IRS Disputes: 9 Steps To Appealing and Eliminating Penalties

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When you’re dealing with the IRS, you need to always have your ducks in a row. Dealing with an IRS dispute particularly requires you to be detail-oriented. 

Since IRS audits are always a reality, you’ll need to know how to address your IRS tax problems head-on. Consider these points to get assistance with your situation. 

1. Find Out Exactly What the IRS is Claiming Against You

There are several possible tax penalties, so you need to know exactly what case the IRS is claiming. 

For starters, tax evasion is among the most serious penalties, since it can even lead to criminal prosecution. These cases deal with instances in which it’s clear that you purposefully hid money and avoiding handling your tax responsibility. 

Late payment is more common and involves taxpayers missing the April 15 deadline. Once you’ve missed the deadline, you will also be hit with a late payment penalty. 

From there, interest will keep building up for each month that you don’t pay your tax bill. As you might imagine, this can make it even more difficult to pay what you owe. 

Another common payment that self-employed individuals face is the underpayment of estimated taxes. You’re required to pay your taxes on a quarterly basis, on or around June 15, September 15, and January 15, or the nearest weekday. 

There are also a number of other penalties that you might face, to include the very serious tax fraud, which happens when you misrepresent yourself on your tax return. There’s also a penalty for using a bad social security number, writing a bad check, or failing to have health insurance during the most recent tax year. 

It’s crucial that you respond to each IRS notice so that the IRS knows you are taking the matters seriously. Since tax penalties vary so greatly, it’s vital that you know what you’re facing upfront. 

2. Do Your Due Diligence, The IRS is Not Always Correct

The IRS is a government agency, but it doesn’t mean that they are without error. In fact, it’s very common to get hit with errors that boil down to bad information or just a misunderstanding. 

For example, in recent years, the IRS sent out memos to people that get paid via PayPal. PayPal started putting out their own 1099-K forms for independent contractors, but those contractors were under no obligation to use them. 

As a result, those that instead used info from their own records or from 1099 forms from clients were accused of underpaying. 

For example, you might have earned $60,000 from four different clients that paid you via PayPal. Even though you received 1099 forms from each of those clients and filed a return that included this income, the IRS might double bill you, thinking that the PayPal 1099 is different income. 

Since even these types of avoidable issues can trigger mistakes from the IRS, never just assume that they are correct and that you are in the wrong. 

3. Scan, Copy & Back up all Files Related to the IRS Case

Be sure that you have a paper trail and digital copies of every single piece of correspondence that you have with the IRS. Whether you end up needing them or not, you need to be able to prove your situation. 

It’s important to keep copies of your tax returns for 3 years at the very least. If you file digital, be sure that you set up a pin number that you can remember so that you can pull your returns easily. 

The IRS sends its most important pieces of correspondence by certified mail. There are a number of scammers that will call and leave you voicemails, or even send text messages. 

Since sending hardcopies is the way the IRS communicates, you’ll need to digitize them yourself if you want copies that can live on in the cloud. Invest in a quality scanner and make sure that you organize all of your records in folders that you can retrieve without a problem. 

Create backup after backup to be sure that you have all that you need for your upcoming IRS case. 

4. Prepare Reasons For Your Late Payment or Non-Payment

No matter what, the IRS is going to ask a reason for your late payment or non-payment. 

Be honest, but make sure that you’re able to clearly explain your reasoning. With most people, this could be a situation where you simply fell behind in your finances. 

You may have to show your reasons for hardship, for instance, if you’re putting together a payment plan. As long as you show some concern and diligence about your reason for falling behind, you’ll generally have a better chance of getting a fair shot during an IRS dispute.  

5. Touch Base With a Financial Lawyer That Can Assist You

Never go forward with an IRS dispute without financial and legal professionals. 

A certified public accountant (CPA) can assist you with any audit or dispute you are going through. Consult with an accountant to see if they specialize in tax problem situations. 

You should also book some free consultations with business lawyers, and look into their background to see how they’ve helped others who have gone through similar disputes. 

6. Comb Through Your Case and Figure Out How You Want to Proceed

Once you feel like you have everything you need in place, take a look and determine what you want to do. 

Some people might appeal the amount of the penalty, while others may seek a settlement. Others, still, might say that the entire penalty is erroneous and will fight the whole thing. 

The key is to make use of all the information in front of you so that you can make an informed decision.  

7. Make the IRS Aware of Your Intentions and That You are Taking the Situation Seriously

Never duck the notices that you are getting from the IRS. 

You’ll need to acknowledge it at the very least to be sure you buy yourself from time. This lets them know that you are taking matters seriously and plan to do something about it.  

8. Look Into a Payment Plan if Applicable

One thing many taxpayers do is work out a payment plan with the IRS. Fortunately, it doesn’t always have to get to this level. Especially if you keep in contact with the IRS.

Depending on your financial situation, ask the IRS to set up a payment plan for you so that you can pay off the debts that you owe them in manageable monthly installments.

Just know going in that interest and penalties will continue to build up. That’s why some people prefer to negotiate with the IRS. This is a tactic generally best done with an experienced tax attorney at your side.

If you do this, the IRS might even drop your penalties altogether, and instead, just let you pay what you owe on your account. You will first and foremost have to reach out to the IRS with how much you can afford in order to see if you are even eligible for a payment plan. 

9. File a Request For an Abatement or Appeal

Never lose sight of the fact that you are owed a fair appeal, regardless of your situation. 

Once you file an application for an appeal, an IRS agent will look through it to see if you are eligible. If you are, they’ll touch base with you to schedule a conference. 

This conference might take place over the phone or in the form of a video teleconference. In the initial meetings, they will let you know your rights and will explain the timetable of the appeals process and what happens. 

From there, they’ll let you know a timeframe by which they will have looked through the application. They will usually request some more information, which is when having accurate records comes into play. 

You should also seek an abatement when possible. This removes your penalty as a whole. 

Taxpayers that haven’t gotten hit with any penalties in the past 3 years might definitely be eligible for an abatement. Otherwise, these abatements are issued on a case by case basis.

It’s important that you stay aware of the penalties that you are facing, and that you learn the timetable of the abatement process so that you are also ready to follow up whenever necessary.   

Always give it a little time before following up just to be on the safe side.  

Have an IRS Dispute on Your Hands? Let’s Work Through it Together.

When you’re dealing with an IRS dispute, you’ll want to put these tips to use. Whether you end up filing an appeal on an IRS penalty, seeking a payment plan or want to see tax penalty abatement, the guidelines above can be just what you need. 

Either way, be sure that you take every bit of your tax situation as seriously as you should. Tax problems can bleed over into other areas of your life, so do what you can to nip it in the bud.  

Touch base with us to get a free consultation on your tax case. 

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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