Tips And Guide For Debt And Loan Management

If you refuse to sign the Audit Examination Report, you will be sent a letter explaining how to protest the report. After that, you will be given the chance to explain why you think the auditor’s conclusions and requests for additional taxes were incorrect. Be concise, accurate, and make sure your reasons are justified with records and receipts. You will then have to wait, and wait some more. Your appeals hearing may not occur for another year, or it may happen in a few months. While you are waiting, your tax bill will continue to accrue interest. In the meantime, you can get a copy of the auditor’s notes and files from your audit. This information will help you immensely in your appeal. To get this information, send a Freedom of Information Request (FOIA) to the FOIA officer at your local IRS.
Your appeals hearing will be surprisingly simple. It will not occur before a judge; instead, you will go to your local IRS office and meet with an IRS employee, your appeals officer. What you need to do is then present a simple, straightforward case. Do not be overly emotional. Explain why the auditor was wrong and why you are right. There may then be a negotiation between you and the appeals officer. He wants to get your case over with and will be far more willing to settle if you seem reasonable and have presented a decent argument—that is, a reasonable justification for a certain deduction, for example. The appeals officer may, for instance, be willing to drop all penalties. If, by the end of your hearing, you still have not settled the matter, your next option is either to fight on by taking the case to tax court or attempt a settlement.

When you get the dreaded audit notice, take a deep breath. The experience will probably not be as bad as you fear. Although you will probably owe additional taxes as a result of your audit (most audits end that way), you can minimize the amount you will owe by making a good impression. You do so by being informed, organized, and confident.
The first thing to do is to go over your return for the year in question. You need to understand how and why you listed things as you did. You must be able to answer the auditor’s questions intelligently.
You also need to locate all records for the year in question. Get receipts, cancelled checks, books, records, logs, and calendars. Make a set for you and a set for the auditor. Not only will this save time, it will also make you look professional. It is equally important to act appropriately at your audit. Be neither a meek mouse nor a loud lion. Stay cool. It is akin to a job interview; you want to act your best. Be polite, respectful, and confident and speak clearly. In the process, heed these warnings, too:

• Do not say too much. Offering too little information is always better than offering too much.
• Do not be too helpful. You should not volunteer to answer questions not asked and should not do things not requested.
• Do not be a jerk. The revenue officer is only doing his job. You don’t have to like it to respect it.

After the audit is over, you will receive form 4549, an Audit Examination Report. (Did
you expect anything less?) This form will show any adjustments your examiner has made to the tax return in question. Taxes, interest, and penalties will be explained.
If you agree (or simply want to get this over with), you will need to sign the form and return it along with a form 870 (yes, another form). You can then either pay the amount due or request a payment plan.
If you disagree with the proposed assessment, you can try to informally work out an agreeable solution with the auditor or his manager, or you can do nothing. If you do nothing, you will then get a letter telling you that you have 30 days to appeal the audit results.

Most audits are conducted at IRS field offices. You are informed of an office audit by a letter that often requests that you bring along certain documents. The IRS is probably looking for one or more of the following:

• Under-reported income
• Excessive expenses
• Improper exemptions
• Improper deductions

Auditors are overworked and, despite what you might think, will probably not pour over every aspect of the return in question. Far more likely is an audit that covers a few main areas of concern and lasts no more than a few hours. Less likely are field audits conducted at your place of business. Field audits are more common for small business owners and are much more likely to result in additional money being owed. You are therefore advised to hire a tax professional to assist you with your field audit.
The field auditor will be interested in the following:

• Verification of business expenses.
• Unreported income, especially if you have a cash business.
• Bank deposits. An auditor can easily tell if you underreported your income by checking to see how much money you deposited in the bank that year.

It causes consternation among even the strongest amongst us. It evokes fear and loathing in Los Angeles (city of the fearless). It has the ability to make even the bravest of us quake in our boots. A Pauly Shore movie, you say? No, my friend, it is the dreaded tax audit.
The time limit given to the IRS to audit a taxpayer is three years from the original filing of the taxes. If you underestimated your income by more than 25 percent, the limit is six years. If you are suspected of fraud, there is no statute of limitations.
You may be targeted for an audit for several reasons:

1. Your expenses seem high for your level of income.
2. You are singled out through computer analysis. IRS computers analyzing supersecret audit factors generate 80 percent of all audits.
3. You are in a special class of employee.
4. Attorneys, auto dealers, telemarketers, and many other professions are under special IRS scrutiny.
5. You lost a previous audit battle. The IRS figures, why not mess with you again if it worked before?
6. You were randomly selected. Who says you are unlucky? We do!

The ACS is the largest collection division of the IRS. Most taxpayers are involved with the ACS due to either unpaid taxes or unfiled returns. Once the ACS has contacted you (usually by letter), procrastinate no longer. You must get in touch with an ACS employee and work out a suitable payment plan.
What the ACS employee will want to know is how much you can afford to pay back every month. At this point, it should not surprise you to learn that IRS rules allow only a certain dollar amount for expenses, based upon local and national standards. If you spend more, too bad. For example, the IRS does not permit credit card payments as an “allowable expense.” You can find these guidelines on Form IRM 5323, of course.
Getting in touch with the ACS is another hassle altogether. When you call, you can easily be on hold for an hour before speaking with an ACS employee. Before calling, be sure to have the following ready:

1. All returns for the years in question.
2. Completed forms 433-A and B. This form lists income and expenses. Form 433-A is for individuals; B is for businesses.
3. Your reason for calling (for example, to create a payment plan or to get a wage garnishment released).

If you do not have your ducks all lined up before calling, you are wasting your time. The last page of form 433A lists income and expenses. This information is what the ACS employee will want to know. Do not try and work outside the 433A form; the employee’s computer will not let him work outside that format.
What you want to do is to create an acceptable repayment plan, one that you can live with. To do so, you will need to be charming, understanding, and flexible. ACS employees are people. Some days they seem more willing to make a deal than other days. Presenting yourself as likeable and reasonable helps you get the job done.
If your tax bill is less than $10,000, the revenue officer can agree to a payment plan. Agreements for tax bills larger than that must be approved by a manager. You will then get a copy of the agreement in the mail.
Installment agreements will be revoked for any of the following reasons:

• Missing a payment
• Failure to file a tax return
• Failure to pay taxes that come due after the IA was entered into
• A change for the better or worse in your financial situation

After all taxes due have been paid through the IA, any tax liens that were filed for the years in question should be released.

One limit on the 9465 Request for Installment form is that it is best used only for taxes up to $10,000. If you owe more, or do not file a 9465, you will begin to get a series of notices from the IRS:

• Form 501: Reminder of Unpaid Tax
• Form 503: Urgent-Payment Required (you may get several of these)
• Form 504: Final Notice

Being ignored makes the IRS cranky. Do not ignore the 504 letter (Final Notice)! Ten days after the 504 letter is sent, the IRS can begin to seize your property. Although Uncle Sam is not likely to seize your assets at this point, it legally has the right to do so. At a minimum, you must call the IRS once you have received a final notice. If you continue to avoid your tax obligations during the 500 notice letters era, a more likely result will be that your file will be sent to the morass called the Automated Collection System (ACS).

When you file your return, you may not be able to afford to pay the taxes due. When this is the case, the best course of action is to pay as much as possible and request a monthly payment plan for the balance. Of course, you have to fill out the proper form. A form 9465 Request for Installment will do the trick. The 9465 allows you to request payments for up to 36 months and permits you to declare how much you think you can pay each month. Be sure to attach the request form to your tax return. The IRS is supposed to get back to you within a month, ruling on your request.

If you do not have records for the year(s) in question, you can request that the IRS give you its copy of your records, and it has to comply with your request for free. The catch? You must use form 4506 (we warned you) to make this request. The IRS will then send you copies of old W-2s and 1099s, but don’t expect to get them right away. You can also get a copy of your IRS account by asking for a transcript of your individual master file (IMF) or your business master file (BMF). The file may be indecipherable when you get it, but if you call your local taxpayer service representative at the IRS office, he or she will explain it to you.

Failure to file your taxes is a crime, although it is unlikely that you will get arrested for it (unless your nonfiling is chronically egregious). Our society has decided that people who smoke dope are more of a threat than tax cheats, so the likelihood of facing jail time for unfiled returns is remote. There are simply not enough jail cells for both drug criminals and tax cheats.
The IRS has several methods of finding out whether you have filed a return. The most common are the following:

• W-2s. These wage statements are filed by employers. If an employer declares in a W-2 that he paid you $2,500 last year, and the IRS computer fails to find a return by you stating the same thing, you are caught.
• 1099s. These are income statements. If your bank reports that you earned $100 in interest on your account last year, and those nasty IRS computers find no corresponding return, you’re caught.

Besides the possibility of criminal prosecution, whenever you fail to file, the IRS also has the right to file a return, called an SFR, on your behalf. You can bet that it won’t file the same friendly return that would have been filed by your own accountant.
Because an SFR return will inevitably cost you far more in taxes, interest, and penalties than a return you file on your own, it is in your best interest to have an SFR return overruled. Overruling an SFR is surprisingly easy. All you need do is file an original return yourself for the year in question, sign and date it, and write on the top in red ink “SFR PROTEST RETURN.”
The IRS will then process and accept your new return. Because your SFR protest return will probably calculate taxes lower then what the IRS said you owe, penalties and interest will also be reduced. Very few of these returns are ever audited or dismissed.

The first thing to understand about taxes is that even if you don’t have the money to pay them, your return should be filed on time. Not filing on time, even if you do not have the money to pay the amount due, is just plain dumb. The penalty for not filing your tax return on time is 5 percent per month, whereas the penalty for not paying your taxes on time is only half of 1 percent per month. File on time, even if you can’t pay a penny. Just send in the forms without a check. For example, assume that Marty owes the IRS $10,000. If he files on time and doesn’t send a check, he will owe the IRS another $50 a month (half of 1 percent). If he does not file at all, he will owe the IRS an additional $500 a month (5 percent of $10,000).