Despite the fact that millions of tax returns are filed in the United States each year, the Internal Revenue Service (IRS) has selected your return for examination. Aren’t you the lucky one? Receiving the exam notice in your mailbox was on par with opening last year’s jury duty selection. On top of the anger coursing through your veins from the inevitable feeling of being unfairly singled out by the Man, you also have to deal with the uneasiness associated with anxiety caused from such a precarious predicament. Sound familiar?
While it is my hope that this narrative depicts an over dramatization of anyone receiving an IRS notice, I have worked with clients whom experienced a number of these emotions (if not all of the above) from such an occurrence. If you find yourself in a similar situation, let me begin by providing assurance that you are not alone. Moreover, I have listed five (5) pieces of advice for handling these nuisances, and any one of them may help free you from this ball and chain. I can just imagine the wave of calm that is washing over you now; loosening your restricted blood vessels and relaxing the knots in your stomach. Feels good doesn’t it?
Understand Your Rights & Seek Representation When Necessary
IRS Publication 1 explains your rights as a taxpayer, as well as, the processes for examination, appeal, collection, and refunds. In general, communicating directly with the IRS is not advisable, and you should engage adequate representation to aid in tax disputes. For your reference, I have listed the “taxpayer bill of rights” below.
- The Right to be Informed,
- The Right to Quality Service,
- The Right to Pay No More than the Correct Amount of Tax,
- The Right to Challenge the IRS’s Position and Be Heard,
- The Right to Appeal an IRS Decision in an Independent Forum,
- The Right to Finality,
- The Right to Privacy,
- The Right to Confidentiality,
- The Right to Retain Representation, and
- The Right to a Fair and Just Tax System
Similar to every other relationship in life, communication is key. It is essential that you exercise caution in dealing with the IRS. This point must be emphasized if you decide to handle the notice without assistance from a professional (i.e., CPA or tax attorney). Everything said or done in the presence of an IRS agent can be used in the manner they see fit. For example, inadvertent disclosures or willful omissions of information can result in adverse consequences. Furthermore, any missteps can cause an expansion of the audit’s scope into other areas of your finances that may or may not have been considered part of the original examination. Whenever possible, I recommend limiting communication between yourself and the IRS to writing. This mode of communication forces you to document your thoughts, and it provides the opportunity for revisions, edits and modifications. Also, you can make a copy of your writings for future reference. Perhaps more important, written communication helps you avoid “off-the-cuff” statements and remarks that are possible in conversation (whether via telephone or in person).
Respond to IRS Notices Timely
In general, the IRS provides a deadline for submitting a response to notices. As a rule of thumb, you should locate this deadline immediately upon opening the notice and include the information in a place that you will remember (i.e., on your work calendar, perhaps). While preparing a well thought out response based on the issue(s) identified within the notice is essential, submitting your response in accordance with the Revenue Service’s timeframe is equally important. Adhering to an authoritative figure reflects a sincerity for the situation and displays an appropriate attitude toward their authority. Although it may be difficult to conduct yourself in this manner given the circumstances, doing so can create a beneficial relationship between yourself and the IRS. Again, this may seem like an inconsequential objective compared to resolving the bigger issue, but I have witnessed numerous instances of forthright, obedient taxpayers receiving favorable treatment that others did not.
Determine Validity of IRS Notice Adjustment and/or Assessment
After identifying the issue(s) in question and documenting the deadline for submitting your response, it is time to determine the validity of the adjustments proposed by the IRS. Your determination will form the basis of your response to the Revenue Service’s assessment of tax, penalty, and interest. I suggest pulling your copy of the tax return relevant to the issue(s) raised. This will aid in comparing the amounts reflected in the notice to the actual amounts reported. If the item being adjusted is not overtly obvious or you have trouble ascertaining the validity of the proposed change, I strongly recommend seeking the assistance of a professional (i.e., CPA or tax attorney).
Beware of Tax Scams
Please be advised of scams in which individuals pose as tax authorities (such as the IRS) and demand financial restitution after making egregious threats. The IRS primarily communicates in writing via the United States Postal Service, and it seldom contacts taxpayers by way of telephone or e-mail. If you are contacted by someone claiming to be from the IRS, I recommend politely referring them to your CPA or attorney prior to disclosing any confidential information. For more information regarding tax scams, please see my blog post at this link.