The IRS Tax Blog - Free Advice from Top Tax Resolution Negotiators

Got a letter from the IRS? IRS Audits - What to Expect

2012-12-09T05:39:00.001-05:00

So you got the IRS audit letter. Lucky you! Once you’ve calmed down you’re going to have to deal with it and we can help. There’s basically two main types of IRS audits – those that you reply by mail and those that ask you to call to schedule an appointment. The first type is called a correspondence exam. The IRS identifies issues that you may have reported incorrectly or simply require clarification. The second type is called an office visit or examination where the IRS is going on a fishing expedition by looking at all items on your tax return and see what pops up.

In a correspondence exam, you’re often given a letter (CP-2000) indicating what the IRS believes are the changes needed to correct your return and pay your taxes. You have a chance to agree to all changes, some of the changes or simply disagree with all the changes that have been proposed. If you agree, you simply reply indicating the same. If you disagree, you need to reply indicating why and provide documentation supporting your position.

The office visit is much more comprehensive. This is usually reserved for self employed taxpayers or taxpayers where there are too many items on the return for the IRS to make its best guess what you owe. If your return is selected for an office visit, you are best advised to seek professional representation to protect your interests.

Once the examination is concluded, the proposed changes (Form 4549) are sent to you for your agreement. Shortly thereafter, you will be asked to pay the additional tax. If the audit shows that your income and taxes were under reported, you can pretty much count on your audit being expanded to other tax years (sometimes the year before and sometimes the year after). If you have the same issues in other tax years, you can often expect your taxes to be increased in other years as well.

But what if you don’t agree!

If you don’t agree, you can first request a supervisory review of your issues. This is your first line of defense. In most cases, you won’t be successful as the results are generally reviewed first before you receive them by this same individual. You can also request an administrative appeal. The appeal gives you the right to bring the case before a brand new IRS person who takes a fresh look at your case and why you disagree. If all else fails, you can also bring your case to tax court. Each of these taxpayer rights is time limited, so its always best to act as quickly as possible where you can.

Can you Do It Yourself?

Sometimes. In correspondence exams this is much easier. You simply reply by letter indicating your agreement and pay your taxes. If you can't pay, that's another story. You can even represent yourself in an office examination - by why would you? You need to be on equal footing with the IRS so they don't walk all over you. Even the best negotiators know their limitations. You don't know your rights, you don't know tax law and you don't know IRS procedure. The more complex the issues and the greater the tax can be, the more you need professional representation.

Who Do You Call?

If you need representation, contact an attorney, certified public accountant or enrolled agent that specializes in examinations and has the experience to represent you. Your "Uncle Bob" will not do. Similarly, do not run to the tax preparer as most tax preparers do not specialize in dealing with the IRS. You're also going to need a "local" representative - one that practices within 60 minutes from your house - national tax firms won't travel to the local IRS office where your examination will be. If all else fails, pay the taxes and get a second opinion. Good luck!

IRS Offshore Voluntary Disclosure Program Reopens

2012-01-25T05:12:00.000-05:00

On January 9, 2012, the Internal Revenue Service (“IRS”) announced the reopening of the Offshore Voluntary Disclosure Program (“OVDP”) as a way for U.S. taxpayers with undisclosed foreign accounts, assets and income to become compliant with U.S. tax law. The OVDP follows the 2009 Offshore Voluntary Disclosure Program and the 2011 Offshore Voluntary Disclosure Initiative. Under these programs, 33,000 taxpayers came forward in order to become compliant with U.S. tax law resulting in the collection of $4.4 billion to-date. The IRS expects taxpayers to continue to come forward and participate in the OVDP as its efforts to combat offshore tax evasion continue.

Framework of the 2012 OVDP
The federal tax filing and payment structure of the 2012 OVDP is similar to what was offered by the 2011 Offshore Voluntary Disclosure Initiative. Participants in the 2012 OVDP will be required to:

1. Pay all applicable tax, interest, accuracy-related penalties, late filing and late payment penalties (if applicable) for up to 8 years; and

2. Pay a 27.5% penalty (or reduced rates of 12.5% and 5% for certain qualifying U.S. taxpayers) based on the highest aggregate balance of unreported foreign financial accounts and assets that were required to be reported for the prior 8 years.

U.S. taxpayers who feel the penalty structure of the 2012 OVDP is disproportionate to the circumstances surrounding their noncompliance can choose to opt out of the 2012 OVDP and be examined by the IRS.

Some key differences between the 2012 OVDP and the 2011 Offshore Voluntary Disclosure Initiative are:

1. The 2012 OVDP will remain available to taxpayers indefinitely (no deadline currently established);

2. The 27.5% is an increase from the 25% penalty offered by the 2011 Offshore Voluntary Disclosure Initiative; and

3. The terms of the 2012 OVDP can change at any time going forward, including increased penalties or termination of the program.

The IRS announced that more details and additional specifics about the 2012 OVDP will be issued within the next month.

Chris Tucker Jokes about $11.5 Million IRS Debt

2011-10-15T07:45:00.001-04:00

Chris Tucker reportedly owed $11.5 million in debt to the IRS - which could cost him his $6 million Florida home.

"That's the last time I let Wesley Snipes help me out with my taxes," joked the Rush Hour star, 39, recently during a Miami stand-up comedy routine (via the Miami New Times). Snipes is currently serving a three-year prison sentence for not filing tax returns.

"They calling you acting like you owe them the money personally! I don't owe you s---! This is between me and the company!" said Tucker.

Sorry Chris! When you owe the IRS money, they're going to get it anyway they know how.

Innocent Spouse Rule Change

2011-05-06T08:09:00.000-04:00

IRS Reviewing Equitable Innocent Spouse Rules, Shulman Tells Lawmakers

IRS Commissioner Douglas H. Shulman told lawmakers in an April 29 letter that the Service is reviewing its rules for equitable innocent spouse determinations. Shulman replied to lawmakers' concerns over the Service's two-year limitations period for requesting Code Sec. 6015(f) equitable innocent spouse relief.

Limitations Period

Under Reg. §1.6015-5, a taxpayer requesting equitable innocent spouse relief must file Form 8857, Request for Innocent Spouse Relief, or other similar statement with the IRS no later than two years from the date of the first collection activity against the requesting spouse after July 22, 1998, with respect to the joint tax liability. The two-year limitations period has been challenged by taxpayers in court with mixed results.

In C.M. Lantz, 132 TC No. 8, Dec. 57,784, the Tax Court rejected the two-year limitations period . The court found that Code Sec. 6015(f) does not impose a two-year limitations period and Reg. §1.6015-5 is an invalid interpretation of the statute. The Tax Court again held the regulation invalid in A.M. Hall, 135 TC No. 19, Dec. 58,337; TAXDAY, 2010/09/23, J.1. The Tax Court indicated in Hall that it will continue to rule in this way in future cases.

The Seventh Circuit Court of Appeals reversed the Tax Court's decision inLantz and held the challenged regulation valid (2010-1 USTC ¶50,446). The Third Circuit Court of Appeals also held the regulation valid in D. Mannella, 2011-1 USTC ¶50,159 (TAXDAY, 2011/01/26, J.6).

Final Regulations Issued on Federal Tax Liens

2011-04-05T11:44:00.000-04:00

APRIL 4, 2011

On Monday, the IRS published final regulations (TD 9520) that govern the validity and priority of federal tax liens under IRC § 6323.

Under IRC § 6321, the federal government has an automatic lien against any person who does not pay federal tax for which they are liable after the government demands payment. This lien extends to all that person’s property and rights to property. Section 6323 provides that a federal tax lien is only valid against certain persons if a notice of federal tax lien (NFTL) is filed; that section also generally addresses the validity and priority of federal tax liens.

Numerous amendments to section 6323 have been made since 1976 but until now have not been reflected in the regulations. The final regulations published on Monday reflect these changes to the law.

One issue the regulations deal with is that most NFTLs have contained a certificate of release that automatically becomes effective on a date prescribed in the NFTL. This meant that the IRS had to timely refile an NFTL that contained a certificate of release in each jurisdiction where it was originally filed, or the lien would self-release and be extinguished in all jurisdictions. The final regulations change this to provide that the government’s failure to timely refile the NFTL or the release of the lien will not “alter or impair any right of the United States to property or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding” (Treas. Reg. § 301.6323(g)-1(3)(i)).

The regulations also specify that a federal tax lien will not be valid against purchasers of personal property sold in a “casual sale” for less than $1,380 (for 2010 and to be indexed for inflation thereafter). The property subject to this provision includes household goods and various personal effects. The regulations also specify that a federal tax lien will not supersede a valid mechanic’s lien against a personal residence in certain cases.

The final regulations are effective April 4, 2011.

IRS Audit Selection Techniques

2010-12-24T12:22:00.000-05:00

So just how does the IRS pick who's going to get audited? Well, there's a few more common ways.
Computer Scoring
Tax returns are "scored" using two different systems - Discriminant Function System (DIF) and Unreported Income Discriminant Function System (UIDIF). The DIF scoring system give the IRS an indication of the potential for the change in taxes that may be owed based on comparability to your returns to others, a logical comparison of certain deductions and credits to income, etc. Similarly, the UDIF scores your returns for potentially unreported income. The higher the score, the more likely your returns will be selected for examination.

Information Matching
This is perhaps the easiest way for the IRS to know whether you're misrepresenting income. Your employer, your bank, your securities broker, etc. all file forms with the IRS reporting your income, your taxes withheld, your mortgage interest, securities trades you've made, your loan interest, contributions to your retirement accounts, etc. Where your return has different information, it will likely be selected to be reviewed further.

Related Examinations
What happens when your employer audited and there's a problem. Or your coworker. Or worse, your friend with the "big mouth". Sometimes, the tax preparer you used makes the same dumb mistake on someone else's return and you get selected (better think twice about who you're using next time). Or let's say the IRS is targeting the industry you work in - this may be lawyers, restaurants, construction workers, taxi drivers, truckers, etc.

Abusive Tax Avoidance Transactions
So you went to a promoter to save taxes and he told you what you wanted to hear. He had lots of supporting documents - pages and pages. It all looked very convincing and you kind of knew it was too good to be true. Well guess what. It was. Get caught up in this scheme and expect the wrath of the IRS examiner. They catch one and they'll certainly look to get everyone else who participated. Your personal information is not confidential here. If this concerns you, consider amending your return even if you've already filed. You may be able to avoid the penalties as well.

IRS Notices on Taxes Owed - Better Think Twice About Not Opening Them

2010-12-12T19:40:00.001-05:00

When you owe taxes, or the IRS believes you owe taxes, the IRS will generally send various Notices to you to inform you of your tax debt should you disagree in whole, or in part, and prompt you to make arrangements to pay your tax debt, either in whole or in part, or enter into some other type of agreement to pay your taxes.
Generally, it will begin by receiving various "friendly" reminders of your tax debt and quickly escalating to more formal letters of demand for payment.

The first notice is a CP 501, or "Reminder Notice - Balance Due". This is simply a friendly reminder that you have taxes due. It is your first opportunity to agree, or disagree with the taxes owed on your account.

The second notice is a Notice CP 503, or "Second Request Notice - Balance Due" is simply the second reminder that you will owe a balance due on one of your tax accounts advising your that the IRS has no acknowledgement recorded at the time of the letter that you disagree with the taxes owed as shown on the IRS records, or that you have taken no actions at the time the letter was generated to settle your tax debt.

The third or Final Notice is a Notice of Intent to Levy, which is telling you the IRS means business and is advising you that (1) you have a 30 Day window in which to respond to the collection letter or face seizure or garnishment and that (2) your rights to certain appeals hearings will lapse if corrective actions are not immediately taken.

You may, or may not, receive either of the first two notices. The IRS does not lose its rights to promptly enforce collection or issue a tax lien if you fail to respond. In contrast, the IRS is required to issue a Notice of Intent to Levy before levying or garnishing your accounts.

You will know when you receive this final notice as it will be delivered by certified mail. Dodging the postal carrier does not protect you from any actions the IRS may take. Similarly, the IRS is only required to send this notice to the last known address of account, so if you moved or the IRS somehow gets your address wrong, this does not protect you.

Simply stated, if you don't respond immediately to the third and final notice, you will lose your taxpayer rights to a collection due process (CDP) or equivalent hearing (EH), and to the extent possible, the IRS will collect the tax debt.

Currently, the IRS is in the process of redesigning and revising it correspondence with taxpayers, as many taxpayers remain unclear as to what these notices mean and what their rights are when dealing with the IRS. In my opinion, this is simply a waste of time as this has been done many times before and I'm not so sure it can be explained any easier. Dealing with the many rules and procedures of the IRS is very difficult and requires a thorough understanding of ever changing tax law, IRS procedure and taxpayer rights. Although most taxpayers have a general understanding that the letters received are collection letters, they fail to adequately understand what rights are lost simply by ignoring the notices, nor the seriousness of what the IRS can and will do when taxes are owed and not paid.

For many taxpayers its a little more complicated in that they owe everybody (not just the IRS) and sometimes do not have the money to afford professional representation. Unfortunately, when the Notices start coming you will need to prioritize who you're paying and who you're not as a failure to obtain professional representation will not only increase the amounts you owe, but escalate IRS collection actions and loss of taxpayer appeal rights. At the very least, hire a professional to secure these rights and buy you additional time to respond appropriately.

Representing taxpayers before the IRS is what we do. We give you professional representation to put you on equal footing with the IRS agents and help secure your rights. Taxpayer representatives can often reduce your tax debt, provide penalty relief, review your tax returns and save you time and money.

Don't let certain deadlines pass you by. Hire or contact a qualified, tax professional today.

Using Delays and Payment Plans to Stop the IRS Collection Process

2010-12-04T01:33:00.000-05:00

When you owe taxes its just a matter of time before the IRS begins to take actions to collect the money you owe. The IRS collection process begins slowly by sending you a series of collection letters and escalating to a tax lien or levy on your income, assets or both, a seizure or garnishment of your wages or other income. Don't think this won't happen to you!

The best way to stop the collection process is to simply pay your taxes. Pay what you owe and the collection process will usually stop. But what if you can't pay your taxes? What if you can pay them but just need more time?

The best ways to stop the IRS collection process is by taking a series of actions appropriately matched to each collection procedure taken by the IRS. There are numerous options available designed to keep you out of trouble and give you ample time. Using delays and payment plans to stop the IRS collection process are often the best strategies.

Which type of taxpayer most most represents you?

You can pay in full now
You can pay in full in the near future
You can pay in full given enough time
You can't pay in full but can pay something
You can't pay anything now but can pay later
You can't pay anything now and can possibly pay later
You can't pay now and can't pay later

The best options for settling your tax debt will depend upon which of these applies to you. Depending upon which categories apply, narrows down your field of options that are available. The types of payment plans and installment agreements available will depend upon which categories apply to you.

Ready to pay your tax debt now?
Even if you are ready to pay your tax debt in full today .. if you waited too long, you may find that prior IRS collection actions have seriously and irreversibly damage your credit, business reputation and standing, resulted in penalties, interest and other problems that may continue for quite some time even after you paid the taxes you owe.

Just need more time to pay?
Sometimes, just obtaining additional time to pay is often your best option. Maybe your money is tied up in investments you don't want to sell now. Maybe you need the money now for business reasons. Maybe you lost your job or you are making less than before. Maybe you can't pay now for a variety of other reasons.

Whatever the reason, you need to structure a payment plan that you can live with -- and of course; one that would be agreeable to the IRS.

First step in the negotiating tax settlement
The most first step in negotiating tax debt is contact, or preferably have your CPA firm, contact the IRS as early as possible in the collection process. This will often give you the maximum amount of time to pay and certainly the least amount of aggravation. By simply acknowledging that you received the collection letters you can often get over a month's delay in which to either pay or come up with a payment plan on your tax debt. Once you get the IRS to give you an extension to hold on the collection process, this should give you ample opportunity to structure the best plan in your situation.

Negotiating tactics with the IRS
Negotiating with the IRS requires in-depth knowledge of who you're dealing with, knowing what the IRS will do, and knowing how to get the resolution possible given your situation. This is not a negotiation you should try to do yourself. Try to do this yourself and you will be asked to disclose where you live, what your phone numbers are, where you bank, where you work, etc. - just the kind of information you do not want the IRS to know. Hiring a licensed tax professional eliminates all this. Once we inform the IRS that we represent the taxpayer, the calls immediately stop. All calls regarding collections are routed to us.

Find out more
We are a fully-licensed, certified public accounting firm, successfully representing taxpayers before the IRS for over a decade. You can find out more information by visiting our website (www.cpamiami.com).

The First Step You Need to Know to Settle Your Taxes

2010-11-25T15:31:00.002-05:00

You know you owe taxes and you can't afford to pay -- what do you do? Just because you didn’t file, don’t think the IRS doesn’t know how much you owe. In all likelihood, they already do, or at least they probably have a really good idea of what you owe - especially when your employer, bank, brokerage firm or someone else has reported how much they paid you.

Just because they haven’t contacted or found you, don’t think that they won’t. The IRS usually has a ten-year period to collect the taxes you owe. That’s a long time!

Did you know the penalties and interest continue to compound on your tax debt,? So what’s their real incentive to get you to settle your tax debt now?

Did you know IRS usually gets paid first (before all other unsecured creditors)?

Ignoring IRS notices or letters is not going to help you - in fact, in all likelihood, it can only make things worse. Not only will tax penalties and interest continue to compound, but the time, cost and aggravation to settle your tax debt can only get worse.

The first step to settle tax debt in most cases is to FILE YOUR OLD TAX RETURNS. Now let me tell you FOUR good reasons why:

REASON #1: Settle your tax debt -- The first reason you should file your tax returns is to qualify to settle your tax debt.

Did you know that you can settle your tax debt with the IRS? There are a variety of tax settlement options available form the IRS to taxpayers who can’t afford to pay. The two most common settlement plans are through a payment plan (installment agreement) or through a partial payment in settlement of your entire tax debt (offer in compromise).

However, if you don’t bring your account current (file your tax returns), the IRS will not give you either of these two options.

REASON #2 - Stop tax penalties - The second reason to file your tax returns is to stop or limit tax penalties you’re being charged.

The IRS assess a failure-to-file penalty when you don’t file your tax returns. Even if you don’t pay your taxes, filing a tax return will generally stop or limit the amount of this penalty.
If you file and don’t pay your taxes you will continue to be charged the “failure-to-pay” penalty, but the “failure-to-file penalty” will stop. Since the penalty for the “failure-to-pay” is usually less than the “failure-to-file “, it is usually best to file even if you can’t afford to pay.

REASON #3 - Don’t give up your tax refunds - Even if you owe taxes for some years, chances are you’re probably due refunds for others. If you don’t file to claim these refunds within 3 years, you lose your rights to get them later.

We’ve helped hundreds of taxpayers resolve their tax problems and have found that most taxpayers who have not filed their returns in years are owed refunds for many of these tax years. Even if you owe taxes for some tax years, if you don’t file the returns with refunds due within 3 years, you give these refunds up.

REASON #4 - Limit the amount of time the IRS can collect - Filing a tax return stops the period of time in which the IRS can collect taxes from you or change your tax return (also know as a “statute of limitations”).

Example: Let’s say you haven’t filed tax returns in 7 years and you owe taxes in 3 of the 7 years.

Even if you never paid, if you filed your tax returns, the IRS would only have 3 years left to collect taxes on the first tax year. If the IRS can’t get you to pay these taxes in 3 years, you’ll never have to pay.

Let’s say you owe money to other creditors as well. You may consider bankruptcy (either now or in the future). Did you know that your tax debts can be dismissed in bankruptcy? Did you know that if you never filed your income taxes your tax debt will remain even if you filed bankruptcy?
Let’s say you file a return and claimed a tax deduction or credit incorrectly (one that if you corrected your tax return, would increase your taxes). The IRS cannot go back and assess additional taxes after 3 years. Did you know that if you don’t file your tax returns the IRS can go back and assess additional taxes forever?

Settling tax debt is usually a fairly difficult matter. One that even the most intelligent individuals cannot do without professional help. Settling tax debt requires a very specific level of knowledge and experience. When settling tax debt, you want to have equal, if not more qualified representation, than the IRS person you are dealing with.

Filing your tax returns may, or may not, be your best strategy to settle your tax debt. The information presented here was presented for informational purposes only. There are many factors and strategies to consider in settling tax debt. You should almost always consult with a licensed, experienced, certified public accountant, tax attorney or enrolled agent - one that specializes in tax debt settlement. Do not rely on the advice of tax settlement firms that do not provide you with direct contact with a CPA, tax attorney or enrolled agent to discuss your case.

You can write us, chat on-line with us or call us to look at your situation and see what we can do to help us. You can call us, read more or subscribe to our blog. The first consultation is free. Everything we discuss is confidential and will never be disclosed to others. The time to resolve your tax debt get your life back on track is now. What have you got to lose? Call now!

How to Handle The IRS Tax Levy

2010-11-20T16:48:00.002-05:00

What is a Tax Levy?
A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from tax liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt [IRC Sec. 6331].

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,
the IRS can seize and sell property that you hold (such as your car, boat, or house), or can levy property that is yours but is held by someone else (such as your wages or commissions, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, cash loan value of your life insurance).

What Are the Types of IRS Levies?
There are generally two types of IRS levies; a levy on assets or a levy on income.

A levy on bank account or any other assets that can be taken is generally a one-time levy. In other words, the IRS will generally levy your assets a single time and not revisit levying your account once a levy has been done.

Levies on income are more serious matters because this type of levy will remain continuous. For most individuals this type of levy would be on wages, commissions or income producing assets. In the case of a business taxpayer, the levy would be on the receivables of a business. Where the IRS issues a levy on wages, your employer will be notified and required to remit amounts to the IRS in satisfaction of your tax debt. Similarly, where the IRS levies receivables, your customers will be notified and similarly be required to remit amounts due to the business in satisfaction of your tax debt.

When Will The IRS levy?
Taxpayers can usually expect to receive various "warning" notices advising them that taxes are due and penalties and interest have, or will be, assessed prompting many taxpayers to make arrangements to settle their tax debt thereby allowing additional time to get your finances in order.

After several warning notices, taxpayers can expect to receive a final notice of levy. You will know when you've received this final notice when you're advised of your rights to appeal the levy, an you can anticipate the IRS will take the most serious collection actions fairly soon thereafter. Therefore, it is most important that you do not ignore the IRS notices as you will need to monitor exactly when the IRS will intend to levy.

How to Stop an IRS Levy?
The most obvious way to stop an IRS levy is to pay your taxes. Where this is not immediately possible, you can propose various alternatives to collection actions. The two most common alternatives to collection action are the Offer in Compromise and Installment Agreement.

An Offer In Compromise is a settlement of tax debt for less than the full amount owed. An Installment Agreement is an arrangement to satisfy tax debt over a period of time thereafter.

The IRS is also empowered to stop a levy where a levy would cause you economic hardship [IRC Sec. 6343]. In other words, where the damages caused by a levy would be greater than advantages of collection received by the levy itself, it would be in the interests of public policy for the the IRS to stop such levy actions.

The problem here is that the IRS often ignores your pleas as to why the levy should be stopped.

Economic hardship can be shown through a variety of reasons. Some of the most common reasons for showing economic hardship is where the levy would stop you from receiving medical care, paying medical insurance premiums, inability to pay court ordered payments such as child support or alimony.

What Can You Do?
Stopping a levy is not easy. Stopping a levy is usually beyond the scope of what you, the taxpayer, are equipped to do. It will require immediate action. It most often requires a considerable amount of work and time to correct.

You will most likely need to hire a professional. It is important that you hire a licensed, experienced firm or individual with the expertise to resolve your tax problems favorably. Your tax representative must be either a tax attorney, certified public accountant or enrolled agent. Hiring a debt relief service agency will just not do.

Once the final notice of levy is issued, immediate action will be required. Procedures to levy your assets have already been put into place and your rights of appeal are limited.

What to Do When You Receive the IRS Audit or Examination Letter

2010-11-13T11:42:00.001-05:00

Your probably going to begin by saying why me? Thousands and thousands of taxpayers get audited annually. You're not the only one. Don't take it personally.

Who Gets Audited

Most IRS examinations can simply be referred to correspondence examinations where the IRS has reviewed your return and has determined that certain errors exist. These errors may be mathematical, or commonly the failure of the taxpayer to include certain sources on income in the filing of the return that were reported to the IRS by others. There is no reason to panic! Begin by carefully reading the IRS letter you receive. In most cases the IRS will recalculate your tax liability and propose an adjustment for your consideration.

If you agree with the changes that are proposed, and the additional amounts due appear reasonable and within your reach, simply confirm your agreement with the proposed changes and pay the tax assessment.

If you don't agree with the changes that are proposed, gather the necessary documentation in support of your position. Be sure to pay clear attention to the date for which your response is required.

If you don't understand the proposed changes, you may begin by contacting the tax professional who assisted you in preparing your return. If you are uncomfortable with this individual, or otherwise find it necessary to choose another, choose a tax professional with the qualifications and experience necessary to properly advise you.

A second type of examination is where the IRS has selected your return because statistically you appear to represent a profile that the IRS is most interested in. This may be due to the fact that your business or profession is one of interest, that your income or deductions are inconsistent with that of similar taxpayers, that your reported deductions appear unreasonable in light of your income, that your reported income or deductions appears unreasonable based on amounts that your have previously reported, or even that your tax returns were prepared by an individual or firm that has been identified as problematic, etc. Whatever the reason, your have been selected for an examination. This type of examination is generally more comprehensive in that it will generally not be limited to specific areas of your tax return.

A third type of examination may be referred to as a random audit. Lucky you! This type of examination is generally fully comprehensive in that all aspects of your tax return will generally be examined. The audit will primarily concentrate on your tax return deductions and a careful review of the supporting documentation. Sometimes it appears that the IRS will simply perform such examinations as a training mechanism for new recruits.

What to Do if Your Being Audited

Pay close attention to deadlines! The IRS is limited in time in which to collect from you. Similarly, your rights to disagree and certain options to exercise your rights lapse as well. Allow enough time to deal gathering information and responding. Don't hire a professional the day of your schedule examination!

Be proactive! Be sure to show that you are responsive. Doing nothing is the wrong way to go! Your responsiveness clearly indicates that you acknowledge that a problem exists and that you are dealing with it. If you need additional time, ask for it! Similarly, you can ask for second or third extensions with generally little resistance. The ability of the IRS to collect from you is quite lengthy and they will generally patiently wait it out.

Get professional help! Taxation is very complicated and technical and you will likely benefit from having a professional on your side. Many taxpayers go into audit totally unprepared and hope for the best. Some think that if they can impress the auditor that they are nice, law-abiding, decent human beings and not common criminals, the IRS auditor will mellow, be sympathetic, and politely let them off the hook. Forget it! Tax auditors are nice, decent human beings too, but most importantly, they pay their taxes. And they don't think too kindly of others who don't.

Hiring a Professional

Professional representation is usually best performed by tax attorneys, certified public accountants and enrolled agents. It is most important that you inquire and gather information necessary to make an informed judgement as to the qualification of the individual or firm that will be representing you. Your tax preparer may not be the one best qualified to represent your interests. Inquire as to professional credentials, education and experience.

Hiring a professional may be costly. Not hiring a professional may cost your even more! Experienced tax professionals will generally outline the cost of their services, or whenever possible, provide you with a reasonable estimate before beginning any work for you.

What's Involved in an IRS Audit

The phases of every IRS audit engagement will generally include:

gathering information from both you and the IRS examiner,
making professional determinations as to the accuracy and completeness of your tax returns, potential areas of exposure and likelihood of your success,
attending examination meetings and teleconferences,
reviewing and responding to document requests,
maintaining clear, concise and organized file of what happened and when, and
appeals of any potential examination differences

This can be tedious, time consuming and often overwhelming for the layman. Experienced professionals have gained proficiency in gathering information, performing technical analysis and representation in the most efficient manner. This results in increased profits for them and maintaining low, competitive fees for you.

What to Do in An IRS Audit

The IRS examiner has a job to do. Respect it! Be courteous and professional. Always.

Don't try to make friends with the IRS examiner. The examiner is not your friend. The examiner is protecting the interests of government in tax assessment and collection. The examiner will most always be objective so as not to favor you over the next guy. Making friends with the examiner will not help. Making enemies with the examiner will just make things worse.

Clearly state your position and provide supporting evidence. This will include cancelled checks, bills, bank statements, credit card statements, activity logs, etc. Third party evidence (not prepared by you) is best. If you have it, great! If you don't, don't make it up! You will most always get caught. Lie on one matter, and everything else you present will be suspect. Know where to choose your battles.

Try to limit the examination to specific items of concern. Don't help the examiner to go on a fishing expedition. An inexperienced examiner will often not know what to look for, or more accurately stated, not know which are the key areas of concern. That's not your problem! That's his! Limit your responses to what's being asked. If its clearly irrelevant, say so. But let the examiner make the final determination of what's relevant and what's not.

Don't volunteer information. The more you say, the more likely you're going to put your foot in your mouth. Answer questions accurately and to the point. If you don't know the answer, just say so. Its reasonable to need additional time to gather additional information. Its understandable that your representative may not know all the answers like you would.

Be organized! Don't show up with a box full of receipts, bills, etc. When asked a direct question, have the information readily available. Don't hunt for the information during an examination. Don't bring documentation that you don't need. This can only hurt you!

Take notes. Good notes. You may have to review this information again later. IRS examinations often take a long time to finish. Don't rely on your memory for what you were asked, how you answered it, or what documents you provided.

Follow up. IRS auditors have tremendous case loads and only limited time to work on yours. Set deadlines and follow up. If you don't hear back, follow up again. In writing!

Its not over, until the fat lady sings! Don't rely on representations made by the examiner. The examiner can only make recommendations. The recommendations will almost always be subject to approval by others. When the audit is completed all changes must be in writing. Signed, sealed and final.

Buying a business? How to Get the Maximum Financing and More

2010-11-12T09:40:00.002-05:00

You've done your homework. You've identified the business you're going to buy. Perhaps you're working with a business broker to find a business that you're really interested in. One that interests you, that you have the qualifications to run and most importantly that makes money!

Forget the due diligence procedures. Sure only a fool would buy a business without performing due diligence. Any good accountant can help you with this.

The most important question is how are you going to finance it? Is the owner willing to finance you? Are you going to dip into your savings and finance it yourself? Or are you going to a lender to help you get started?

When you're going to a lender you need to know just how much is a lender going to give you. How credit worthy is the buyer? What assets will be pledged to help insure that the loan is going to be paid? Can the business sustain enough profit to meet the loan terms? How long will you get on the financing?

You're going to be looking to try to get the maximum amount financed with the least amount of monthly payments and the longest term available. If you're looking to squeeze out a few extra bucks, you're going to have to demonstrate that you will be doing something different that will result in increased profitability. Whether that is a significant increase in revenues or a significant decrease in expenses, you're going to have to demonstrate this effectively, in writing, with supporting schedules and assumptions.

This is where we can help.

You will need to develop a financial forecast or projection.

What is a financial forecast or projection?

A financial forecast is normally an estimate of future financial outcomes for a company. Using historical accounting information, in addition to external market and economic indicators, a financial forecast is managements’ best guess of what will happen to a company in financial terms over a given time period — which is usually one year. A financial forecast presents the Company’s expected financial position, results of operations, and cash flows for the forecast period based on management’s assumptions, reflecting conditions expected to exist and the course of action management expects to take during the forecast period.

A financial projection not only presents the Company’s expected financial position, results of operations, and cash flows for the forecast period based on management’s assumptions, reflecting conditions expected to exist and the course of action management expects to take during the forecast period but applies procedures considered necessary by the accountants in the preparation, presentation and evaluation of assumptions used by management.

Why Use Forecasts and Projections?

Forecasts and projections are perhaps the most underutilized benefit that can by provided to small businesses by accountants. Whereas general purpose financial statements most often used provide only a historical review of Company operations, forecasts and projections provide the insight necessary to gauge growth in comparison to predefined goals, review projected outcomes given specifically outlined business conditions, compare and contrast outcomes given specifically defined alternatives, provide critical financial information for investors, potential investors and lenders necessary to assess business plans, increases in financing and loan modifications.

How to Prepare a Forecast

The forecast is a critical element in the purchase and managing of a business. Whether or not you're financing through third party sources. Now that you know how crucial your forecast will be, how are you going to put this together.

The best way to get started is compiling financial statements based on historical information. Look for business trends and key indicators. In the absence of contrary information, presume that future results will mirror historical information with some degree of accuracy.

At CPAMiami, we utilize PlanGuru software - a software application that easily and efficiently gathers, compiles and coordinates this information efficiently. The versatility of this product allows you to not only project future information based on historical results, but to enter into "what if" scenarios and automatically calculate numbers based on financial and non-financial key indicators. And if you buy it through us, you get an unprecedented 20% off the regular price. Click here for more information.

How Do You Get Started? Finding the "Right" Accountant

The best way to get going is to hire a certified public accountant - one that has the requisite knowledge, experience and background to help you. This is not so easy to do!

The biggest complaint I hear from business brokers is that the lawyers and accountants killed the deal. This is very common! Your lawyer doesn't want to assume any liability for a bad deal. Neither does your accountant. You get back your accountant's findings on due diligence with all kinds of disclaimers. In most cases, you don't even want to do the deal.

The "right" accountant will help you to get the deal done! He will give you what you need to get the financing done, suggest alternate options and payouts - those that are agreeable to both you and the buyer. After all, once you buy this business won't you give first consideration to the accountant who helped you get the deal done?

Accounting is both an art and a science. Preparing forecasted financial statements with any real degree of accuracy requires a specific level of knowledge. At CPAMiami we believe we have what it takes to help you get the job done and love to do this type of accounting work. Review our website for more free information on Buying a Business - What You Need to Know.

The IRS Tax Blog - Free Advice from Top Tax Resolution Negotiators: Ten Most Important Things to Know About IRS Garnishments and Tax Levy

2010-11-11T08:13:00.000-05:00

The IRS Tax Blog - Free Advice from Top Tax Resolution Negotiators: Ten Most Important Things to Know About IRS Garnishments and Tax Levy

Ten Most Important Things to Know About IRS Garnishments and Tax Levy

2010-11-09T23:16:00.007-05:00

A tax levy means the IRS can confiscate and sell property necessary to satisfy a tax debt. The IRS can levy your bank accounts, retirement accounts and any other assets you may own including your car, your boat and real estate. The IRS may even levy your wages or any other income you are receiving to protect the government's collection interests.

The 10 Most Important Thing to Know About An IRS Garnishment or Tax Levy

The IRS can levy income or assets where (1) you have been assessed a tax liability and (2) the IRS has demanded payment;
An IRS levy can result in the garnishment of your bank assets (including bank accounts, investments, boat, car and even a seizure and sale of your home;
If a bank account is levied, it only be applied to money that is already in the account when the levy is served – it does not affect money that you may deposit later;
The IRS can place a continuous levy against your personal and business income — where the levy attaches to future paychecks (wages, salaries, bonuses and commissions) until the levy is released;
The IRS levy is improper where you have not received a Final Notice of Intent to Levy, Notice of Your Right to a Hearing, Notice and Demand for Payment, Notice of Intention to Levy, and a Notice of Your Right to a Collection Due Process Hearing;
You have a right to appeal all IRS levy actions if you don't agree;
You have the right to redeem levied property;
You have 30 days to make payment after the final notice of levy is issued;
The notice and demand for payment must be left at your home or business or mailed to your last known address;
There is judicial review of an adverse IRS appeal decision for “abuse of discretion.”

When Is the IRS Prevented from Levying Income or Assets?

The IRS cannot levy income or assets where:

During the period that an offer-in-compromise is pending with the IRS During the period that on offer has been made to pay your tax liability in an Installment Agreement;
If it is not economical for the IRS to impose the levy;
During the period you are in bankruptcy;
If you have a tax matter pending in a Federal court;
If the property or income is exempt from levy;
If property subject to levy is subject to a prior perfected lien;
If your tax liability has been satisfied or becomes unenforceable by reason of the statute of limitations;
If the levy is on any tangible personal property essential in carrying on your trade or business;
If release of the levy will facilitate collection by the IRS;
If the levy has created an economic hardship due to your financial condition.

What Can You Do? The most obvious cure is to pay your taxes. The Internal Revenue Service (IRS) must release your tax levy or lien if you pay your tax, penalty and interest owed in full. If you can show that the taxes were paid before the date of the levy, or the tax was assessed and the levy notice was sent while you were in bankruptcy, you may possibly be able to avert the federal tax levy. You may also be able to stop a tax levy where the time to collect the tax has expired before the levy notice was assessed.You may also qualify for relief where you can show that the tax levy creates a significant economic hardship for you.

Most taxpayers intend to pay their taxes, but are often just requiring a little more time. When you can’t pay your taxes, the IRS will release a tax levy where you can enter into an agreement to pay the taxes over time or otherwise settle the taxes owed. Current economic conditions have prompted the IRS to structure extremely generous payment terms with qualifying taxpayers like never before.When dealing with the IRS, always hire a tax professional; one skilled, experienced and knowledgeable in current tax law, taxpayer rights and IRS representation. Know your taxpayer rights. Pay close attention to deadlines and important dates. Be proactive! Call today.