By Dave Horwedel, EA and CEO of GuardDog Tax and Torchlight Tax
If you failed to keep up with your IRS payment agreement, you likely received a CP521 notice in the mail. This notice tells you officially that you defaulted on your installment agreement.
It also tells you how much money you still owe, the date the IRS declares that you must remit payment in full, and any penalties or cancellation terms for the agreement.
Of course, if you defaulted on your agreement, chances are you do not have the funds to pay the IRS in full.
Any tax liens, bank levies, wage garnishment or asset seizures that were held in check by the installment agreement are no longer held back.
Your income, home, savings, and good credit are all at risk.
Action should be taken. But how imminent is the threat? The answer this question depends on the exact circumstance of your situation.
This would be an ideal time to have an EA, CPA, or Tax Attorney with specialized knowledge and experience in IRS Representation, such as those at GuardDog and Torchlight Tax, review your case. Starting with a free consultation, we could work out the urgency of action required.
Now, if you are broke and cannot afford to pay for IRS Representation, you should call the IRS. If you really cannot pay them, you might be able to get Currently Not Collectible (CNC) Status. This would remove any immediate threat if achieved.
A new payment plan approved by the IRS would also eliminate the immediate threat.
You might even be able to get an Offer in Compromise (OIC) approved. This is a much longer task and requires a lot of painstaking paperwork. If you can get the CNC or a payment plan approved, then you may have time to learn how to do an OIC.
Most taxpayers get overwhelmed trying to do an OIC.
The OIC submission requires an application fee and 20% down payment on your offer amount. This submission once received and coded into the IRS system STOPs all IRS enforced collections actions. The OIC usually takes 6-12 months.
Many people think the best time to negotiate with the IRS is when you can at least pay them something. Actually, the best time to negotiate with the IRS is when you cannot pay them.
The IRS can generally be relied upon to tell you that you owe tax. They cannot be relied upon to tell you what options exist to avoid or minimize your tax liability or payments.
For this reason, you either need to bone up on tax law, rules, and regulations, or seek out a tax professional you can trust.
Just as you would not go to criminal court and face the police and District Attorney without a trusted lawyer, a wise taxpayer, dealing with tax matters he is not expert in, hires an Enrolled Agent (the highest federal tax credential) or Tax Lawyer to represent him before the IRS.
This is a common situation. For whatever reason, your IRS debt has spiraled out of control. There seems no possible way to pay it. You keep dreaming of a fantastic income year to handle it, and it does not happen. Each year the debt increases, the IRS Notices and Letters flood the mail box, and IRS tax liens, bank levies and wage garnishments trash any hope of financial recovery.
Many Americans do not realize that there are legal provisions to protect the taxpayer who is actually unable to pay his tax debt. Indeed, from an IRS negotiation standpoint, a huge IRS debt that you cannot possibly pay is the Ideal situation to get IRS tax debts cancelled!
It is a mistake to apply standard business logic to IRS tax situations. Setting aside money so you can cut a deal with the IRS and get them to accept a lower payment is fruitless. They will simply levy your bank account, take the set-asides, and demand the full balance, plus accruing interest. There is special action needed to deal with the IRS. You either study up and get it, or hire someone who has it to represent you.
If your tax debt seems un-confrontable, contact GuardDog Tax at 1-877-758-7797 for a free consultation.
Your worst fear has occurred. The IRS is auditing you. Whether it is a correspondence audit by mail, an audit down at your local IRS Office, or an IRS Field Audit in your home or business, it is stressful.
You can represent yourself in an IRS Audit, and you may even achieve a successful result. Then again, it is possible to walk away unscathed from pulling the trigger in a game of Russian Roulette. Unless you are talking about a correspondence audit with minor money involved, it is probably unwise to represent yourself.
One could argue that if you are totally honest and have excellent records, and have done your taxes correctly, you have nothing to fear in an IRS audit. And there is truth in that.
But what if you fibbed a little, or your records are spotty, or your return was not done perfectly?
Now we are getting to a more common situation. It does not mean you evaded taxes or paid less than you were required to. But perfection and taxes do not commonly appear together in front of an IRS Auditor.
So, what do you do if you are under an IRS Audit?
First, you sign an IRS Power of Attorney. Then you have your tax professional, such as an Enrolled Agent, lawyer, or CPA, review your tax records. Your tax professional will get full IRS transcripts. This gives the professional the data that the IRS has on you. If a debt is owed, a completed financial questionnaire is needed. from you. This will allow the professional to propose solutions to tax debt that would work for you and meet IRS guidelines.
The tax pro can see any errors in your returns or records and correct them. He then meets with the IRS or corresponds with them, and works out a solution. It is usually wise for the taxpayer to keep his mouth shut and leave this to the pro. The pro of course knows what the IRS is supposed to ask and how to respond to them.
Also, if the IRS asks a question that catches him by surprise, he can say “Wow! $30,000 were deposited into the account by Jones Industries and not reported as income. I have no idea what that is. I will have to check with my client.” And then come back the next day with the explanation that the $30,000 was a loan from Uncle Bob Jones’s company and not taxable income at all.
Do not get me wrong. We do not LIE to the IRS and we do not countenance our client’s lying to them. But in the heat of an IRS audit interview, it is easy to make a mistake and it can be disastrous. The Pro can come back the next day and put whatever the situation is, in the best possible light.
At my firm, we do a lot of audit defense for clients whose original tax preparer was not trained in IRS Representation. Sometimes the tax return was simply done wrong.
We take the cards we are dealt and then make the best of the situation.
Just because the IRS says the return was wrong DOES NOT MEAN THE RETURN WAS DONE WRONG! Even if there were errors on the return, this does not mean the IRS correctly calculated the amount you owe.
One cannot count on the IRS to find every tax break you were entitled to!
Also, experience and training help enormously in getting penalties released.
Sometimes, one finds oneself dealing with an arbitrary or not fully competent auditor.
Knowing what recourse is available and what to say, and which recourse to use are critical here. Asking to speak to their manager, going to appeals, or contacting the Taxpayer Advocate all have their place in dealing with the IRS.
Going to Tax Court or submitting an Offer in Compromise are also tools that come in handy if needed.
If you are under tax audit, contact Guard Dog or Torchlight Tax for a free consultation. Our team will review your situation and recommend the best possible handling.
This requires a higher level of skill than just doing a tax return. Many tax return errors go by unnoticed when filed and are handled by computer. This does not occur in an actual audit. Rest assured there will be a live human reviewing the cycle at some point.
Contact us for a free consultation at 1-877-758-7797. You can also review our websites at guarddogtax.com or torchlighttax.com or email us at firstname.lastname@example.org.
Hi. I’m Bruce Roth and my guest today is Dave Horwedel. Dave is an Enrolled Agent and the founder of Torchlight Tax. Dave, what is IRS representation?
What Is IRS Representation?
It means that because you have this Enrolled Agent status you can have your client sign a Power of Attorney naming you as their agent, and they can state exactly what they want you to handle, but basically it goes to the point where you fully represent the person before the IRS and the IRS doesn’t even talk to the person because you’re their agent, you’re authorized to represent them because they signed the Power of Attorney.
Okay. When might a person need someone to represent them before the IRS?
Well, let’s say you get a letter back from the IRS, you did your tax return and then they say, “You owe us $50,000”, you might want to have somebody represent you before the IRS in that circumstance, or if they’re going to do an audit on you it would not be a bad idea to have an Enrolled Agent there because, see, the Enrolled Agent knows the tax law, he knows what the IRS is supposed to do, he knows it and the IRS guy who’s there knows it, so they’re not going to try to push you around. They’re not going to try to cut any corners because they’re going to have to be totally … they’ll have someone there who knows what’s going on, and usually at an audit you can definitely help your client.
Tax Audit Representation Cost
You also could use an Enrolled Agent to do offers and compromise where you settle with the IRS for less than the full payment, when you negotiate installment agreements There’s also a thing called uncollectable status which basically means you have a large debt with the Internal Revenue Service, or you have a debt but it can’t be large. But at the present time you’re not making enough money to pay off that debt and you don’t have any assets that they can seize. You don’t own property that they can just take and is worth a lot of money. So, the IRS rules that you’re uncollectable and they leave you alone. They stop trying to bother you about that unless your income goes up or something changes they’re not going to collect that money.