Tax ControversyJanuary 16, 2015
If you have ever received a letter from the Internal Revenue Service, you already understand how important your response is. Whether it’s a small issue or a large one, a timely response is required. Without a response, the IRS will consider that you, the taxpayer, agree with their findings.
Even when the issue falls into a more complicated area, it must still be answered in a timely manner. Sometimes, obtaining a Power of Attorney and filing past tax returns are required prior to resolving an issue. If that’s the case, starting sooner rather than later is essential.
Tax issues fall into two categories, civil or criminal. Criminal tax problems can include jail time as well as civil penalties. In some cases, clients need to involve tax attorneys that handle criminal tax issues. Most often, tax problems are handled through civil process and not criminal courts.
Civil penalties are applied for failure to file, failure to pay, under reporting income, over reporting deductions, etc. Whenever a taxpayer fails to pay the required tax, interest and penalties will compound. In some cases, the penalties and interest can exceed the actual tax owed. The IRS can place a levy on your wages, bank accounts and order liens against your property (including your personal home).
The bottom line is simple. Address each issue immediately - waiting only makes it worse.
One letter can be magic! Here are just two of many examples from our client archives:
Problem: A taxpayer received an IRS notice wanting to report an additional $115,413 in gambling winnings. The IRS calculations for additional tax, penalties and interest exceeded $60,000. A response was needed to address the IRS allegations.
Strategic action: We researched the client’s originally filed tax return and determined that the gambling expenses were already part of a statement in the originally filed tax return, and listed as disallowed. In our response, we provided a simple formula that would reduce the additional gambling income to zero.
Result: With one letter to the IRS, all additional taxes, interest and penalties were eliminated!
Problem: A taxpayer received an IRS letter with a large penalty for filing late.
Strategic action: We researched tax law and determined that the client was ‘unable to manage his financial affairs by reason of a medically determinable physical or mental impairment’.
Result: With one letter to the IRS, penalties and interest in excess of $50,000 were eliminated!
The magic is in knowing the IRS procedures and language.
The tax professionals at GBH CPA’s have the experience to research the issues to best offer advice for a reply. Our firm has saved our clients hundreds of thousands of dollars in penalties and interest, frequently with a single response.
GBH CPA’s has the experience to deal with the IRS (or any State) on your behalf.
Written by Herbert Kalman