5 Tips Taxpayers Must Know Before You Speak With the IRS
Tip No. 1 – Stop Enforcement Action
Individuals and businesses that find themselves the target of IRS enforcement action may stop the IRS in their tracks by filing form 12153. The purpose of form 12153 is to request a hearing with the Internal Revenue Service regarding a particular position that the IRS has taken, such as a wage or bank levy. Once this form is properly filed the IRS is required by law to place a hold on enforcement action. Please be advised that form 12153 should not be used as a delay tactic, in that once a hearing is granted the taxpayer must clearly present their position otherwise the original action taken by the IRS will be upheld.
Tip No. 2 – Avoid Signing Form 900
Taxpayers should be aware of what I call the ten-year rule. The Internal Revenue Service has a ten-year period to collect the tax due from taxpayers. IRS personnel are well aware of the ten-year collection statute. Some IRS agents will recommend that taxpayers seeking an installment agreement sign a waiver to extend the collection statute. They are well within their rights to do so. We advise our clients to explore other options such as an Offer-in-Compromise, rather than allow the Internal Revenue Service additional time to collect the tax. To determine how much time is left on your collection statute, ask a CPA to request a record of account from the Internal Revenue Service.
Tip No. 3 – Utilize Uncollectible Status
The Internal Revenue Service has a classification titled uncollectible status for taxpayers unable to make monthly payments on their tax debts. The IRS will allow taxpayers to get their financial house in order. Taxpayers seeking this classification must disclose their financial condition to the IRS. Once your account is regarded as uncollectible you are not required to make monthly payments and the IRS will stop all enforcement action. However, interest and penalties on the unpaid balance will continue to accrue. Accordingly uncollectible status should be requested as a temporary and not a permanent solution to your problem. Taxpayers may be reclassified from uncollectible to collectible at any time or when their income increases. At such time enforcement action will continue.
Tip No. 4 – Consider the Offer in Compromise Program
Consider filing an Offer in Compromise to reduce your tax debt. An offer in compromise is a legal agreement between the IRS and the taxpayer in which the original tax liability plus interest and penalties are reduced. Preparing and successfully negotiating an Offer in Compromise is a complicated process. A taxpayer’s assets and projected income are factors which determine the amount to be offered. However, understanding when to include and exclude certain assets such as retirement plans is critical, in that it could save thousands of dollars. Taxpayers who file successful Offers must remain in compliance with the Internal Revenue Service for 5 years. All future income tax returns must be filed timely without any unpaid balances.
Tip No. 5 – Avoid Direct Contact with the IRS
You do not have to speak with the IRS. As a taxpayer you have a right to have an independent CPA handle all correspondence. Be sure to consult with a CPA before you say something to the IRS that you may regret. Remember, the IRS employees are paid to look out for the government’s interest, not yours.