Every year, the IRS sends out millions of notices to taxpayers. This is done mostly through a massive computer system. Consider that when you respond to a notice there’s a good chance you will not even be interacting with a person!
A big target for these nastygrams, of course, is home business owners. Often they prepare their own tax returns and yes, there will likely be errors. The IRS computers will also scan for heavy amounts of deductions that appear to be personal, like travel and meals.
OK then, if you happen to get a notice, what are some things to consider? Well, let’s take a look:
Don’t Ignore the Notice: It can certainly be horrifying to deal with the IRS. But if you delay a response, then the situation will only get worse. The penalties and interest will add up and you may ultimately be subject to harsh actions like wage garnishments, bank account seizures and liens on your property. The financial impact can be devastating.
So it is imperative to be proactive.
The Good News: It’s often the case that a tax notice can be resolved easily, such as via mail or a phone call. Examples of this are when you forget to include income from a 1099-MISC form (keep in mind that IRS computers match these with the payer) or you did not include a tax form.
Oh, and yes, sometimes the IRS makes mistakes too. In this situation, you need to provide proof, such as a check or receipt. No doubt, this is why recordkeeping is absolutely critical. So using some type of cloud accounting program – like QuickBooks or Xero – is highly recommended.
When responding to the IRS, make sure to use certified mail, with a return receipt. You should get a response in about a month or so.
Be Civil: When corresponding with the IRS or talking to a representative of the agency, you should not lash out. Believe me, it does not help at all.
Instead, the focus needs to be on how to resolve the matter to your advantage – which means being prepared whenever responding. You should also keep records of when you made calls (and make sure to get the badge number of the person you talk to) and maintain all materials the IRS sends you.
And if you cannot pay? It can be pretty tough to pay a tax debt. Yet the IRS does provide several ways to help out. First of all, you can setup an installment plan, which can be done online (the payment term can be as long as 6 years). Although, if the amount is significant – say over $50,000 – you will probably need to fill out financial disclosure forms.
Getting Help: If you do not understand the tax issue from the notice or the IRS is requesting an audit, then you should seek out professional tax help, such as from a CPA, Enrolled Agent or tax attorney. Such a person will know how to deal with the bureaucracy and find ways to get the best outcome. Even just getting a couple hours of consulting can go a long way in resolving the situation and helping to reduce some of the inevitable stress when dealing with the IRS.
How Can Pathway Tax Help? Our firm is licensed by the IRS to represent taxpayers across all 50 states. We also have a free initial consultation.