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An IRS tax audit is an official federal government review of an individual or business’s tax documents and financial information to determine whether the proper amount of taxes has been paid. During this process, a representative from the Internal Revenue Service (IRS) will arrive at a person’s home or business to review necessary documents and receipts.
The individual or business being audited must provide tax information from the past five years, as well as supporting documentation of any claims they made on their taxes. Documentation for deductions, credits, and line items are all necessary for the audit process and must be provided so that the IRS agent can properly review the tax documents. If there are outstanding or unique circumstances that affect tax payments, official documentation of these circumstances should be provided as well.
When the IRS agent has completed the audit process, they will send a report of their findings to the individual or business. This may ask the individual or business to pay more in taxes to make up for their miscalculation, as well as applicable fines and fees for the late payment. The recipient can either agree with the audit findings or reject them, triggering further legal action.
Notices and letters are the methods by which the Internal Revenue Service (IRS) communicates with taxpayers. A taxpayer may get an IRS notice or letter for a myriad of reasons, including:
- The taxpayer has a balance due to the IRS
- The taxpayer’s refund was too large or too small and must be adjusted
- The IRS has a question or concern about the taxpayer’s tax return
- The IRS was unable to verify the taxpayer’s identity and must do so
- Additional information is required for the taxpayer’s tax documents
- The IRS has altered the taxpayer’s tax return
- The IRS wants to communicate a return processing delay to the taxpayer
IRS notices and letters come with detailed explanations of the purpose, as well as resources to understand the contents of the notice. Some IRS notices require taxpayer action, while others are informational and require no action on the part of the recipient. There are phone numbers for taxpayers to call if they have questions or concerns about their notices.
The IRS uses mail to communicate with taxpayers and will not initiate contact with anyone via phone, email, text message, or other methods of communication. If a taxpayer receives a non-mail “notice” from the IRS, it is likely fraudulent and should be reported.
The Internal Revenue Service (IRS) does everything in its power to notify taxpayers of overdue bills, unpaid taxes, outstanding fees, and other necessary payments. The IRS primarily uses the mail system to notify taxpayers and will not call to collect overdue payments. However, after the IRS has exhausted its options to contact a taxpayer with outstanding payments, they may send your debt to a private collector or contractor. This person or company is then charged with collecting the money that you owe to the IRS. Collectors are permitted to use tactics that the IRS is not in order to get money from taxpayers.
Avoiding collections is fairly simple. The best route is to pay all overdue taxes and fees as soon as they arrive from the IRS. However, this is not always financially viable. Taxpayers can set up payment plans, tax liens, need-based reductions, or other options through the IRS if they are unable to pay what they owe immediately or in full. These options prevent debt from moving to collections and avoid the sometimes predatory tactics of collection agencies.
The IRS will make every effort to contact taxpayers and obtain payment before moving the debt to a collection agency.
When the IRS conducts a tax audit, they review an individual or business’s finances and tax information to ensure that the correct amount of taxes has been paid. If an individual or business is being audited, they will receive a written notice from the IRS explaining the situation and when the audit will occur. The auditee usually has sufficient notice to get their paperwork and financial documents in order. During this time, the recipient is permitted to hire legal representation to represent them during the audit process and ensure that everything progresses fairly and legally.
A tax audit representative is not required, but all auditees are allowed to have one if they wish. The audit representative can be a certified public accountant, enrolled agent, or attorney. This representative may be able to negotiate lower fines, catch auditor errors, and protect the rights of the auditee. If someone chooses not to hire representation, it is their responsibility to know their rights, as well as what information they need to provide during their audit. If the person does not have the proper paperwork, receipts, or documentation, they need to obtain copies before the audit. If they are unable to do so, they may face added penalties.
Tax resolution occurs when a taxpayer has an issue with their taxes, tax return, or another tax situation and they work with the Internal Revenue Service (IRS) to solve it. Depending upon the person’s situation, there may be other tax professionals outside of the IRS involved in the process.
There are many reasons that a person may need to seek a tax resolution. The IRS may wish to verify that you have reported the correct income and deductions, for example. This often occurs when an individual has a complicated or unique tax return. If your income seems low for your situation, or the deductions seem abnormally high, this could trigger a tax situation that requires a resolution.
During the tax resolution process, you are permitted to have a tax representative. This person can follow the IRS process and ensure that their information is correct and that their interpretation of your situation is fair and legal. Though a tax representative is not required for these situations, it is a taxpayer’s legal right to hire one if they wish to do so. If you find that a tax resolution or part of your audit is unfair, you can contest the IRS’s decision.
The Internal Revenue Service (IRS) is in charge of monitoring tax returns and accepting or rejecting them based on their accuracy. If there is an error, the IRS may perform an audit or require that the taxpayer pay fees or penalties. Though this is the purpose of this department of the government, they can still make mistakes. Taxpayers are allowed to challenge these mistakes through the tax appeals process.
A tax appeal should be filed through the IRS Appeals Office. This office is impartial, and therefore able to offer fair judgment of the situation. This department assesses the issue, the IRS decision, and the audit application to make a judgment as a judge or jury would do in a courtroom. You may hire a representative to represent you during the appeals process. Though this is not necessary nor required, many people appreciate the peace of mind it gives them to have an advocate during the tax appeals process.
In order to create a tax appeal, you need to write your complaint or protest on paper. A formal letter to the IRS should include an official, affirmative statement that explains that you are exercising your right to an appeal, as well as a copy of the IRS notice you received.
To learn more, please visit – Tax Appeals in Bethesda, Maryland
Tax relief is a wide area of the tax system. It is any policy or program that the government offers in order to help taxpayers reduce their taxable income or tax burdens. A tax relief can also be a resolution to an existing IRS or tax debt. Some common types of tax relief include:
- Tax cuts for the general population
- Programs that focus on certain groups of taxpayers, such as tax cuts for veterans
- Tax credits
- Debt relief
Tax relief may reduce your taxable income, increase your tax return, or improve your tax bracket. There are many different types of tax relief that exist for taxpayers to take advantage of.
Some common tax relief programs include:
- The eco-tax credit for installing energy-efficient appliances, updating windows, etc.
- Itemized deductions for charitable donations, mortgage interest, etc.
- The child tax credit for each dependent child in a family
- Employer-sponsored health insurance exclusions
- Currently not collectible (CNC) status
All taxpayers should take full advantage of tax relief programs for which they are eligible. These programs are intended to ensure that there is a relatively equitable tax burden for individuals and businesses in all situations. Most people are eligible for at least one tax relief program.
If an individual or business does not pay their taxes, they begin to amass back taxes. These are overdue taxes with an outstanding balance. The longer these taxes go unpaid, the larger amount of interest they accrue. This often makes it difficult for taxpayers to catch up on their back taxes.
Tax negotiations allow taxpayers with back taxes to negotiate the amount that they owe to the Internal Revenue Service (IRS). By negotiating with the IRS, many people can reduce what they owe to an amount that is manageable for their budget. The IRS accepts a one-time full payment or payment in installments following a tax negotiation.
In order to qualify for a tax negotiation, the taxpayer must show the IRS irrefutable proof that they cannot afford the taxes that they owe. Negotiations usually become more likely the closer a taxpayer gets to their debt’s expiration date. Most debt owed to the IRS expires after 10 years. As time passes, the IRS would prefer to get some money, even if it is a reduced amount, rather than getting nothing.
IRS tax negotiation usually happens via paperwork, but in-person involvement may be necessary for certain unique situations. Taxpayers may hire a representative for negotiations.
To learn more, please visit – Tax Negotiation in Bethesda, Maryland
When an individual or business fails to pay their taxes, the Internal Revenue Service (IRS) may file an official legal claim of assets against the taxpayer. In other words, the IRS claims some of the taxpayer’s assets. This claim is called a tax lien. The objective of a tax lien is to guarantee the IRS that the debt will be paid. If the taxpayer does not pay the proper money to the IRS or does not set up an IRS payment plan, the IRS can seize the tax lien asset.
For example, if an individual owes the IRS money, the IRS may put a tax lien on the person’s home. The person must then work with the IRS to pay the money that they owe. If they fail to do this or fail to respond to the IRS, the IRS can claim the individual’s house to pay the debt that they owe.
When a tax lien begins, the taxpayer gets a formal letter from the IRS in the mail explaining the situation and how much the individual owes. If the IRS does not hear back from the taxpayer to determine a resolution, the IRS can place a lien on the taxpayer’s assets.
A tax levy is a process in which the IRS seizes a taxpayer’s property to pay the money that they owe to the government. This is distinct from a tax lien, though a tax levy may occur after the IRS has put a tax lien in place.
A tax lien can take control of many different assets, including a person’s wages or bank accounts. A tax levy is specific to the seizure of property such as a home, cabin, empty land, etc.
If an individual is facing a tax levy, they will receive a “notice and demand for payment” from the IRS. At this point, the taxpayer can contact the IRS to formulate a solution or payment plan. If the taxpayer fails to contact the IRS, the agency will send a “final notice of intent to levy” and a “notice of the right to a hearing.” The IRS must issue these documents 30 days or more before they can issue the levy. The IRS can issue a levy in person or via a letter sent to the taxpayer’s home or place of business.
The IRS will then send the individual a notice that they will be contacting their employer, bank, and loved ones to gather information about the person’s financial situation and liability.
The IRS can levy a taxpayer’s wages if they owe taxes and have not made an effort to pay or make a payment plan for what they owe. A wage levy allows the IRS to take money from a person’s financial accounts, including checking and savings accounts. The IRS can take any money that the accounts, and retain control of the account if necessary. If they retain account control, the IRS will retain any money that you deposit into the account until you have paid your debts. The IRS is permitted to take any employer bonuses that the taxpayer receives as well.
Taxpayers can avoid wage levies easily. In order to do so, they must respond to any IRS debt notices. The individual does not have to pay in full right away. Instead, they can avoid a wage levy by agreeing on a payment plan with the IRS. The negotiation process may allow the taxpayer a manageable payment while allowing them to retain control over their accounts and finances.
In order to create a wage levy, the IRS must file and win a collection claim through the judicial system. If they win, they are permitted to move forward with their wage levy.
When a taxpayer owes money to the IRS, the agency can take a portion of the individual’s income in order to settle their debts. The IRS will work directly with the taxpayers employer so that the money will come out of the taxpayer’s check before going to the taxpayer. This ensures that the IRS gets the necessary payment amount without action from the taxpayer. Many individuals experience wage garnishment from agencies other than the IRS. Child support payments, for example, are subject to wage garnishment if a person has not paid.
An employer cannot fire an employee because they have had their wages garnished. The process should not jeopardize the employee’s employment in any way. The law also protects taxpayers by limiting the percentage of a paycheck that the IRS is permitted to take. Though wage garnishment is not convenient for most people, the law aims to ensure that individuals and families do not face bankruptcy or poverty because of their wage garnishment. The percentage should be fair in proportion to the individual’s debts and allow their family to survive as well.
Wage garnishment can claim an employee’s bonuses, commissions, and retirement or pension income along with their normal wages or salary amount.
When a taxpayer cannot pay the taxes and back taxes that they owe to the internal revenue services (IRS), they may be able to create a compromise. This compromise allows the taxpayer to pay less than they owe in taxes while officially settling their debt with the IRS. In these situations, the taxpayer gets relief from their debt, while the IRS gets some of what they are owed, which is better than nothing.
In order to qualify for an offer in compromise, a taxpayer must show the IRS that paying their taxes would present a significant financial hardship. In other words, if the taxpayer were to pay what they owe, they would face issues such as poverty, homelessness, or severe financial insecurity. If the IRS agrees, they will create an offer in compromise for the individual to pay less than they owe to settle their debts.
When deciding whether a taxpayer qualifies for an offer in compromise, the IRS will look at the individual’s income, household expenses, assets, ability to pay, and circumstances. Only certain taxpayers will qualify for an offer in compromise, and it is not an option for all taxpayers. If a taxpayer does not qualify, they may be able to set up a payment plan or other arrangement.
In some cases, the IRS will take and retain ownership of a taxpayer’s major assets and sell these assets at auction to recover money that the taxpayer owes. This is an extreme step, and most taxpayers have multiple opportunities to pay their debt or otherwise rectify the situation before the IRS will begin asset and property seizures.
The IRS can seize many different assets from a taxpayer during this process, including their home, car, furnishings, jewelry, personal items, and more. Most assets of value are eligible to be seized.
Asset and property seizure occurs when an individual or business fails to make payments on the debt that they owe or the loan that they have for a long time. The IRS will send taxpayers multiple notices, negotiations, and give plenty of opportunities to settle the debt or develop a repayment plan. Seizing a taxpayer’s assets is considered a drastic step, and is only done when the taxpayer has avoided all prior contact with the IRS, or owes such a significant amount that the IRS has no other option. Most people are able to avoid asset seizure by working with the IRS and a representative to develop a payment plan or obtain an offer in compromise.
Innocent spouse relief is a revised tax law from 1998 that gives a spouse relief from tax payments if the taxes were underpaid by their spouse. For example, if a wife hides her financial situation from her husband and the IRS finds that she owes back taxes, the husband may apply for innocent spouse relief to avoid the obligation to pay for his wife’s error. Innocent spouse relief can occur even if the spouses filed a joint tax return.
Usually, the payment obligation comes from one spouse either underreporting their income amount or increasing their deduction amount beyond what is legal. In order to be eligible for innocent spouse relief, a spouse must meet these criteria:
- They were a member of a joint tax return on which their spouse made a serious error in income amount or deduction amount.
- They did not know that this error or miscalculation existed.
- They apply for innocent spouse relief within two years of the IRS beginning the collection process.
- The IRS agrees that innocent spouse relief is appropriate in the given situation.
Not all couples are eligible for innocent spouse relief. It can be difficult to prove that the spouse had no knowledge of the error before filing.
Audit reconsideration is a process by which the IRS reevaluates the outcome of a previous audit that it performed. The audit in question usually involves additional tax charges or tax credit reversal. During this process, the taxpayer may provide additional information that was not involved in the initial audit, and that may help to change the outcome.
Many people use audit reconsideration if they failed to challenge their initial audit within the 30-day deadline. However, taxpayers are legally allowed to request an audit reconsideration at any time, as long as they owe taxes and the audit may adjust the amount that they owe.
The IRS may deny your request for an audit reconsideration. However, they often approve the audit reconsideration process if:
- The taxpayer relocated and therefore did not receive their initial audit notice
- There was an IRS error surrounding the amount that the taxpayer owes
- The taxpayer missed the audit appointment
- The taxpayer has new information that may change the amount that they owe
Just as with an initial audit, taxpayers are permitted to hire a representative during the audit reconsideration process. During the audit reconsideration, the IRS will assess what back taxes, penalties, interest, and criminal sanctions the taxpayer owes.
When a taxpayer or tax-paying business deliberately does not pay their taxes or falsifies their tax documents in order to pay lower taxes, they are subject to a criminal tax investigation. If found guilty, the individual or business will face criminal charges, significant penalties, fines, jail time, and more. This is called tax evasion and involves an individual or business failing to pay or paying less than they owe in taxes. In some cases, this means that the taxpayer underreported or hid their income from the IRS. In other cases, this can mean that significant amounts of cash moved through the taxpayer’s possession without proper IRS notification.
In order to properly prosecute these offenses, the internal revenue service (IRS) must prove that the taxpayer failed to pay or underpaid intentionally and knowingly. A criminal tax investigation will not occur for an individual who mistakenly made a tax error or unknowingly broke the law.
Some criminal tax offenses occur with a fake name and social security number. If this is the case, the taxpayer may face identity theft charges as well as tax punishments. The criminal task investigation will reveal the extent of the wrongdoings and offenses, and a criminal court will determine the appropriate punishments for the crimes.
When serious conflicts or questions arise surrounding taxes and tax payments, tax litigation may occur. This is the court process that seeks a resolution for both civil and criminal tax disputes. During the litigation process, the IRS along with taxpayer representatives and legal officials will review tax documents, receipts, deductions, and all other applicable paperwork to determine the extent of the wrongdoing. When the investigation is complete, the court may charge the taxpayer and require legal punishment.
Tax litigation can occur in both civil and criminal court. The type of court a taxpayer navigates will depend upon the nature and severity of the accusation. In all tax litigation, it is beneficial to the taxpayer to hire a tax-specific legal representative.
Tax litigation courts are considered third parties, and are a part of the federal government. They are not associated with the internal revenue service and can offer unbiased rulings between taxpayers and the IRS. Some common tax litigation matters include:
- Income disputes
- Tax return errors
- Gift tax
- Estate tax
- Income tax
- Tax deficiency
The IRS does not need to trigger a tax litigation process. The taxpayer is also permitted to bring a case against the IRS to tax litigation court.
When an individual creates an estate plan, they account for the assets that they wish to give away to loved ones when they pass. However, many people do not consider the impact that estate tax may have on the beneficiaries and their inheritance. These taxes are significant and may put a burden on future generations to pay a significant amount of money. Federal estate taxes, for example, can climb to 40%, which leaves only 60% of an estate for the beneficiaries.
Investments are similar. Though making an investment can have significant financial benefits, taxpayers should be aware of investment tax, how to pay it, and when to pay it. Some accounts require tax payment at the time that funds are deposited, while others take tax when funds are being withdrawn. Estates are subject to both estate and gift tax at the federal level. Generation-skipping tax may apply if an individual transfers money to an individual two or more generations removed. State taxes will take additional money depending upon the taxpayer’s home location.
Tax planning allows taxpayers to plan for these costs and make choices accordingly. Usually, tax planning takes place with the help of a qualified tax attorney or investment accountant.
Back taxes are any tax amounts that are due but are not yet paid by the taxpayer. These taxes are often past their due date and are subject to fines and penalties from the Internal Revenue Service (IRS). A person can owe state back taxes, federal back taxes, or both.
A person can owe back taxes for many reasons. In some cases, the individual simply did not properly pay their taxes for the year. In other situations, they claimed too many deductions and owe more than they paid. In other situations, they misrepresented their income and owe more than they were charged.
If a taxpayer owes back taxes because of financial hardship, there are options through the IRS. A regular payment plan may help to make the process more financially viable for the taxpayer. If an individual owes back taxes but is unable to pay, they should contact the IRS to determine what to do. There are often solutions that can prevent unfortunate outcomes.
If a taxpayer does not pay their back taxes and does not take steps to come to a compromise with the IRS, they may face legal consequences such as prison time, tax liens, wage garnishment, and more.
Tax fraud or tax evasion occurs when an individual or business deliberately fails to pay the taxes that they owe. This is a federal offense and the individual can face serious penalties through the federal government. Tax evasion includes instances when an individual fails to pay their taxes altogether, or underpays their tax amount and owes more than they gave.
The key to tax fraud and tax evasion is deliberate action. The IRS must prove that the individual or business knowingly and purposely did not pay the taxes that they owed. If found guilty, the individual or business will be responsible for paying the taxes that they owe, additional interest, penalties, and federal fines. Five years of jail time and a fine of $250,000 for individuals and $500,000 for businesses is the maximum penalty if the defendant is found guilty of tax fraud or tax evasion. These charges are criminal in nature.
In some cases, tax fraud and evasion accompany identity theft or identity fraud. This happens when the offending individual or business uses fake documentation such as false names or social security numbers to execute their tax evasion. These charges are also criminal in nature and have additional penalties.
Tax penalties may be reduced or eliminated if a taxpayer attempted to comply with their tax obligations, but due to uncontrollable circumstances could not meet the requirements. This is called penalty abatement, and it is only available under certain circumstances. Not all penalties are eligible for a tax abatement.
In order to request penalty abatement, the taxpayer must implore the IRS in writing. The letter must include:
- The nature of the penalty
- An explanation of the circumstances that were outside of your control or that prevented you from properly complying with your tax responsibilities
- The documents that prove your perspective
When a penalty abatement is requested, the IRS reviews the abatement letter and appropriate documents to determine whether an abatement is appropriate. First time applicants often have an advantage in this process. However, first time benefits only apply to a single year of taxes. If an abatement request covers more than one year, the taxpayer may not have the favor of a first-time penalty abatement applicant.
Abatements can occur in other ways such as a decrease in taxes owed, a penalty reduction, or rebate. Penalty abatements specifically handle penalty fees and fines that a taxpayer may owe because of a tax error, delay in tax payment, or other tax issue.
Delia Law Office - Washington D.C. Area
Phone: (410) 630-3336
Address: 3 Bethesda Metro Center Suite 700
Bethesda, MD 20814
The financial and legal consequences of escalating tax problems, from wage garnishment to tax evasion charges, can be overwhelming. Fortunately, with the help of a tax lawyer at Delia Law in Washington D.C., you don’t have to navigate your tax issues alone.
Get started by calling our office & getting a free consultation. We can help resolve your issue & get rid of the stress of the IRS.