If you have received a letter from the Internal Revenue Service or worse yet have been contacted by telephone or by an IRS Revenue Agent or Revenue Officer or Criminal Special Agent knocking at your door, then you need to know how to react. You need to know what to do. Knowing what to do and then doing it promptly, will erase much of the fear in dealing with the IRS.
The Internal Revenue Service enforces the tax laws of the United States. Congress makes the actual laws. IRS is charged with assessing and collecting taxes from individuals, businesses and trusts that have income, excise or employment taxes due. IRS Service Centers send out non-filing tax return letters and balance due letters. If the case is not resolved by mail, then it is sent to the IRS Automated Collection System (ACS). You may be called and informed that you owe a balance. If ACS does not resolve the case, then it is sent to Field Revenue Officers-these are the IRS employees that will contact you at your work, home or business. This system is based on the balance you owe-lower balances get letters. Higher balances get more human attention. This system is based on the idea that people contacted will just accept whatever IRS says that they owe and send a check. It is not prepared for the huge onslaught of calls and correspondence that is generated by those letters.
All three branches of IRS collection have the power to file a Notice of Federal Tax Lien that will destroy your credit for the ten years that you legally owe the balance. The Lien can also prevent you from getting hired in a new job or cause you to lose your Government Security Clearance and cause you to be demoted. They also mail out Notice of Levy forms that will seize your bank accounts, brokerage accounts, and your wages, salary and other income you have from self-employment. Sometimes a bank levy will hit an account that you are on with your parents or children. The IRS does not care-they will usually take the money.
I never planned to go into the tax consulting business, until my last year in IRS, when I was assigned a taxpayer who was deathly afraid of the IRS. He owed $17,000 and paid $7,000 to a firm called JK Harris and was assured that he would never have to talk to the IRS. (If you owe under $25,000 you can get an installment agreement with little effort online. Go to IRS.gov to find out how.) This tax firm went out of business through bankruptcy and one day I was knocking on his door and he was so scared he was shaking and became physically sick. I was able to get him calmed down and we worked out a payment arrangement in less than 15 minutes.
Revenue Officers are the most dangerous people in IRS to deal with. They have the authority to take your house, your car, your investments, your RV, your vacation home, your tools and your business. They can and do destroy people’s lives with the stroke of a pen-if they do not hear from you. If you have been contacted by a Revenue Officer- and they do this by going to your last known address and knocking on your door. If you are not home, they leave a calling card and then go around to your neighbors to ask them if you still live there and if they know where you work or bank. It is very embarrassing to come home from work and find a nervous neighbor tell you that the IRS came to their door. Most of your neighbors will feel intimidated and tell all about you in an instant. It is worse still if they levy your wages, (garnishment) they take most of your pay check and you have to go into work and explain to your boss what happened. It is never easy. I have seen many people get fired for this alone. Because the employer does not want to have anything to do with the IRS.
Without any real due process rights or open court hearing, the IRS can seize your bank account, your car, your business, and anything you own after making a formal demand for payment and then waiting 30 days. Then they file the Notice of Federal Tax Lien-and this can all happen without you ever speaking to anyone at IRS.
Criminal Investigation Special Agents
The second group of people in the IRS who you should never deal with on your own, are the Criminal Investigation Special Agents. These are people who are armed and dangerous. Everything you say to them, even casually can and will be used to develop a criminal case against you. They will try to get you convicted of tax evasion or tax fraud and get a lengthy jail sentence and heavy fines. They work with the U.S. Marshalls and I.C.E and the F.B.I and they will seize everything you own-even before you are found guilty. Treat them respectfully and take their card and tell them that you must seek legal counsel before you speak to them. Then call Richard Schickel at RMS Consulting 520-668-3243 who will advise you what to do and refer you to experienced tax attorneys who will work with IRS to lessen the sting of the investigation. You have a lot to lose and probably will- but if they can keep you out of jail-you are still free to go out and pursue work that does not land you in this sort of trouble again.
In any dealings with the IRS-you are presumed guilty until you prove yourself innocent.
If you have been served a subpoena or summons, do not offer any information until you have first spoken to a tax professional. Criminal Investigation has an informal saying “Greed follows prosperity and we follow greed.”
Revenue Agents and Tax Auditors
The third most dangerous IRS employees are the Revenue Agents and Tax Auditors. These are CPA’s and accountants and people expertly trained in tax law. They are the people who will look at your bank statements, your lifestyle, your credit card statements, your credit reports, and any other financial records that they can obtain. They will judge you guilty until you can provide them with some explanation of what you listed on your tax returns. They can question everything on the return. They will also seek to build a criminal case against you if they find that you are not forthcoming with financial information and your income does not support your lifestyle. The IRS is very powerful and if you have not filed tax returns-it will just put all your income on a blank tax form without any credits, filing status or deductions- and then come up with huge balances thru its Substitute for Return Program (SFR) and 6020b tax program.
Most audits are correspondence audits, not face to face audits. This means that if you moved and your forwarding address expired, IRS will send you a letter and since you will not get the letter and be able to respond, they will make tax increases and begin collection against you. All without your knowledge.
You have many rights if you are in an audit or owe a tax balance-but most people either don’t understand this or use them. Or they are afraid to use them. The deck is always stacked in the favor of IRS.
The best way to deal with the IRS is to be in constant communication with them. But in the case of a tax audit- I have heard many people attend audits without qualified tax professionals and when they answer the long list of questions asked by the IRS- they end up giving way too much information that is later used against them in Tax Adjustment Increases. So no communication hurts you and too much communication hurts you also.
At RMS Consulting we have retired Senior Revenue Agents and Senior Tax Auditors who can protect your rights and help discern what the IRS is looking for in its audit requests. They can also “pre-audit” current tax returns so you avoid any more problems.
Auditors use this criteria-“LUQ”-this means Large, Unusual and Questionable expenses or deductions. We know what will attract the auditor’s attention. Every year IRS has new programs that target certain individuals or businesses are selected for audits.
Taxpayer Assistance/Walk in Office Help
The Taxpayer Assistance employees-formerly known as Taxpayer Service are the people you meet when you just walk into an IRS office. They bear the brunt of the anger, fear and confusion towards IRS. These are the employees that you often wait 1 or 2 hours to meet when you just walk in off the street. They know everything about the letters that you have received and do research and can offer you advise on how to resolve your case. On cases under $50,000 due, they can give you an installment agreement usually on the spot. They are very overworked, but if you can find one who is knowledgeable and able to help you-treasure that moment. They do not handle audit issues or large dollar cases. They are under a lot of pressure to see all those other people in the room that are waiting for their moment before IRS also.
Predatory Tax Firms
The fourth most dangerous people you will meet on your IRS journey are those predatory tax firms that advertise so heavily on the TV and internet. In their effort to get your business, they will actually harass you-even worse than the IRS, when they learn that you have tax problems. They not only plant seeds of fear but tell people information that is not correct and unethical. The Notice of Federal Tax Lien is where the very aggressive tax representative firms, lawyers, CPA’s and enrolled agents get your name and address from. They will call you repeatedly, send emails and letters in an attempt to get you to retain their firms. They can be worse than the IRS-sending you official looking letters implying that they know people in the IRS and can make arrangements where you pay little or no taxes. This is not likely, unless you have just come out of bankruptcy or have already lost everything, you are elderly, have little income or you are sick from a life threatening disease. Do not believe the claims that they make to try to get your business.
I got into the tax consulting business, because I had a taxpayer who was deathly afraid of the IRS. He owed $17,000 and paid $7,000 to a firm called JK Harris and was assured that he would never have to talk to the IRS. (If you owe under $25,000 you can get an installment agreement with little effort online. Go to IRS.gov to find out how.) So this tax firm went out of business through bankruptcy and one day I was knocking on his door and he was so scared he was shaking and had to take a blood pressure pill and he was diabetic and the shock of me at the door caused his sugar to drop. I was able to get him calmed down and we worked out a payment arrangement in less than 15 minutes.
Tax Increases and Adjustments
IRS sends out letters after they review and match up what you report on your tax return and what they think about that. These are called adjustment letters. The CP2000 letter is called the letter is most often issues when IRS is proposing to increase your tax. An internal audit showed that it had an error rate of 40%, but that most taxpayers do not challenge the letters and the balances- they just pay the balance because they fear IRS.
Tax, Penalty and Interest Abatements
Many people have been told that IRS never abates tax, penalty or interest. That is not true. They do it every day. There is a procedure for abatement if you can present reasonable cause for the abatement. This means that you have some reason/some circumstance that happened to you that prevented you from doing what you needed to do in filing or paying your taxes. This can be if the IRS told you orally or in writing to do something and it was in error, or a CPA, Lawyer or Enrolled Agent told you to s=do something that was incorrect, or illegal. Fire, casualty, natural disasters and other disturbances also qualify. This can include, death of one taxpayer, illness. If you had something happening in your financial life that caused the tax problems. Or there is another process called First Time Delinquent. That can relieve you of many penalties. IRS does not advertise this and a recent audit of IRS found that the IRS collects $781 million a year that probably should have been abated. This would apply if you have been in full filing and paying tax compliance for the previous three years and now you have a problem.
The IRS also offers automatic installment agreements for various amounts and with or without liens being filed. These are usually direct debit agreements. It can be confusing to figure out if you qualify or not. See IRS.gov or call Richard Schickel at 520-668-3243.
Offer in Compromise
Anyone watching TV, will be bombarded with hundreds of ads talking about settling your tax debt with IRS through the Offer in Compromise program. This is a program were some tax balances are settled for less than full payment. Out of the 600,000 submitted last year only 31% were accepted. This may be the answer for you, but it is rare that you would be able to qualify for and fund an offer. This is because the offer has to be from an outside source-not on property that the IRS already has a lien against. RMS Consulting can do the OIC Pre-Qualifier Test offered by IRS.
Almost every action threatened by IRS or carried out, such as federal tax liens, levy, intent to levy wages or bank accounts, rejection of installment agreement terms you propose to IRS, rejected Offer in Compromise, proposed Trust Fund Recovery Penalty –Employment Taxes, IRC 6020 (b), and penalty abatement requests that have been denied. You may file a Collection Due Process (CDP) or Collection Appeals Program (CAP) request and this will pull the case away from the person who is currently working it to a more educated and experienced IRS Appeals Officer- these are Settlement Officers. They can be your best friend in IRS if you make convincing arguments-based on tax law as to why the IRS should resolve your case the way that you are proposing.
RMS Consulting Offers You a Strategy for Dealing with IRS
People are afraid of the IRS and for good reason. This fear encourages the abuse that citizens are getting from the IRS. Most IRS employees are competent, loyal people who want to do the right thing for both the taxpayer and the Government. Unfortunately –those are not the kind of people that rise up in IRS management.
There is an informal policy of “go along to get along. “ In encouraging employees to close their cases as quickly as possible. Because some employees feel that they should not risk harm to their career by sticking their neck out and doing the right thing for every single taxpayer.
Shirley Petersen, IRS Commissioner in 1992, told Congress, “The tax law is now so complex that it affects the taxpayers ability to comply-and often affects their willingness to comply, as well…A good part of what we call non-compliance with the tax laws is caused by a taxpayers’ lack of understanding of what is required in the first place. Once you acknowledge that reality, it makes good business sense to increase our efforts to help taxpayers comply rather than relying solely on after the fact enforcement.” That was 22 years ago, and it has grown ever more complex. Congress continues to pass more tax laws and IRS is then forced to make rulings, procedures, manuals and decisions based on that. It is estimated that the Internal Revenue Code, the Internal Revenue Manual, the rulings, decisions and related tax law if put in a line of books would reach 16 feet across.
How can you hope to get a fair hearing with all that? You cannot expect to learn the whole IRS system and employees attitudes in a short time. You need experienced representatives from RMS Consulting to guide you in your dealings with IRS.
RMS Consulting can offer you strategies and tax planning that encourages you to avoide taxes that you should not have to pay, but good tax planning and recordkeeping is essential. We also offer financial counseling that will help shield your assets from IRS attack. This includes income restructuring, asset financing, renting-not owning and many more tools.
The IRS is a huge government agency, but its budget has been cut and it is down from 120,000 employees in 1992 to 83,000 in 2013. They have not hired in three years. Their budget has been cut two years in a row. The budget was $12.15 billion and was cut to $11.2 billion. Last year 6,000 of its most experienced employees retired. The New York Times reported that the number of staff positions in enforcement dropped 6.4 percent to 19,531, the lowest in a decade. The number of IRS audits has dropped and revenue from audits has plummeted $7 billion or roughly 40% in the three years ended 2013. NYT 2-9-14.
Nina Olsen, the National Taxpayer Advocate, stated -Those decreases have left the IRS “unable to adequately detect and address non-compliance, requiring honest taxpayers to shoulder a disproportionately large share of the tax burden.” The IRS has a 40 year old mainframe computer and less employees than in the last 20 years. But that does not matter, when they are pointing their finger at you.
There are no easy answers with IRS. But a little knowledge of the system goes a long way and Knowledge is Power. The more you know, the easier the process can work for you. That is what you should expect from any tax consultant that you hire to help you with your case.
When you hire RMS Consulting- you have retired IRS employees talking the same language and sharing the same synergy as the IRS Agent. They know how to get things done.
The IRS is not sensitive to your needs or your personal finances or your business. IRS employees get a paycheck every two weeks. Many do not understand that you have to work hard to earn your money and if you don’t work, you don’t get paid. They get regular paychecks and if you are in a small business, you do not. We are sensitive to the ebb and flow of money and business.
There are many good, helpful and smart IRS employees who really do want to help you resolve your tax situation according to the procedures they work under; but they are also a few bad apples. Mostly in management, but they can also be front line employees. You just don’t know who you will get and sometimes their personal attitudes and prejudices will affect how your case is worked.
You can always represent yourself- but would you do that if you in court for a murder charge? I hope not! That is why tax professionals with years of experience are ready to assist you today. Call Richard Schickel at RMS Consulting at 520-668-3243 or send an email to firstname.lastname@example.org and we will see what we can do to help you when the IRS is after you.
If you owe the IRS, Richard Schickel and his associates at RMS Consulting LLC, can review your case in a free 30 minute telephone call- (a $75 value) and help you plan how you will respond to IRS. You will get advice on how to make the best deal possible with the IRS-that may result in an installment agreement, a status 53-currently not collectible determination-where collection of your case is deferred. Penalty and interest continue to accumulate but the statute of collections clock is also running. At least you will have some peace of mind that IRS is no longer after you for at least a couple of years. This allows you time to adjust your financial affairs and have some peace of mind.
In any case resolution you absolutely must file and pay any current tax returns and balances as they come due.