If you are faced with a tax controversy, your first reaction may be, “How can I make this go away as quickly as possible?”
It’s only natural to feel intimidated when you’re in a tax controversy opposite the Internal Revenue Service, but while you need to act quickly, you also need to have a plan, and you need to know which mistakes people commonly make when dealing with the IRS. Here are 6 mistakes to avoid in a tax dispute.
1. Choosing to Ignore a Letter from the IRS
Go ahead and open the envelope. Read the letter. It’s entirely possible that the problem is a simple mistake that can be cleared up quickly by providing a few relevant documents. Or it may be a problem that can be cleared up relatively easily. Two things are certain if you ignore a letter from the IRS: first, the problem will not go away by itself, and second, penalties and interest often accrue the longer you wait. Responding immediately gives you the most options and the best chances at having a good defense. Even if you can’t pay the taxes owed, you may be able to get a compromise offer or work out a payment plan if you respond in a timely manner.
2. Not Knowing Taxpayers’ Rights
The IRS spells out taxpayers’ rights, and they include:
• The right to privacy, professionalism, and courtesy
• The right to pay only what you owe
• The right to be represented by an attorney or CPA if you choose
• The right to an appeal if you disagree with the outcome of the tax controversy
If you’re not sure what your rights are in a tax controversy with the IRS, consult a certified public accountant who has specific experience in resolving tax disputes.
3. Not Determining if They Actually Owe Money
The IRS does make mistakes, and it’s possible your letter from them was based on a mistake. So don’t just write a check before finding out more. The typical IRS agent is not an expert on tax law. Most have some training in accounting, but taxes owed are calculated based on application of a very complex tax code. Often, successfully challenging an IRS’s assessment in a tax controversy comes down to being able to cite specific tax law and how it applies to your advantage. That’s why you need someone to represent you who has experience in tax law as well as accounting.
4. Paying Someone Else’s Tax Bill Unnecessarily
Just because a former business partner or an ex-spouse has tried to leave you holding the bag in a tax dispute doesn’t necessarily mean you have to pay the bill. In general, the IRS holds all signers of a tax return jointly responsible for the entire amount due, but there are exceptions. For example, if you find out that your former spouse was involved in financial matters that you had no knowledge of and did not see any benefit from, then you may qualify for so-called innocent spouse relief.
5. Paying Off the IRS with a High Interest Credit Card
For one thing, you’ll have to pay a “convenience fee” for putting your tax bill on a credit card, so you’ll owe more right from the start. For another, if you work out a payment plan with the IRS, your interest rate will be lower than that on a typical credit card. Though you would probably like to put matters behind you as soon as possible, you may come out ahead by working out a payment plan with the IRS directly.
6. Thinking They Can Represent Themselves Effectively
Getting help from a professional like a certified public accountant or a tax lawyer can make a real difference, particularly if you are presented with a large tax bill. Not only will you likely be able to resolve the matter more quickly, you may end up paying less if the IRS’s calculation methods are successfully disputed. A tax relief expert not only has knowledge of how much tax you are required to pay, but also of the rules that govern tax code administration. The best advocate is someone with both accounting and tax law experience.
If you think things will be easier if you take on the IRS yourself, you are probably wrong. You will probably end up paying more than you would with the help of an expert, even when you factor in the cost of a tax expert’s services. Taking on the IRS in a tax controversy is best done with the help of someone with the qualifications and experience necessary to protect your interests to the fullest extent.