Let me tell you a story about a client you are bound to have. His name is Ed. One day, post tax season, Ed opens his mailbox to find a letter from the IRS.
“Oh the horror!”
Not wanting to face the bad news, Ed places the letter on his kitchen counter to “deal with later”.
Then another letter comes… kitchen counter.
…and another… kitchen counter.
At some point Ed realizes that the IRS is not going to go away. Here’s where you come in. That pile of unopened IRS letters? Ed comes waltzing into your office with several months later.
Invariably, some of these letters will have required action by a certain date. But by this time, the action dates are long past and a relatively simple matter has become a more serious affair.
The IRS contacts taxpayers for various reasons but for the most part, it usually has to do with an error on their return. As a tax preparer, you will need to deal with the IRS on behalf of your clients. It’s not always going to be easy so here are some tips to make the painful and often time-consuming task a little easier.
Procrastination is never the answer
The first thing you should know about dealing with the IRS: procrastination and failure to adhere to IRS deadlines are not a good approach. When a taxpayer comes to you with a letter, it’s best to handle it right away. Upon receiving the letter, you should first look for any deadlines stated.
You should also coach your clients not to ignore IRS letters. As frightful as it may be for them, they should bring them to your attention right away.
The IRS is not always right.
In many cases, a taxpayer will receive a notice proposing an adjustment in taxes because of some income that cannot be located on the tax return. Surprisingly, a number of taxpayers will assume the agency is correct and send in the requested additional tax, along with the penalty and interest assessments that accompany the letters, without question. Besides fear, another reason for this action is certainly related to the format of the correspondence, which is difficult for many taxpayers to understand, since they do not deal with these situations on a regular basis.
It’s important to communicate with your clients that the IRS is not always correct, and reviewing the information thoroughly before forking over a payment to the IRS is a best practice.
Don’t count on talking to a person
Don’t expect to be able to phone an employee. Their telephone system is designed to allow or force the taxpayer to obtain information from a recorded message. The system certainly does not allow for quick or easy access to an IRS employee. One can only imagine the number of callers who get lost in the seemingly endless myriad of menus and “give up” in frustration.
When you do get to speak to a person, take good notes on the information they gave you and don’t leave the conversation with unanswered questions because it is rare that you will get to speak to the same person a second time.
It is also not uncommon to end up speaking to someone who is very unhelpful. If you encounter an incompetent or less than helpful employee, request to speak to a supervisor.
Use the Practitioner Hotline
One avenue of assistance to the tax practitioner is the “Practitioner Hotline”. While these individuals are not able to handle all problems, they can be a great help to you.
Know Your Notices
Many of the notices that are sent to taxpayers are computer-generated. While they follow certain formats, they can be difficult to understand. Becoming familiar with the more common notices generated and the action (if any) that is required will make your life easier.
The most common notices sent to taxpayers are known as “CP” notices. Each type of CP notice has a CP Number and a title. The most common notices can be found on the IRS website page: “Understanding your IRS Notice or Letter”.
Believe it or not there are people out there who do not file. It often happens when a person has an unusual situation and finds it difficult to get their return filed on time or by the required extension date. The situation could be an illness of either the taxpayer or a family member that puts a high demand on his time, or some other situation. After missing one year and nothing happens, the non-filer will sometimes miss another year or two. In the meantime, records are lost or misplaced, and the non-filer continues to procrastinate.
If the needed documents for filing an accurate tax return are missing or incomplete, taxpayer transcripts can be obtained from the IRS prior to completing the return to insure all income is reported. In many cases, the IRS will send transcripts to non-filers when they are notified that tax returns are needed for previous years.
If the taxes owed exceed $10,000, an Offer in Compromise might be considered. An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS will generally accept an OIC if it is unlikely that the tax liability can be collected in full. The offer must reflect the full collection potential of the taxes owed.
An IRS Examination of a tax return is not something to be taken lightly, especially if it is a comprehensive examination. When a taxpayer receives a notice of an impending audit, there are certain preparations that should be made.
Here are some tips for dealing with audits:
- Have the taxpayer gather all relevant documentation on the issue being questioned.
- Examine thoroughly the items that are likely to be brought up.
- Make sure there is documentation to prove all deductions or items of income.
- Be thoroughly familiar with the entire tax return being examined.
- For “gray area” items, have a basis in tax law to explain the reasoning behind the handling of the items.
- Provide records to the auditor in an organized manner.
- Establish good rapport with the examiner.
- If the examiner turns out to be uncooperative, abusive or unfair, request a different one.
As a tax preparer, you are the expert. Be sure you are prepared to deal with the IRS on your client’s behalf no matter what the situation. If you’re interesting in gaining more training in dealing with the IRS or filing complicated returns, check out our Chartered Tax Professional Certificate Program or our Advanced II Tax Course.
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