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Accounting & Consulting
Understanding your rights and responsibilities
The one common factor that affects every American is the fact that each of us must deal with the IRS. Where
most taxpayers pay their taxes and file returns annually, there is always the unfortunate few who either get selected for investigation or can’t resolve an issue.
Smart Business spoke with Samuel L. Tuck, principal-in-charge of the Tax Department at Tauber & Balser, P.C., about how to deal with the IRS during an audit and options available to make that situation less painful.
What events would trigger the IRS to examine a tax return?
An IRS audit or even a taxpayer error can cause the IRS to be your biggest creditor. The difference between the IRS and your average creditor is that the IRS can seize your wages, bank account or even your home without a court order or judgment. Your tax return may be examined for a number of reasons. Your tax return may be selected for examination on the basis of computer scoring called Discriminant Inventory Function System. Your tax return may also be selected on the basis of information received from third parties, such as W-2s and 1099s. Furthermore, the IRS may question the treatment of a certain transaction, such as a real estate sale or a deduction of certain expenses.
How are most IRS audits conducted?
The myth of an IRS audit is that an IRS agent shows up at your office or house demanding information. Contrary to that belief, most IRS examinations are completed by written correspondence with the IRS. An examination usually begins with the IRS notifying you that your return has been selected for audit. At this time, the IRS will request from you all necessary documents and information to resolve the matter. Do not hesitate to ask about anything that is unclear to you. If you seek the assistance of a professional to handle your audit, you will need to provide a power of attorney.
Even though the IRS has the ability to put your life in a tailspin, things will seem a lot more manageable if you know how to exercise your options. The IRS is usually willing to provide more time for payment and even a reduction in overdue taxes, if you know your options. Ten years ago, the IRS moved at a very slow pace. Sometimes, it would take months or even years for the IRS to address an issue and even longer to resolve. As technology has become more sophisticated, overdue taxes are quicker to appear and are quicker to be acted upon by the IRS. Most tax liens and levies are now computer-generated.
What are some tips when dealing with the handling of taxes owed?
? Understand why you owe taxes. There are many instances where a taxpayer may focus more on the taxes owed and not the reason for the tax assess-
ment. If you can’t comprehend why the taxes are owed, please seek help from a tax professional.
? Be willing to cooperate with the IRS. Provide the IRS all proper information it may request. Trying to bully the IRS won’t get you very far.
? Understand your options. After the examination, if any changes to your taxes are proposed, you can either agree with the changes and pay additional taxes or you can challenge the findings made by the IRS. About 25 percent of taxpayers can make a deal with the IRS. These deals can range from creating a payment plan or even an Offer in Compromise. An Offer in Compromise allows a taxpayer to settle unpaid taxes at a relatively large discount. The Offer in Compromise process is lengthy and tedious, however, the results can be quite beneficial.
? When dealing with unpaid business payroll taxes, be sure that you understand not only the business’s liability but also the potential liability that can be charged to the individuals responsible for paying the payroll taxes. Also, the penalties for these unpaid taxes can total 100 percent of the unpaid tax.
? As a last resort, filing for bankruptcy can reduce or eliminate some tax debts. Regardless of what the IRS may tell you, consult legal counsel to determine if the bankruptcy option can solve your tax problems. Be aware that filing for bankruptcy is complicated and can alter your future financial situation.
In dealing with the IRS, it is your right and responsibility to comply, question and act. Make sure you understand the situation and don’t be afraid to seek help when needed. <<
Leslie B Chief O
Samuel L. Tuck
Principal-in-charge Tax Department Tauber & Balser, P.C.
SAMUEL L. TUCK, CPA, MTX, is the principal-in-charge of the Tax Department at Tauber & Balser, P.C. He has more than 15 years of experience with a strong concentration in taxation for real estate partnerships and developers and a variety of small to mid-size businesses. He has developed expertise in technology-based companies, S corporations and limited liability companies. Tuck has extensive experience as well with family limited partnerships, trusts, international taxes and estate planning. He regularly consults with clients to improve their business operations and economic and accounting issues. Reach him at (404) 814-4901 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Tauber & Balser, P.C.
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