Uncle Sam Knocketh, But No One is Home!

If you have ever received a notice from the IRS for any reason, and let's hope you never have or will, the consequences can be quite annoying and time consuming for the average taxpayer. This article will address some things to do if you are ever contacted by the Internal Revenue Service and some issues involved with installment payments. We can only touch on various aspects of dealing with the IRS in this article. If you have a complicated issue, get professional advice.

The mail comes and you see a letter from the Internal Revenue Service. Your heart starts to beat a little faster as you begin to open the seal and unfold the paper. Your palms begin to sweat and your heart pounds harder. Could this be an audit notice? Did they find something wrong with my return? Man, I should have saved those receipts for all the auto expense I claimed. All kinds of dreary thoughts start to race through your mind.

If you have questions about this or other tax related questions, please send them to me at tlockie@taxpros-plus.com or call me at 712-277-2834. I will answer your questions as quickly and accurately as possible. If you have a topic you would like to see addressed in this column please contact me.

I received a notice in the mail yesterday from the IRS stating that I owed an additional amount of tax, penalty and interest on my return from last year. I think they are wrong. What do I do?

First and foremost, whenever you receive any correspondence from the Internal Revenue Service you want to respond promptly. These types of notices usually involve a ten day period in which to write back or pay the additional amount. If you feel they are wrong, you should gather all information that is relevant to your case such, as receipts and records, tax returns, or any canceled checks and respond immediately with the reason you think they are wrong. Never send your originals, only copies of them along with a copy of the original notice they sent you.

Usually you will hear back from them within a few weeks. If they feel you are correct, they will issue a cancellation of tax due, but don't expect an apology. The IRS does not make mistakes. All kidding aside, this really is nothing to take lightly. The cost of incorrectly levied taxes on individuals can be staggering. If you are having trouble resolving an issue it is a good idea to seek qualified assistance from an individual who can represent you before the Internal Revenue Service.

Who can represent me before the IRS?

You must appear before the IRS if requested or by mail answer any questions they have unless you sign a Power of Attorney form allowing either your attorney, CPA or Enrolled Agent to go respond in your place. This form empowers them to handle any proceedings in regard to specifically identified tax years and tax forms. Without giving them this power, you will have to appear and answer the questions. No one other than these three can go in your place. Other tax preparers can only "go with you".

I had a huge payout from my pension plan last year. The company did not withhold enough tax and now I have a huge tax bill that I cannot afford to pay. What am I going to do?

Try not to get too upset. Granted, owing a ton in taxes is not a fun prospect, but the IRS does offer payment plans that can facilitate the repayment of taxes that are currently due or past due. A little known fact is that often, the IRS will be willing to accept a payment plan and as long as you continue to faithfully make the payments monthly, they will not take any further action. The process is really not difficult, although it would be a good idea to seek out a professional for help preparing for either type of arrangement. Installment agreements allow the full payment of your debt in smaller, more manageable amounts.

You should be aware that an installment agreement is a more costly method than just paying your taxes due and may be even more costly than if you just borrowed the funds to pay the amount you owe. Why? Because the IRS charges interest and penalties on the tax you owe, and charges interest on the unpaid penalties and interest that have been charged to your tax account. While you are making payments on your tax debt through your installment agreement, the IRS continues to charge interest and penalties on the unpaid portion of that debt. The interest rate on a bank loan or cash advance on your credit card may be lower than the combination of penalties and interest that the IRS charges. You will also pay a $43 user fee when you set up the installment agreement.

I am set up on an installment agreement with the IRS and I have not missed any of my payments. Can they put a levy on my assets to pay off the debt?

No, the IRS cannot levy upon your assets while your request for an installment agreement is being considered, while your agreement is in effect, for 30 days after your request for an installment agreement has been rejected, or for any period while an appeal of the rejection is being evaluated by the IRS.

How does the Internal Revenue Service determine how much I will have to pay each month?

The amount you will pay is based on your financial situation. If you have a change in your financial situation the IRS can make a change to your agreement and will send you a letter 20 days before they make the change in the installment plan. If you have an installment agreement, you must pay on time. If you cannot meet the deadline, you should contact the IRS immediately and tell them why.

If I give my CPA the power of attorney, can they also control other aspects of my affairs?

No, this type of POA does not give unlimited control over your affairs. It only provides them with enough control under existing laws to handle the identified tax issues on your behalf. They cannot touch any other area of your human rights as protected by the governing laws of your state or federal municipality.

If you have questions regarding notices from the Internal Revenue Service, please contact us to provide assistance responding timely and accurately.

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