The Internal Revenue Service (IRS) is getting tough on taxpayers. After a few down years during recession, the federal agency that is responsible for tax collection is making up for lost time. Individual audits increased to 1.58 million last year, which was the highest rate in the past decade. The explanation for this increase is simple: the federal government needs more money. What does this mean to the average tax-paying citizen?
Representatives for the IRS often talk about catching tax cheats with an audit. But the truth is that many of the people who are put through an IRS tax audit had no intention of cheating, they simply made a mistake. After all, the tax code is incredibly complicated and it is constantly changing. Even trained professionals sometimes have trouble filing flawless tax returns.
As unpleasant as the experience may be, an IRS tax audit is not the end of your financial world. It is important to remain calm and to act quickly to resolve the matter. Unfortunately, many taxpayers panic when they receive an IRS tax audit notice in the mail. While it is important to respond to an audit notice, it is more important to make sure you have proper representation before attending the audit.
The IRS is like a bulldog. They will clamp down and will not let go until they get what they want, whether that is an audit result or payment on back taxes. And if a person chooses to ignore an audit, the IRS will push through their findings without you having the chance to defend your tax returns. The IRS can also do what is called a correspondence audit, where they change something on your tax return for you and send you a bill. If you do not challenge audit findings or pay the resulting back taxes in a timely manner, the IRS will utilize aggressive collection methods. They can freeze your bank accounts, garnish your wages, and seize your personal property, including your home. Not to mention the myriad fines, penalties, and interest charges for late payment.
What should you do?
Dealing with the IRS in an audit on your own is often a mistake. Many taxpayers report that IRS auditors are arrogant, even abusive. But the ones to really watch out for are the auditors who act like they are your best friend and bend over backward to make you feel like they understand your situation. Because they know the tax code inside and out, they know how to phrase questions to get people to say things they should not say. A talented tax representative or tax advisor can change this dynamic and put you on an even playing field.
What can they do?
The IRS is far from infallible. Auditors Tax Advisors make errors, but it often takes a trained professional to spot them. The first thing an experienced tax representative or tax advisor will do is thoroughly examine your financial records. He will contact the IRS to see what is in your IRS file to corroborate your side of the story. After preparing for the audit, your tax representative will then contact the IRS on your behalf or attend the audit with you or instead of you, depending on the circumstances.
If you come out the back side of an audit owing a large sum, the IRS understands it can sometimes take years for a taxpayer to pay off a tax debt. The IRS is often willing to negotiate with tax representatives or tax advisors to establish a payment plan for the taxpayer. An IRS payment plan is an agreement between the IRS and the taxpayer to pay an amount based on the taxpayer’s monthly disposable income. Tax representatives and tax advisors can help a person determine the amount the IRS will likely accept for an installment agreement. After entering an installment agreement with the IRS, make sure to pay all payments on time to avoid tax liens, levies, and excessive fines and penalties.