in-house training on how to solicit information from you that they have no right to. Not knowing the law, you may innocently say something that could be misconstrued or misinterpreted, and they will use that against you. You have a 5th Amendment Right to remain silent and not talk to them or answer their questions. If the IRS contacts you in person or by phone, be polite and just say that you will have their representative contact them. Get their name, employee i.d. number, phone, fax, office address, and their manager’s name and phone number. Tell them that your representative will contact them to discuss the matter. Say no more than that.
Audits are come about usually because your return triggered some flags in their system that caused the return to be marked for audit. Maybe your charitable contributions were high in proportion to your income compared to statistical averages for people in your income group. With business expenses, your travel, meals, and entertainment, or mileage numbers seemed too high, given your type of business, or expenses seem disproportionate given the gross income you reported. If you send in a tax return for a company with zero or very little income and many expenses to deduct, that will likely trigger an audit. There are many reasons why your return might be selected for audit.
Audits are about just a couple of things: verifying your income and making sure that you reported all of your income, proving your deductions by making sure that you spent the money you say you spent on business expenses, and if you did spend it, does the expenditure qualify under the law as being deductible.
If you are being audited, you will receive a formal letter notifying you and asking you to call them to confirm the appointment they have set up for you. Please don’t do it. You NEVER want to talk to them because once they have you alone on the phone, they will ask you for information that will be incriminating and detrimental to your case.
The taxpayer is required to provide vast amounts of documentation to the auditor, such as banks statements, credit card statements, receipts, invoices, real estate closing statements, purchase contracts, mileage logs, books and records, ledgers, journals, financial statements, copies of loan applications, and the list goes on. They generally ask for “everything but the kitchen sink.” Please do not give them anything. Please give it to your representative to give to them. The representative must review it first to ensure they really need it and are legally entitled to it. Your representative may not provide it to them if they are not allowed to it by law or if it might incriminate you.
Remember, “He who defends himself has a fool for a client.” Always have a licensed tax professional represent you and speak for you. The average citizen knows next to nothing about the current tax laws. This lack of legal knowledge is dangerous if you try to defend yourself.
If you receive a letter from the IRS informing you that your tax return will be audited, call us at 336-433-9997.
IRS LIENS: THE IRS CAN RUIN YOUR LIFE BY FILING FEDERAL TAX LIENS.
Federal tax liens are a public record that shows that you owe back taxes. Liens are filed with the County Clerk of Court. Because these liens are public records, they will show up on your credit report. This makes it nearly impossible for you to obtain a car loan or home mortgage. A lien effectively freezes your assets to the point that you cannot sell or purchase anything. Issuing a lien is a drastic step that the IRS takes when they tried to and failed to get the taxpayer to respond to collection letters. Ignoring the IRS is the worst thing you can do. They are not going to give up and go away.
I.R.S. LEVIES: A LEVY IS THE SEIZURE OF YOUR ASSETS BY THE I.R.S. TO SATISFY A TAX DEBT
The most common levies are those issued to banks in order to empty out your checking and savings accounts and safe deposit box and hand the assets over to the I.R.S. The IRS can also issue a levy notice to your employer to garnish your wages. Many taxpayers end up getting fired when their employer receives a levy notice from the I.R.S. to garnish wages. Your relationship with your bank can also be ruined if they receive a levy notice from the I.R.S. against you. Levies should be avoided at all costs. Levy Notices are usually issued as a last resort by the I.R.S. in their attempt to collect taxes. The IRS is not to be be ignored. We can prevent levies.
FAILURE TO FILE: AN UNUSUALLY LARGE NUMBER OF TAXPAYERS, FOR ANY REASON, FAIL TO FILE THEIR TAX RETURNS FOR A GIVEN YEAR OR YEARS.
If you are one of them, you are not alone. You should know that failure to file a tax return is punishable by up to one year in prison. It not is a crime to fail to pay the tax. So even if you don’t have the money to pay the tax you owe, you should always file the return. There are severe monetary penalties for failure to file the tax return. If you have not filed a prior year return, you should hire a tax professional to do so. Often times people who fail to file are surprised to learn that the I.R.S. owes them money. If you have “reasonable cause” for failing to file your tax returns in prior years, you may be able to escape penalties and interest.
I.R.S. PENALTIES: EACH YEAR THE I.R.S. ASSESES BILLIONS OF DOLLARS IN PENALTIES AGAINST TAXPAYERS
They charge penalties on top of penalties and double penalties. There are penalties for: failure to file; filing late; failure to pay; paying late; underpayment; there is even a penalty if you make a mistake writing down your social security number on the return and are off by one digit. To make matters worse, the IRS charges you interest on the penalties and interest on the interest. Penalties can be anywhere from 25% to 100% of the tax owed and after they add on the interest you can end up owing triple the amount of tax. Penalties can be “abated” (erased/forgiven), but the IRS will never do it voluntarily. You must have a representative who knows the tax code to petition for abatement.
All tax accountants are not the same
“Enrolled Agent” is a top credential tax practitioner recognized by the IRS as well as all 50 states. Our status as Enrolled Agents, as well as our in-depth knowledge of the tax code, tax law and tax court rulings, helps us achieve better outcomes for taxpayers facing various kinds of tax problems.
We deal with the IRS frequently. Let us help you.
ROBERT M. SWAIM, MAcc.
Enrolled Agent & Tax Accountant