Compliance Part 2: What to ask for from the IRS

Hang on to this IRS website link: IRS GET TRANSCRIPT

Frequently I get calls from taxpayers who are suddenly motivated to get their back taxes filed. Naturally, I like to find out what is creating the motivation as this is usually the starting point for any solution to an IRS issue.

Most people who haven’t filed taxes in years are prompted by an outside force that urges them to become compliant. Sometimes it is need; such as needing refinancing and the institution wants to see that last three current filed tax returns.

Most of the time, it is a letter from the IRS that creates motivation. I get many IRS letters in the mail every week; mostly because I have IRS Power of Attorney and am allowed to receive the letters the service sends to my clients; so I have the IRS mail the letters to my home office. Even after years of dealing with the IRS, I still get a little butterfly in my stomach when I see IRS envelopes. And it isn’t as though I have anything to worry about, it’s just a guttural feeling attached to receiving an IRS letter or notice.

That ‘little butterfly’ is little because I am an Enrolled Agent (EA). The butterfly is usually pretty big, with a large wingspan, for the taxpayer receiving the letter in their home mailbox. So many people are a bit unnerved when they contact me to get their back taxes filed; as soon as possible.

Finding the motivator of the desire to get back taxes filed as quickly as possible helps me to see if the first step is to review a letter(s) received from the IRS. Receiving IRS notices is so unnerving that the fact the IRS is actually sending letters explaining their position gets omitted when a caller starts explaining why they haven’t filed.

Find out what the IRS already knows.

So here’s the first stop in resolving any type of IRS issue: Find out what the IRS already knows.

Finding out what the IRS already knows is a bit tedious, but relatively straightforward process. It’s really a question of time. You can call the IRS (advice gem #2: Call the IRS at 7:00 a.m.) and ask the employee who assists you to send your transcripts. If you are dealing with the last couple of years you can use the IRS Get Transcript portal; but everything has to line up just right (specifically your cell phone ownership) in order to use this system. Or you can pay someone like me to obtain your transcripts for you.

Since most tax problems arise from non-compliance, when getting in to compliance the taxpayer at least wants to match what has been reported to the IRS, meaning not excluding something they already know about. This is usually obtained by requesting a Wage and Income Transcript for the Tax ID number in question.  Wage and Income Transcript – shows data from information returns the IRS received such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.

The Tax Account Transcript – shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after you filed your original return. This transcript is available for the current tax year and up to 10 prior years using Get Transcript Online or Form 4506-T. When using Get Transcript by Mail or phone, you’re limited to the current tax year and returns processed during the prior three years.

If there is a liability, you will want to ask for the CSED  (Collection Statute Expiration Date) for each year and the liability associated with that tax year; the amounts assessed will be broken down by tax, penalty and interest. All three pieces of information, for every year related to any year in question is vital to crafting a solution to settle an IRS debt. The most important aspect of obtaining the CSED for every year is in knowing how much more time remains for the IRS to actually collect a past due liability.

A common concern I hear is the taxpayer’s fear of contacting the IRS because it will arouse their curiosity and get revenue agents looking into things they were previously unaware of. I suppose there is some wisdom in that belief. Most likely, the curiosity is raised by the uninitiated fumbling through data collection, or self-education; nervously talking and providing unnecessary information.

There is an electronic method of obtaining the information regarding what the IRS already knows and their current position regarding any dispute with the taxpayer; that’s through the IRS e-Services portal.

Any tax professional with a CAF# (Central Authorization File Number) can file either IRS Form 8821 or IRS Form 2848 and use the IRS electronic services portal to retrieve IRS transcripts. This does not involve any IRS employees so there is no chance of sharing information that should be better kept unknown.

Put Your Position on the Table

Once you know what the IRS already knows, any plan for resolving the tax issue can be put in to play.

The first step is always to file any unfiled tax returns. This is in essence making your position known. The tax payer may have expenses and deductions the IRS is unaware of. Filing unfiled tax returns can cause the IRS to reassess your tax liability provided by new information submitted. If your tax liability is actually lowered by filing a tax return, the time for collection by the IRS still continues to tick away from the original date of assessment.

Once all the unfiled tax returns are filed, there is a clear picture of the actual overall tax debt, penalties, and interest; combined with the timeframe for expiration. These factors allow for selecting the best methodology for dealing with the overall situation and how to go about negotiating with the IRS.

The same process is employed for individual tax payers as well as business-related tax matters. Complicating business-related issues somewhat could be the addition of unpaid payroll taxes. Regardless of what is needed to gain a full picture of the problem at hand; calling the IRS or obtaining the information by mail or electronically provides the missing details of what the IRS already knows.

After Compliance Comes Collections

If you want to handle the tax issue yourself, the IRS will make it pretty simple to set up a payment plan to settle your debt. The size of the debt determines how easy or complicated establishing a payment plan can be, as larger debts go through a greater amount of scrutiny. Read about Guaranteed and Streamlined Agreements here.

The IRS most likely will not assist you with any of your rights as a taxpayer, or other options available to you; such as First Time Penalty Abatement. A trained professional likely has a greater depth of knowledge in what can and cannot be done with an IRS debt. The IRS can be helpful, no doubt, but understand their goal is to collect the tax; the taxpayer’s goal should be paying as little tax as possible.

If you need the assistance of a trained tax expert in resolving matters with the IRS, check out my website: www.taxstratag.com or click here for a list of EA’s in Sarasota/Bradenton Florida. #EnrolledAgent