audits

IRS Record Retention Guidelines

October 11, 2021 by Frank

Taxpayers are always asking “How many years do I need to maintain my tax records before I can dispose of them?”

What Tax Records Must be Maintained?

You must keep records such as receipts, cancelled checks and other documents that support an item of income, a deduction or a credit appearing on a return. They may be needed to back up everything you put on your tax return, generally until the period of limitations for that return expires.

The Statute of Limitations (SOL) Determines How Long to Maintain Tax Records

The statutes of limitations are different for assessments of different types of tax. Tax cannot be assessed after:

Three years for tax you owe. This is counted from the date you filed the return.

Any period of time if you file a fraudulent return or fail to file a return. In such cases, there is no period of limitations.

Six years from the date you filed a flawed return. This applies if you fail to report reportable income of more than 25% of the gross income shown on the return, or income attributable to foreign financial assets that is more than $5,000.

Property Records

The SOL involving property makes the year of disposition more challenging. For example, if you are depreciating real estate say with a 33-year life, your support documentation for reporting the gain or loss on disposition could require you to prove to the IRS the date of acquisition, the cost of acquisition, improvements made over the life of that property, and annual depreciation claimed. Thus if you only retained those records for three years, you may have an audit issue if your return is selected for an examination. Thus, it is best to maintain those real estate property cost basis support papers until three years after the date of disposition.

When you dispose of stocks or bonds, you need to report the cost basis of the security sold to compute the taxable gain or loss. Thus if you purchased stock in year 1 and sold it 5 years later, you will need to provide the year 1 documentation to show what you paid for that stock.

Health Care Insurance

You should keep records of your health care insurance coverage and your family members. If you’re claiming the premium tax credit, you’ll need information about any advance credit payments you received through the Health Insurance Marketplace and the premiums you paid.

Business Income & Expenses

The IRS requires you to keep records so you have a backup to prove everything you put on your tax return. Insurance companies and creditors may require you to keep records longer, so you may want to verify that before you start discarding paperwork.

Claims for Refunds & Overpayments

For filing a claim for credit or refund, the deadline to make the claim is three years from the date you filed the original return or two years from the date the tax was paid, whichever is later.
The deadline for filing a claim for an overpayment resulting from a bad debt deduction or a loss from worthless securities is seven years from when the return was due.

How Must Your Tax Records Be Maintained?

As long as you can provide documentation when needed, it doesn’t matter how you keep records, but the IRS suggests you keep them in an orderly fashion and in a safe place.

If you’re in business, there’s no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses. If you have employees, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.

Tax Tip #1

Well-organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination or if you receive an IRS notice.

Tax Tip #2

If you use an investment advisor who provides you with periodic statements, look at those statements very carefully. If you transferred securities from one advisor to another, the current advisor may not know what you paid for some of your investment holdings. The advisor’s statements will show that there is no unrealized gain or loss being reported. You want to begin to document what your tax basis is for that security now and not wait until the security is sold. Due to company mergers and reorganizations, pay out of dividends that get reinvested in your account rather than being distributed to you, stock splits, etc., it is much easier to determine tax basis early in the process rather than over a several year span.

Tax Tip #3

Consider backing up your tax records in an electronic format. Hard disks crash and files can inadvertently be deleted. Accordingly, keep at least one copy of your tax records off-site, such as in a safe deposit box.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Tax Planning – Will Future Taxes Increase?

September 22, 2021 by Frank

The House Ways and Means Committee on Monday released legislative text for proposed tax changes to be incorporated in the budget reconciliation bill known as the “Build America Back Better” act.

How Will This Legislation (if enacted) Affect Taxes Paid?

The proposed legislation would raise tax rates for corporations and individuals and make many other changes to the Internal Revenue Code.

What Are the Highlights of this Legislation?

As is typical of most legislation, there are numerous provisions. Since the vast majority of our clients are individual taxpayers, S Corporations, or partnerships, we focused only on those types of taxpayers in analyzing this proposed legislation. Keep in mind that S Corporations and partnerships are flow-through tax entities, meaning that the income reported on the K-1s from those entities gets reported on the owner’s individual income tax return.

Individual & Estate Taxpayer Highlights

Tax rates: The proposal would increase the top marginal individual income tax rate to 39.6%. This marginal rate would apply to married individuals filing jointly with taxable income over $450,000; to heads of household with taxable income over $425,000; to unmarried individuals with taxable income over $400,000; to married individuals filing separate returns with taxable income over $225,000; and to estates and trusts with taxable income over $12,500.

Capital gains: The proposal would increase the 20% tax rate on capital gains to 25%. A transition rule would provide that the current statutory rate of 20% would continue to apply to gains and losses for the portion of the tax year prior to Sept. 13, 2021. Gains recognized later in the same tax year that arise from transactions entered into before Sept. 13, 2021, pursuant to a written binding contract would be treated as occurring prior to Sept. 13, 2021.

Net investment income tax: The proposal would expand the net investment income (NII) tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filers) or $500,000 (joint filers), as well as for trusts and estates.

Qualified business income deduction: The proposal would set the maximum allowable deduction under Sec. 199A at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return, and $10,000 for a trust or estate.

Limitation on excess business losses: The proposal would permanently disallow excess business losses (i.e., net business deductions in excess of business income – think NOLs) for non-corporate taxpayers.

Unified credit: The proposal would revert the unified credit against estate and gift taxes to $5 million per taxpayer, adjusted for inflation.

High-income surcharge: The proposal would impose a tax equal to 3% of a taxpayer’s modified AGI (MAGI) in excess of $5 million (or in excess of $2.5 million for a married individual filing separately). For this purpose, MAGI would mean AGI reduced by any deduction allowed for investment interest (as defined in Sec. 163(d)). (AGI meaning adjusted gross income.)

Retirement Plans

Contributions to IRAs: The proposal would prohibit further contributions to a Roth or traditional IRA for a tax year if the total value of an individual’s IRA and defined contribution retirement accounts generally exceeds $10 million as of the end of the prior tax year. The limit on contributions would only apply to single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of household with taxable income over $425,000 (all indexed for inflation).

Required Minimum Distributions (RMDs): For high-income taxpayers, as defined above, if an individual’s combined traditional IRA, Roth IRA, and defined contribution retirement account balances generally exceed $10 million at the end of a tax year, a minimum distribution would be required for the following year. The minimum distribution would generally be 50% of the amount by which the individual’s prior-year aggregate traditional IRA, Roth IRA, and defined contribution account balance exceeds the $10 million limit. To the extent that the combined balance amount in traditional IRAs, Roth IRAs, and defined contribution plans exceeds $20 million, that excess would be required to be distributed from Roth IRAs and Roth designated accounts in defined contribution plans up to the lesser of (1) the amount needed to bring the total balance in all accounts down to $20 million or (2) the aggregate balance in the Roth IRAs and designated Roth accounts in defined contribution plans.

Roth conversions: The proposal would eliminate Roth conversions for both IRAs and employer-sponsored plans for single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of household with taxable income over $425,000 (all indexed for inflation).

“Back door” Roth IRA strategies currently allow taxpayers who exceed existing Roth income limits to make nondeductible contributions to a traditional IRA, and shortly thereafter, convert the nondeductible contribution from the traditional IRA to a Roth IRA. Current law also allows taxpayers to contribute to a Roth 401(k) plan regardless of income limits (including making non-Roth after-tax contributions) and convert such contributions to a Roth IRA. The proposal would prohibit applicable taxpayers from engaging in these “back door” Roth IRA strategies.

To eliminate these strategies, the proposal would prohibit Roth conversions, for both IRAs and employer-sponsored plans, for applicable taxpayers, as defined above. The proposal would be effective for distributions, transfers and contributions made in taxable years beginning after December 31, 2031 (10 years from now). However, for taxable years beginning after December 31, 2021, the proposal would prohibit all employee after-tax contributions in tax-qualified retirement plans and would prohibit after-tax IRA contributions from being converted to Roth IRAs regardless of income level.

Paid family leave and medical leave: The proposal would end the employer credit for wages paid to employees during family and medical leave to tax years beginning after 2023, instead of the current 2025 expiration date.

S Corporations

S corporation reorganization: The proposal would allow eligible S corporations to reorganize as partnerships without triggering tax. An eligible S corporation would be any corporation that was an S corporation on May 13, 1996 (prior to the publication of current-law check-the-box regulations).

Tax Tip #1

Please keep in mind that this is proposed tax legislation that has not been enacted into law. However with the Democratic Party controlling the White House, the Senate and the House, the likelihood of passage is far greater than if one of the branches of Congress was controlled by another party.

Tax Tip #2

Far too many taxpayers start thinking of taxes during the tax filing season instead of during the calendar year. Proposed tax legislation is an important reminder as to why it is very important to do tax planning before year end. Tax planning not only includes income tax planning, but also gift and estate tax planning.

Tax Tip #3

Consider accelerating ordinary income to 2021 when projected tax rates will be lower.

Tax Tip #4

Consider making gifts up to the 2021 estate tax basic exclusion amount, $11,700,000.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Why Was My Company Selected for a Sales Tax Audit?

September 21, 2021 by Frank

So you have received a notice from a state informing you that your company is being audited for sales (and use) tax compliance. The first question that usually comes to mind is “Why me?”

The Most Common Triggers for a State Audit Exam

Mark Friedlich (Vice President, U.S. Government Affairs, Wolters Kluwer Tax & Accounting North America) interviewed many state revenue authorities across the country, as well as companies that have been through a sales and use tax audit over the past 12 months. These interviews and additional research surfaced a top 10 list of the most common sales and use audit triggers across most industries and states.

Here are the top 10 triggers for audits:

1 Prior sales and use tax audit liabilities – some taxpayers don’t learn or falsely believe that once audited, the odds of being audited again are slim.

2 Pattern of late or irregular sales and use tax filings – this is like waving a red flag. The taxpayer is demonstrating that it lacks proper procedures.

3 Amount of exempt sales compared to gross sales reported on sales and use
tax returns – states use analytical studies to compare your exempt sales to total sales for your industry. If the percentage of your exempt sales to total sales is greater than the norm, the state will want to understand why.

4 Industries that are frequent sales and use tax audit targets – certain industries may receive a large percentage of their sales revenues in the form of cash rather than credit card sales. The former is prone to under-reporting and would be of a greater interest to state sales tax auditors.

5 Type of business entity – historically, sole proprietorships are subject to greater scrutiny than corporations.

6 Changes in a state’s sales and use tax law – some businesses do not have or provide for the necessary resources to track sales tax rate changes and changes to exemptions and taxable items. The Supreme Court’s Wayfair decision very significantly changed the nexus rules as to how states can tax businesses.

7 Business closure, dissolution, or bankruptcy – the clock has begun on the time when the state can audit a taxpayer as the taxpayer may not be found going forward. There is no time like the present in such situations.

8 Supplier or vendor sales and use tax audits – if one of your business “partners” is audited, the state may have found something of interest and wishes to audit your business, or your business “partner” “ratted you out” rather than take the responsibility for the transactions between you both.

9 Regularly scheduled audits for a state’s largest taxpayers – some states like to periodically audit those taxpayers who remit the highest amount of taxes, especially if prior audits resulted in sizable assessments.

10 Whistleblowers or referrals from third parties – don’t be surprised if a competitor or a dissatisfied customer shares your practices with a state authority, especially if there is a monetary reward for doing so. Many states belong to state compacts and share audit information with other states. It’s possible that an audit in Oregon of another taxpayer could generate an audit of you by your state.

Tax Tip #1

Tax laws are constantly changing. Periodically, engage your tax professional to review you business operations to determine if you have established nexus in a state that previously you did not have nexus with, check for revised sales tax rates for your state(s), and review your internal procedures on how you are identifying and capturing taxable sales tax transactions.

Tax Tip #2

If you were audited by a state and were assessed for unpaid taxes, take immediate action to review your current procedures with the state auditor and request guidance as to how best to get in compliance. Then work with your tax professional to implement those changes.

Tax Tip #3

Immediately upon receipt of an audit exam notification letter, share it with your tax professional and consider engaging your tax professional to represent you. The tax professional can provide invaluable advice regarding audit techniques, sample audits, scope of engagement, and negotiating penalty abatement.

Tax Tip #4

Work with your tax professional to create a sales tax operating manual that spells out taxable versus non-taxable transactions, how invoices need to constructed to avoid non-taxable sales being treated as taxable sales, support needed to support your sales tax returns and for how long these supporting documents must be maintained by the business.

Tax Tip #5

If a customer claims to be exempt from sales tax, work with your tax professional as to how to properly document that exemption and for how long you must retain that notice of exemption and how frequently you need to request that it be renewed.

If you would like to discuss your business or personal tax planning, tax preparation, audit concerns or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Psst! Do You Want to Buy a Rolex Watch Real Cheap? And It’s Not Hot!

August 31, 2021 by Frank

Would you like to purchase a home, an automobile, or a Rolex watch and name the price you are willing to pay?

U.S. Department of Treasury Has Inventory for Sale

The U.S. Treasury Department division that taxpayers are most familiar with is the Internal Revenue Service. The IRS is charged with collecting the tax liability of taxpayers. When taxpayers do not pay their taxes, the IRS will often levy the taxpayers’ assets. Another word for “levy” is “seize”. Did you ever wonder what happens to those seized assets?

IRS Auctions Off Seized Assets Taken from Taxpayers

The IRS does not to want to hold onto the assets it seizes nor does it wish to play a custodian role. It simply wants to liquidate those assets into cash ASAP. When seizing assets, the IRS prefers high-end assets as they are the easiest to dispose of and will generate the most revenues for the U.S. Treasury.

Taxpayers who are looking for a potential good deal for a home, vehicle, Coach handbag, Rolex watch, or other valuable high-end property can perhaps find it by visiting the U.S. Treasury Department website for auctions.

If you would like to discuss your business or personal tax planning, tax preparation, IRS tax debt problems or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Why Did the IRS Select Me for an Audit Exam? [Part 1]

August 25, 2021 by Frank

The receipt of an IRS notice informing the taxpayer that s/he was selected for an audit examination naturally creates anxiety. Let’s look at why a return is selected for an audit exam by the IRS.

What Is the Purpose of an IRS Audit?

An IRS audit reviews and examines an individual’s (or business) tax return to ensure it’s reported correctly according to tax laws and to verify that the reported amount of tax is correct.

What Is the Problem Identified With My Return?

Taxpayers need to realize that their selection for an audit doesn’t necessarily mean that there’s a problem. The IRS uses different methods to identify returns to audit. These include:

Returns selected solely by a statistical formula. It compares your tax return against norms for similar returns. If your return differs from the norm, the IRS wants to know why that is the case.
Related examinations — Your return may be selected if involved with those of business partners or investors whose returns were selected for audit. For example, the IRS has identified that tax returns that include information from a certain K-1 was handled improperly, and thus it identifies other taxpayers who reported the same K-1 income.
Taxpayers who engage a disreputable tax preparer who files false tax returns – possible guilt by association.

Types of IRS Audits

CP 2000 Audits – IRS computers match information reported by the taxpayer against third party information providers, e.g., W-2s, 1099s, K-1s, etc. If there is a mismatch, the IRS sends the taxpayer a CP 2000 notice showing the discrepancy by reflecting both the amounts received by the third parties and the taxpayer and requests that the taxpayer respond.
Correspondence Audits — The IRS mails the taxpayer a notice showing a possible discrepancy and requests that the taxpayer respond by mail by providing the requested documentation.
Office Audits – The IRS invites the taxpayer to visit with it at an IRS service center and to bring along the information and documentation being requested by the IRS.
Field Audits – The IRS notifies the taxpayer that an IRS agent (usually an experienced Revenue Officer) wishes to visit with the taxpayer at their primary residence or place of business.

How Will the IRS Notify Me that I am being Audited?

If your account is selected for an audit, the IRS will notify you by mail — the audit won’t be initiated by phone or email. The IRS manages audits by mail or through an in-person interview to review your records. The interview may be at an IRS office or conducted at your home or place of business or your tax professional’s office.

The audit letter will request information about certain items on the tax return — income, expenses and itemized deductions. If you can’t respond by mail — too many books or records to mail — you can request a face-to-face audit.

The IRS will provide you with a written request for specific documents. These requests are called IDRs – Information Document Requests. The law requires you to keep all records for at least three years from the date the tax return was filed.

Tax Tip #1

If you have been selected for an IRS or state audit examination, immediately contact the tax professional who prepared your tax return and send them the IRS notice you received. The tax professional will likely have in his files the support documentation that you had provided to him when he prepared your return and received your tax organizer. Thus, the documentation requested will hopefully be readily available.

Tax Tip #2

If you inadvertently (or intentionally) failed to include a tax document or report an income item when your return was prepared, now is the time to provide it to your tax professional. Sometimes disclosing this information can facilitate the closing of the audit examination, minimize the assessment of interest and penalties, and perhaps keep the audit from being considered a criminal investigation by the IRS.

Tax Tip #3

If you used a tax preparer who included unsubstantiated deductions or omitted income in the return you filed and that was selected for audit, seek the assistance of an IRS tax resolution specialist to represent you during the audit exam. The IRS assesses penalties against taxpayers and tax preparers when deemed appropriate. You don’t want the tax preparer negotiating with the IRS on issues to reduce the tax preparer penalty at the expense of you, the taxpayer.

Tax Tip #4

You need to understand the IRS’s statute of limitations on making changes to a tax return. The IRS can audit returns filed within the past three years, but if there’s a substantial error, it may add additional years. The agency doesn’t go back more than the past six years unless fraud is discovered. There is no statute of limitations if a fraudulent return is filed.

If the audit isn’t resolved within IRS policy timelines, the IRS will request that the statute of limitations be extended. If the taxpayer refuses to extend the statute, the IRS could issue a jeopardy assessment to protect the government’s interests. An experienced tax professional needs to be consulted before extending the statute.

Taxpayer Rights, Appeals, Etc.

We will discuss in Part 2 your audit rights as a taxpayer and how to appeal an audit decision when you do not agree with the IRS’s findings.

If you would like to discuss your business or personal tax planning, tax preparation, or IRS tax debt problems, or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

IRS Mess Creates Taxpayer Anxiety

August 16, 2021 by Frank

The IRS has a huge backlog on its hands due to its pandemic closing; lack of Congressional funding; increase of IRS responsibilities regarding stimulus payments, unemployment compensation benefits, advanced child tax credit payments; early IRS retirements resulting in a loss of its most experienced agents; and poor U.S.P.S. mail service.

The IRS Crisis in a Nutshell

Currently, several millions of taxpayers are waiting for their refunds and stimulus payments. Millions more are trying to settle issues with past tax returns and are unable to speak with someone at the IRS. Taxpayer anxiety builds with each warning notice received from the IRS assessing additional interest and penalties. The Washington Post quoted that if a taxpayer calls the IRS, he has a 1-in-50 chance of speaking with an agent.

How Big of a Tax Return Backlog?

At the end of the 2020 tax filing season, it was reported that the IRS had a backlog of 35 million unprocessed tax returns. Most of those unprocessed returns are due to the absence of IRS employees when the IRS shut down during the pandemic. Due to recent legislative changes, the IRS had to process a historically high number of returns manually to check for identity theft to ensure that scammers were not receiving refunds not due them. The current backlog is estimated at 15 million unprocessed returns (approximately 1 in 10 taxpayers). At the current IRS pace of addressing back tax returns, it is expected that the IRS will catch up around October 25 of this year.

What Happens if a Taxpayer Calls the IRS?

During the 2021 filing season, the IRS received 167 million telephone calls — over four times the number during the 2019 filing season. At one point, the IRS received calls at the rate of about 1,500 per second. How did the IRS manage to answer that many calls?

The simple answer is that the IRS was not able to handle that many calls. On the 1040 line, the most frequently called toll-free IRS number, only 3 percent of 85 million calls from taxpayers reached a phone assister. The Washington Post reported that Congressional funding only allowed the IRS to provide a 60 percent level of service. Thank you Congress. Michelle Singletary, a columnist for the Washington Post, said to think about that for a second, because that’s all it takes to see the callousness of this choice by Congress. The IRS, if it receives an expected $318 million in funding to increase taxpayer assistance, hopes to answer 75 percent of calls received. That falls short of the IRS goal to answer 80% of the calls it receives. That’s right, the IRS goal is not to answer 100% of the calls it receives due to budgetary restraints.

Nina Olson, the former director of the IRS’s taxpayer advocate office, said that “When the level of service gets so poor and correspondence and problems aren’t being addressed, it just gets cyclical. You call and then you are cut off after you are on hold. Then you write a letter explaining the situation, but no one answers it. And on it goes until sometimes taxpayers just give up and pay a bill that they really don’t owe, just because they are afraid of what might happen to them.” Does this sound familiar to your situation? This capsule explanation by a former IRS employee is a very good reason why using an IRS tax resolution specialist should be considered rather than self-representation.

Tax Tip #1

Nobody enjoys opening an envelope showing the sender as the IRS. Yes, bad news may be contained in the IRS notice, but it is most important that the IRS letter be opened immediately upon receipt as there are usually deadlines stated in which to reply to the IRS or to appeal a proposed tax assessment. Not opening an IRS letter does not make the problem go away. Often, by not timely responding, the taxpayer has simply compounded the problem. Taxpayers have certain rights, but those rights must be acted upon within certain time deadlines.

Tax Tip #2

Regardless of how simple you believe the response can be handled by yourself, send a copy of your draft IRS response letter to your tax advisor and ask them for their thoughts. If you make a misstatement of fact or your proposed response can be misinterpreted, you need to realize that your response becomes part of your tax record and can be difficult to correct. You could inadvertently have made your situation worse.

Tax Tip #3

Never send original tax documents to the IRS. Always send photocopies in case the IRS misplaces your response (sadly, this happens far too often) and those documents need to be resent.

Tax Tip #4

Always make photocopies of what you send to the IRS. If you are unable to resolve your IRS issue at the lower administrative level and you need to appeal the IRS’s decision, your tax professional will need to see what you have shared with the IRS.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.