IRS Problems…Where they come from and how to resolve them.
Many people have IRS problems at one point or another. IRS problems can range from something as simple as needing to send in additional support for one of the deductions that were claimed on your return to something serious, such as multiple unfiled returns or a large unpaid tax balance. No matter what type of IRS problem you find yourself dealing with, there is one common theme…DO NOT IGNORE THE PROBLEM!!
IRS tax problems are not going to go away on their own. You will likely find yourself in a much worse position if you try to ignore the problem than if you get ahead of it and take steps to fix the problem right away.
One type of simple IRS problem that we often see is the IRS sending out a notice for additional information on your current year return. They may ask you to send in additional support for a claimed dependent, mortgage interest claimed, or any other number of claimed deductions on your return. This is not an audit, but is instead intending to clarify an item on your return. Generally, it just requires a response to be sent to the IRS for them to complete the processing of your return. However, if you ignore the IRS’s request, they may deny your deduction and increase your tax due.
A larger IRS problem that we often see is a situation where someone has not filed their back-tax returns or they have not paid the tax balance on the return. Often people will discover that they have a large tax liability in a year that they were not anticipating or that they cannot afford to pay. At this point, many will not file the return or they will file the return and not pay the balance. This then creates a snowball effect where they then do not file or do not pay the following year. Fast-forward five years and now there are multiple years of unfiled returns and a large tax balance that is going to be owed.
Although it is a very scary and stressful situation to owe taxes to the IRS that you cannot pay, the best thing to do is to seek help as soon as you realize that you are going to have IRS problems. The IRS has many different options available to help you resolve your tax problems. They offer multiple different payment options. Some of them are based on your ability to pay, while others are based on paying the amount owed over a certain number of months or years. There are also other programs, such as an Offer in Compromise, which allows taxpayers to settle their debt for less than they owe.
Another major IRS problem that many taxpayers have is an IRS audit. An audit is a situation where the IRS selects one of your filed returns for examination. While an audit does not mean that there is anything wrong with your return, the process for going through an IRS audit is often stressful and complex. There are many important deadlines that need to be met when going through an IRS audit. Failure to respond to an audit will create a larger IRS problem as the IRS auditor is going to deny any expense that is not substantiated. The auditor may also expand the scope of the audit to other areas of the return or to additional years.
One of the first steps to resolving IRS problems is to stop them from carrying on year after year. To do this, you need to first file any outstanding tax returns. Even if there is going to be a balance that you cannot pay, it is still best to file the returns. You must then make sure that you are properly paying your taxes for the current year. You cannot solve your past IRS problems until you are in compliance with filing and paying your current year returns.
Many people who know that they are going to owe taxes focus on trying to pay those taxes instead of their current year taxes leading to a new tax debt. Instead, you should focus on paying your current taxes so you do not owe again. You can then start to resolve your back IRS problems.
If you fail to file a return, the IRS will generally send you a notice alerting you that the return has not been filed and requesting that you file the return. If you do not file the return, the IRS may prepare what is called a substitute for return (SFR) for you. This return will not include any business deductions, itemized deductions, dependents, or other deductions to which you are entitled. This return generally results in a much higher tax balance that you would owe if you filed your own return. Even if you are unable to pay your return, it is much better to file your own return than to let the IRS file one on your behalf.
No matter what your IRS problem, there is a solution. However, you cannot ignore the problem. You must actively work to resolve it. Some problems you may be able to handle on your own. For others, you may need professional help. If you would like to discuss your options or if you need representation before the IRS, please contact our office.