4 Reasons Why you should Open your Mail from the IRS Immediately
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Have you ever received a letter from the Internal Revenue Service? Are you afraid of what you might find inside? It is easy to want to avoid bad news. Do not delay opening the correspondence. Severe consequences may result from delays. When the IRS sends a letter, it often contains time-sensitive information. Frequently the issue is easy to resolve. Contact your CPA right away and send them a copy of the letter. Any CPA worth their salt deals with the IRS all the time and can help you navigate solutions.
We have listed some information regarding how the IRS assesses penalties, interest, audits, and collections. The more familiar you are with the IRS and their processes, the easier it is to work with them and avoid common pitfalls that come with filing taxes.
The IRS assesses penalties for the following common occurrences:
- Failure to File – The IRS will levy fines on people who do not file taxes by the due date of the return.
- Failure to Pay – Occurs when the tax payment on the return is not made by the April 15th due date (July 15, 2020, for the 2019 tax year)
- Failure to Pay Estimated Tax – Taxpayers required to make quarterly estimated tax payments during the year and do not make them or pay on time, may be subject to underpayment penalties.
In some cases, penalties can be abated due to a difficult situation such as serious illness, death, or a natural disaster. It is called a first-time abatement policy. The first-time abatement policy applies to companies that have been compliant for three tax years before the tax year the abatement is requested.
The IRS will add interest to any outstanding tax balances due. Interest will be removed if penalties are abated. Inversely, the IRS will pay interest to taxpayers if a refund is held back and not remitted shortly after filing a return claiming the refund.
When taxpayers receive an audit request, it does not mean there is an actual problem. The IRS uses random selection based on computer data as well as what they refer to as related examinations.
A related examination is audit requested because a person has made a transaction with another person who is already in the audit process.
The IRS is responsible for holding taxpayers accountable for the accuracy of the income taxpayers report. The auditing process is their way to verify accuracy. Computers and analytics are limited in what they can confirm. IRS agents fill the gaps computers cannot perform by requesting additional documentation to validate that a taxpayer’s filing is correct. The IRS has three years from the original tax return due date or the date the return was filed, whichever is later, to examine your tax return. If there was a substantial error, they can go back six years.
The IRS requests documentation to verify the filed information. Once the reported data is substantiated or incorrect transactions found, the IRS will notify the taxpayer of their conclusions and close the case.
If you want to challenge the IRS’s decision, you can file an appeal. The appeals division is required to act impartially, but you may even challenge and appeal the decision by taking the case to tax court.
The IRS only initiates communication via written notices. The first notice you receive (in the case of an unpaid balance) will be a letter indicating the balance due, the tax year that it applies to, and will let you know how to make the payment. If you cannot pay immediately, the IRS offers installment agreements.
The IRS sends additional letters to taxpayers with unpaid balances. unpaid balances give the IRS the option to:
- Place a Federal Tax Lien
- Serve a Notice of Levy, or
- Offset a refund
A Federal tax lien is placed on your property and can damage your credit rating. The lien will remain until the total owed is paid.
A levy is a function for the IRS to seize assets, including wages, bank accounts, social security benefits, or other income. They may also seize property and sell it to satisfy the outstanding debt. The IRS will often use the current-year refund to offset a portion or all of the balance due and refund the excess.
It is in each taxpayer’s best interest to watch for correspondence from the IRS. The quicker you act on the notice, the easier it is to resolve the issues. It is also critical that tax returns and payments are made on or before deadlines. Avoid penalties and interest by planning carefully. Coordinate with your CPA on how and when to make payments. There you have it. Did we convince you to open the envelope? You might be surprised to learn how much it can affect outcomes.
Have questions? Contact us at 801-225-8474 or email@example.com no obligation answers.
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