Be sure to Investigate your Tax Issue Before Choosing a Tax Resolution Plan
Resolving tax issues with a tax professional problem solver is similar to getting directions from someone to help get you to a particular destination. In either case, the helper must know your exact location to determine the correct path. However, to achieve a successful tax resolution, the tax professional will need to know how your situation unfolded to where you are at. Your tax issue's background information, which is its journey to where your issue is now, is needed to determine your case's path. Notice how the IRS map below portrays specific pathways depending on the issue you are dealing with and what has transpired.
This IRS map portrays the challenges of identifying where to begin and how to traverse the IRS's roadmap. To properly navigate your tax resolution process, the tax professional must perform an adequate two-part investigation to get your tax matter on the right course.
Beware of any tax firms that provide a solution recommendation without having done an actual two-part investigation. It may be prudent to seek help elsewhere. Let's say you are amid a challenging, stressful IRS tax issue and come across an ad on late-night tv presented by a "large" national firm that promises they can settle your taxes for pennies on the dollar. The subsequent call to their salesperson, who most likely has a very limited tax background, produces what appears to be a promising remedy – that they can negotiate a settlement with the IRS regarding your tax debt and could do for pennies on the dollar. You should ask yourself if this is legitimate and ideal for your situation. It may be, but without a thorough investigation, it would not be easy to know. In addition, if the national tax firm's settlement request does not go through, you will have paid a significant fee for this and still owe the IRS the debt with added interest.
Here is a hypothetical example. What if, in your case, since you had not filed a prior tax return, the IRS, in its place, prepared a Substitute For Return (SFR), where the IRS took 3rd party information it possesses and used it for your tax return? It is important to note that when the IRS does prepare SFR, they do not apply credits or any possible deductions you may warrant, resulting in your getting assessed with a large tax bill compounded with significant penalties and interest. The late-night tv offer by the large national tax firm may seem like a great deal since they are planning to negotiate a settlement of your tax for less than you owe. Regardless of success or failure, this will be a hefty fee. However, if the late-night tv tax firm had offered to investigate before advising the debt settlement action, they would have seen that replacing the SFR with a properly prepared tax return may have been the best and cheaper resolution.
Owing back taxes is not unique; however, your tax resolution journey should be because it's based on your situation. Therefore, any tax resolution roadmap not based on a discovery of your and the IRS's transactional history will most likely be incomplete and could be a costly mistake. With tax resolution firm Harmon Tax Resolution, LLC, working on your case, you have ensured all angles of your situation will be addressed to determine the best possible outcome.
What does a Tax Investigation Involve?
As mentioned above, two sides must be considered: Your transactional history and the IRS's transactional history. Let's start with the IRS's transactional history piece. To get a proper perspective, one must understand the progressive steps the IRS takes and that there are specific resolution actions and defenses the taxpayer can evoke within each step. Time is often of the essence for most available taxpayer defenses, so it is essential to know exactly where you are within the IRS collection scheme. Some of these available defenses are known as "mayonnaise defenses" since they will spoil over time and become unusable.
The typical process the IRS follows in its progressive collection scheme starts with computer-generated letters, which are listed in order of progression below:
- CP 14 The Notice advises that there is tax due, states the amount of tax, including interest and penalties, and requests payment within 21 days.
- CP 501 This Notice is sent because IRS has not received payment or a response to the previous Notice requesting payment on this balance.
- CP 503 This Notice (also referred to as the 2nd Notice) informs you that there is a balance due (money you owe the IRS) on one of your tax accounts and tells you how much you owe when it's due and how to pay.
- CP 504 This Notice is your Notice of Intent to Levy as required by Internal Revenue Code Section 6331 (d). The final reminder is that the IRS intends to levy wages, bank accounts, or state tax refunds because an unpaid tax balance still exists.
The IRS collection apparatus then moves to Automated Collections Systems, which the notices inform of what potential collections could occur:
- CP90 This Notice informs that the IRS intends to levy certain assets for unpaid taxes. The Notice tells you of your right to a Collection Due Process hearing.
- Letter 11 notice informs that the IRS may move forward with more severe collection activity, such as seizing funds from bank accounts, levying personal assets (cars, automobiles, houses, etc.), and garnishing wages. The IRS may also issue a Notice of Federal Tax Lien.
If a resolution isn't present, the IRS will escalate the collection efforts by assigning a Revenue Officer (RO) to your case. The RO will send these notices out via certified mail:
- Letter 1058 informs that the IRS may move forward with more severe collection activity, such as seizing funds from bank accounts, levying personal assets (cars, automobiles, houses, etc.), and garnishing wages. The IRS may also issue a Notice of Federal Tax Lien. You have a right to a hearing
- Letter 3172 informs you the IRS filed a notice of tax lien for the unpaid taxes and your right to request appeals consideration within 30 days from the date of the letter.
Each notification type has specific instructions to follow on how to contest/appeal, along with statutory time frames in which to do so. For a correct assessment, the tax professional must know what has transpired within the IRS collection process. In addition to getting ahold of your IRS notices, the tax attorney-CPA needs to be granted access to your IRS account records via IRS form 8821 Tax Information Request or an IRS form 2848 Power of Attorney. The 8821 allows access to designated tax records, whereas 2848 does so and affords fundamental IRS representation rights.
In addition to investigating what actions the IRS has taken, the tax professional needs to investigate your entire tax history to acquire critical information such as to determine the following:
- Compliance: Is the taxpayer compliant with tax filings and estimated payments? IRS will not proceed with a resolution plan if the taxpayer has unfiled returns; six years back is usually the cut-off.
- Collection Statute Expiration Dates (CSED): These dates represent how long the IRS has to enforce collections on tax debts. This information is critical for determining the best resolution option.
- Substitute Filed Returns (SFR): returns prepared by the IRS, which most likely were not done in your favor, and preparing your own may alleviate much of the problem.
- For more information, see the blog “How to Deal with Back Taxes and What to Do About Unfiled Tax Returns”
- Penalty Abatement eligibility – your transcript will provide essential information for seeking penalty abatements.
- For more information, see the blog, ”Dealing With IRS Tax Penalties? See If You Qualify for Penalty Abatement”
- Freedom Of Information Act (FIOA) request – will allow tax professionals to obtain other critical information the IRS may have posted about your case. This information could help strengthen the taxpayer's case.
What Information Do I Need to Give the Tax Attorney to Help Resolve My Tax Issue?
The second part of the investigation involves obtaining complete and verifiable financial information from you, the taxpayer. The IRS uses specific rule-based formats to determine your financial position relative to resolution options. The IRS primarily focuses your equity on assets, liabilities, income, and expenses to determine if you qualify for a particular resolution option. A keen understanding of the IRS metrics is needed for optimal listing; otherwise, you may not qualify even though the potential exists. Having an experienced, knowledgeable tax attorney CPA to assist could help tremendously.
How Does the IRS Internal Revenue Manual Impact My Tax Resolution Case?
The IRS Internal Revenue Manual (IRM) is the primary, official compilation of instructions to staff that relate to the administration and operation of the IRS. The IRM covers most of the procedural aspects of handling IRS matters. In other words, the IRM is the playbook they are supposed to operate within. Understanding these rules will ensure that your rights are protected and that IRS activities align with their standards. In addition, knowing what actions to expect from the IRS is needed for proper case management and is the way to level the playing field. Having a full-time dedicated tax resolution professional who understands the IRM well enough to articulate it back to the IRS, as needed, is an excellent way to ensure adequate representation.
Can I Settle My Tax Debt with the IRS for Pennies on the Dollar?
Getting back to the late-night tax firm pitch about getting the IRS to settle for pennies on the dollar. To clarify, the IRS does not settle for pennies on the dollar unless it feels it cannot collect the entire tax debt. The IRS is the ultimate arbitrator in your tax resolution case. It is up to you to prove your position! The way to do this is through adequately investigating the facts and circumstances surrounding your matter. The investigation will lay out the facts and circumstances surrounding you, which is the best way to decide whether settling for pennies on the dollar is available or if there is another better venue. If the investigation piece is being ignored or skimped upon, most likely, your chances of obtaining ideal resolution options are as well.
When looking for a tax resolution firm to represent you, please request a complete understanding of the processes to be employed. At Harmon Tax Resoution, LLC, these are the typical processes used when successfully addressing a tax problem: