The IRS receives financial documentation from any company you’ve worked for, whether as an employee receiving a W-2 or a contractor receiving a 1099. They also know if you won any prizes or earned capital gains, dividends, or other income. They have a massive database that compares what they know about you to what you report on their taxes, and if these don’t match, the IRS will be contacting you for taxes you owe, and often charging additional penalties on top of that.
The good news is that we are here to help. Our clients from Willow Grove to Ft. Washington know that we have their best interests in mind. If you have a problem with the IRS it is a good idea to schedule an appointment with us so we can discuss your case.
If the IRS contacts you
The IRS will send you a letter informing you of the discrepancy and the amount you owe. The IRS will never inform you by phone. This is very important, because many people have fallen prey to scammers who call people, claiming to be the IRS and threatening legal action if they don’t pay.
If you receive a phone call like this, ignore it. But if you receive a letter, act quickly! If you do not respond, they have the power to garnish your wages and levy your bank accounts or your property to get what they think you owe them.
Your first steps
You have the option to accept their estimate of owed taxes or dispute it. We recommend you take action to check their estimate and take control of the situation. Here are some options and action steps:
- Contact a tax professional immediately. Never call the IRS before you’ve spoken to an expert who understands how the IRS works and the options you have. The remaining steps should ideally be performed with the help of a tax expert who is well-versed in the ways of the IRS.
- Do your own calculations. The IRS does not take into account deductions or credits that you may have on your return, so their estimate is most likely higher than what you would calculate it to be.
- Contact the IRS with your calculation so they can adjust the tax owed. Be sure to have all the documentation you used to arrive at this number in order to support your claim. If you meet with the IRS, never go without representation. The presence of a professional alone can make things go much more smoothly, and if the IRS representative has questions or comments, your representative (tax accountant or attorney, depending on your situation) will be able to respond better than you could.
If a balance of taxes owed remains after your recalculation, you have several options. The IRS makes allowances for hardship or inability to pay, so talk to a tax professional to create the best strategy. These are the different options you have:
- Installment agreement – Come to an agreement with the IRS and pay back the taxes monthly. By creating an installment plan and making the planned payments, you’ll avoid garnished wages or the levying of your bank accounts or assets.
- Penalty Abatement – If you can prove there was a reasonable cause for not filing correctly, your monthly penalties and interest can be decreased or eliminated.
- Offer in Compromise – Financial hardship is taken into consideration by the IRS. If you can prove you can’t pay it all back, they will sometimes accept a reduction in taxes owed. This negotiation is best developed with the help of a professional.
- Currently Not Collectible – If your financial conditions are such that any repayment would cause serious hardship, the IRS will suspend collection for the time-being. This is not elimination of the amount owed; it’s simply a pause, with yearly re-evaluation to see when you can reasonably begin to pay them.
- Tax Debt Forgiveness – Although rare, there are times when your debt will be waived. It’s worth looking into.
If you have received a letter from the IRS, please do not wait to act. Call us as soon as possible so we can help you create a path to financial stability even in the threat of IRS actions.