In these emails, I’m going to give you a crash course in protecting yourself from the IRS. Despite the government’s fearful power to take away your wealth and property, there are a number of tactics you can use to protect what’s rightfully yours. You can loosely fit these measures into three categories:
1. Immediate/Emergency Action. If you’ve received notice that the IRS is going to seize your assets within a few days or weeks, there are many stopgap measures designed to save you from instant financial disaster. Some emergency tactics include:
- Negotiating for extra time
- Moving your bank accounts or other assets
- Making a partial payment
- Entering into an agreement to make monthly payments
- Having your tax debt classified as Uncollectible
- Filing a Collection Action Appeal
- Filing a Collection Due Process Appeal
2. Medium-term Action. Most people take action when they owe back taxes and expect to face the IRS in the near future. If you’re in this situation, time is on your side and you may be able to reduce or eliminate your tax debt. Some medium-term measures include:
- Penalty Abatement to eliminate or reduce the penalties and the interest on them
- Request an audit reconsideration to reduce the tax and thus the penalties and interest
- File correct tax returns to replace the incorrect ones the IRS filed for you
- File bankruptcy against the IRS.
3. Preventative Measures. It’s best to take care of your finances before you actually face tax problems, or when you anticipate owing the IRS more than you can really pay. If you know you’re likely to owe a lot of taxes, you can save yourself a lot of time and stress by:
- Working with a tax attorney and/or a CPA to minimize the taxes you’ll owe
- Requesting an extension to file your tax returns
- Preventing trouble by filing a tax return (it’s better late than never), even if you don’t have the money to pay the taxes (it prevents the large failure-to-pay penalty)
I’ll tell you more about all of the intermediate and emergency tactics in a future email. For now let’s look at the preventative measures.
If you plan ahead, there’s a good chance you can greatly minimize or completely prevent the ill effects of an IRS audit. Work with a professional to set up the right business and financial structures to keep yourself out of trouble with the IRS.
To understand how to avoid trouble, you need to know how the IRS thinks and works. In a nutshell, this is what Federal Tax Law requires you to do:
- File your tax return when it is due
- Report your income truthfully
- Pay what you owe.
As long as you do this and keep accurate records, you shouldn’t have any problems unless someone makes a mistake. But when the IRS believes you’ve failed in any of these responsibilities, they may take action.
If you don’t file a return, the IRS has six years to take criminal action against you (i.e., to put you in jail) but the law sets no limit to how long they can impose civil penalties—fines, interest, plus the original amount you owed.
Remember that when you earn wages, or work as an independent contractor, your employer or client is required to report this income to the IRS. Likewise, if you invest in stocks or earn interest from a bank account, your financial institution will notify the IRS of your income and capital gains.
In other words, they usually know you’ve made money and they expect you to file a return. If you haven’t filed a tax return, it’s better to file it late than to wait for the IRS to follow-up. If you can’t pay the amount you owe, you may want to send whatever you can – but it would be best, before you made any payments to the IRS, if a tax professional investigated to determine how much an acceptable settlement offer would be.
In this early, preventative stage, you must be proactive to avoid IRS problems that can become much worse further down the road.
But let’s suppose you fail to file, or the IRS decides for some reason to pursue your case. The first thing they’ll do is contact you. They way they contact you is a hint as to how serious your situation has become.
Most likely you’ll get a form letter from the IRS Service Center. This usually means you’re not facing criminal charges, and you can usually clear up the problem painlessly with the right response.
If you get a call or personalized letter from a Taxpayer Service Representative, you’ll have to pay by a deadline—usually 30 days. At this stage the IRS becomes aggressive.
Worse still is a visit or call from a Revenue Agent or a Revenue Officer. They’ll give you a deadline, or they may file your tax return for you, and arbitrarily determine how much money you owe.
These officers can also assign your case to a local District Office. This is bad news for you, because it means an IRS agent in your area is looking into your financial situation, and probably has more time and resources devoted to your case.
When you get a call or a visit from an agent, be sure to be responsive without giving anything away. The best thing you can say is, “I’ll get back to you on that after I talk to my tax attorney about what I should do.” Then contact a tax attorney.
When the IRS contacts you, you’re into the medium stage. The worst thing you can do at this point is stand there like a deer in the headlights while interest and penalties accrue and deadlines run out.
It’s much better to respond to the IRS, and we can help you with that. There are a lot of ways to buy extra time, stop unfair IRS actions, or work out a solution so you can resolve this problem and move on. You don’t have to feel helpless, as long as you take the proper action.
I’ll tell you more about the medium-term tactics in the next message.
For a FREE Consultation on solving your IRS problem call at 1-800-209-5770.