- Ignoring Letters From the Internal Revenue Service ("IRS"), Massachusetts Department of Revenue ("DOR") or Your Attorney
Any notice or letter you receive from either the Internal Revenue Service (the "IRS"), Massachusetts Department of Revenue (the "DOR"), Appellate Tax Board ("ATB") or your attorney is important. Failure to respond to a communication will usually only make your situation worse. Don't assume all communications from the IRS or the DOR are automatically bad. If your attorney is trying to contact you or is asking you for information and documents there is probably a good reason, and hopefully those questions are a step towards resolution.
The IRS or DOR may select you for an audit or further investigation. This may be a random selection, or it may be a targeted selection based on something on your return, or because you failed to file a return. This notice need not be the catastrophic event most people think it, but it can turn into one if you ignore it. Audits can be managed but you need to pay attention.
If the IRS or DOR has decided that you owe money, they will issue an Notice of Assessment requesting payment of the taxes in full. This is the first phase of the collection process. Upon receiving the first notice, you should determine if the bill is correct and if you agree or disagree with the amount assessed. In either case your next best step, as unpleasant and scary as it may seem, will be to respond to the IRS, the DOR or your attorney.
If the bill is correct, RESPOND to the IRS or an attorney to review your possible options for satisfying the debt. Ignoring the bill will only increase it with interest and penalties. If the bill is not correct, RESPOND to the IRS or an attorney so you can start gathering documents and records to show them why the bill is not correct.
In either case, communicating with the IRS or DOR, on your own or through your attorney, should be your FIRST move. Failing to contact the IRS will send the wrong signal and cause you to waive many of your time sensitive rights including rights or appeal and review. From their prospective, if you don't respond to their communications they have no information to go on except to assume their assessment is correct and you do not intend to pay. Doing nothing will NOT make the problem disappear and the collection process will continue even without your participation. The IRS and DOR have very significant sources of information, may companies you deal with have reporting requirements to the government you may not be aware of. The IRS and DOR also have very significant authority to attach your assets, bank account, any income streams you have (see IRS Collection and Lien Defense).
Sometimes solving the problem is a simple as providing documentation you already have in your possession. Sometimes the resolution can be much less that you are in initially asked to pay. Certainly the amount due will only continue to increase rapidly with penalties and interest.
- Not Understanding Your Rights
In 1998 taxpayer rights were greatly expanded by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98). This expansion of rights granted taxpayers Due Process appeal rights to have a hearing to appeal certain collection actions starting at the local level.
You may appeal many IRS collection actions to the IRS Office of Appeals ("Appeals"). The two main procedures are Collection Due Process and Collection Appeals Program. You may also appeal other collection actions:
- Rejected Offer in Compromise;
- Proposed Trust Fund Recovery Penalty;
- Denied request to abate penalties (i.e., late payment, late filing, or deposit penalties).
Collection Due Process (CDP) is available if you receive one of the following notices:
- Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320;
- Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing;
- Notice of Jeopardy Levy and Right of Appeal;
- Notice of Levy on Your State Tax Refund - Notice of Your Right to a Hearing.
Collection Appeals Program (CAP) is available for the following actions:
- Before or after the IRS fi les a Notice of Federal Tax Lien;
- Before or after the IRS levies or seizes your property;
- Termination of an installment agreement;
- Rejection of an installment agreement.
CAP is generally quicker and is available for a broader range of collection actions. However, you can't go to court if you disagree with the CAP decision. You may represent yourself at CDP, CAP and other Appeals proceedings, or you may be represented by an attorney, certified public accountant, or a person enrolled to practice before the IRS. Also, you may be represented by a member of
your immediate family, or in the case of a business, by regular full-time employees, general partners or bona fide officers.
These two procedures provide very important rights to taxpayers and allow them the opportunity to be heard during various phases of the collection process and challenge certain collection decisions.
These Appeals processes happen inside the IRS, but seek to find an independent resolution outside of the court system. Another department of the IRS (called "Appeals") looks at the facts and issues without the perceived influential intervention of the caseworker and superiors.
Not understanding these rights and when to use them, the taxpayer can loss the valuable opportunity of having a "neutral" party consider your circumstances and maybe granting a more favorable result is lost. The way to PROTECT YOUR RIGHTS to appeal collection actions is to be sure not to waive these created rights. If the appeal request is not timely raised (see previous discussion on responding to the IRS or DOR), it is permanently waived and IRS can legally proceed to take enforcement actions to collect the tax debt.
- Having an Aggressive Attitude
When dealing with the IRS, keep your emotion and personal feeling out of the picture. They have a job to do, and they have the authority to do it. Getting angry, emotional and adding personal feelings to the discussion won't change the facts or figures. Naturally, it can make matters worse since it may demonstrate a lack of willingness to cooperate and deal with the issues and will certainly add to your frustration.
- Hiding Information from the IRS, DOR or Your Attorney
Many companies, including banks, employers and financial institutions have broad reporting requirements of transactional information from your every day life. This information is made available to the IRS and DOR. So they may know more about your financial life than you do. Either way, hiding information from the IRS when you have an obligation to report it is not a good strategy. When the information is unearthed, as it likely will be if there is a counter-party, you will look bad for having lied. Looking like a liar will not help you in negotiations.
- Not Developing Your Settlement Plan
The IRS's objective is to collect as much as possible in the shortest amount of time with the least amount of cost to the government. The IRS has a standard set of steps to settlement they will ask the Taxpayer to accept. If the taxpayer, or the taxpayer's representatives have not developed an plan for how much they believe is due they may be forced to accept the terms out of fear. Sometimes allowing the process to move from the initial offer into the collections process can result in a better payment plan and amount for the taxpayer.
- Not Knowing When it is Time to Call it Quits
Some circumstances require you to take a hard look at such drastic steps as bankruptcy, shutting down your business. Sometimes one of the hardest decisions a business owner must make is the decision to bring their entrepreneurial dream to an end. It takes a business owner who is operating on facts and figures and a clear understanding of the market they serve, not optimism to recognize that closing or even filing for bankruptcy protection is a good solution to overcome a drastic financial event.
There are numerous options available when faced with an IRS bill. Again, you should first determine if the bill is accurate, assess your personal and business situation and become fully knowledgeable about various collection options available. Whether it is an offer in compromise, an installment agreement, financial restructuring, or having collection suspended due to hardship, by avoiding some of the common mistakes and seeking professional assistance when needed, you can still get a permanent solution when dealing with your tax problems.
How Do I Get Started?
You can contact us at 617-245-8080, or by emailing the Massachusetts and Federal Tax Attorney Tax Attorneys Mooney McGinn LLP. We offer a confidential consultation to assess your needs and recommend a specific course of action.
The Massachusetts Tax Attorneys at Mooney McGinn LLP represent clients throughout greater Boston, the Commonwealth of Massachusetts, and (for representation with the IRS) across the United States.
The Tax Attorneys at Mooney McGinn LLP assists individuals and businesses in resolving federal tax issues and state tax issues. We also help our tax clients implement plans to avoid future IRS problems.
If you need help with an IRS tax issue, call Massachusetts Tax Attorneys at Mooney McGinn LLP at 617-245-8080 for a consultation.
Here is a list of the tax services Tax Lawyers Mooney McGinn LLP provides and the federal tax issues we resolves everyday for our clients:
- Resolution of Tax Levies
- Stopping Garnishments
- Tax Lien Releases
- Tax Litigation
- IRS Tax Audits
- IRS Tax Appeals
- Bankruptcy Litigation involving Tax
- Reduction or Elimination of Interest
- Business Tax Planning
- Individual Tax Planning
- Personal Income Tax Return Preparation
- Business Income Tax Return Preparation
- Estate Planning - Trusts
- Tax Planning
- Tax Consulting
- Tax Collection Counseling
- Abatement of Penalties
- Offers in Compromise
- IRS Payment Plans
- Installment Agreements
- Payroll Taxes & Independent Contractor
- Innocent Spouse Relief
- Statute of Limitation Issues
- Business Entity Planning - Business Formation
