Category: Taxpayer Representation

In general, the IRS appears to take a cynical view at people’s cost of living, and can be fairly judgmental about how we spend our money. This cynicism obviously increases dramatically the moment you have an outstanding tax debt.

Before delving into specifics, I’d like to make two points regarding the IRS personnel you’d normally be discussing your personal finances with. First, IRS field personnel such as Revenue Officers and Settlement (Appeals) Officers typically have higher salaries than the IRS National Standards for the areas in which they are assigned. In other words, even as public servants, they make more money than their own standards set for a middle class lifestyle.

Second, keep in mind that these people are public servants. In fact, most senior IRS personnel are lifetime bureaucrats, meaning that they have never had to work in the private sector. Some senior Revenue Officers, Revenue Agents (Auditors), and Settlement Officers have actually never worked a day in their lives outside of the government, and don’t even have finance or accounting backgrounds.

Combining these two things, you can see that it’s very possible that the IRS person you are explaining your finances to has an interesting view on the world: They’ve always made an above average salary, and lack any personal experience running a business or dealing with the reality of private sector employment. This skewed perspective becomes readily apparent in talking to senior IRS personnel if you’re a middle class taxpayer or “mom and pop” small business owner.

Now, with that said, let’s talk about the IRS National Standards. The government uses national and local cost of living data to establish norms for the cost of living across various categories. Some cost of living standards are the same for everybody, while others, such as housing and transportation, are adjusted by region.

These standards are based entirely on the government’s definition of a middle class existence. In other words, for purposes of determining how much of your income the IRS expects you to fork over in monthly payments on a tax debt, they only allow you to claim a middle class lifestyle.

It is not uncommon for me to have a conversation with a client where I’m explaining this, and they get frustrated. When you’re in IRS collections, they don’t like seeing that you’re making $1500 per month car payments on a Hummer and a Corvette, or have two people living in a 4200 … Continue reading

Most people tend to panic when they receive a notice from the IRS. Many, many people think that by stuffing that notice under the mattress, the problem will go away. Unfortunately, it doesn’t work like that. The best way to address a notice from the IRS is to deal with it immediately and head on. Here are some tips for what to do when you receive an IRS notice.

1. Don’t panic, and don’t shred it. Most IRS notices can be dealt with pretty simply. Not quickly, but simply.

2. Be sure you understand WHAT the notice is for. The IRS sends all sorts of notices — bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of pending deadline, etc. The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.

3. Every notice from the IRS will explain what you need to do with it. If they want extra information from you, it will explain what information they need. If it’s a bill, well, then they just want your money.

4. If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested, within the time limit. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. When you call, have a copy of your tax return and the correspondence available.

8. Keep copies of any correspondence with your tax records. Also keep record of who you talk to, including their IRS employee ID number (they’re required to give it to you), and detailed notes of your conversation.

If you receive a notice that you don’t understand or … Continue reading

Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different potentials for abuse by the firm offering the services, and it is important to do your due diligence and fully understand what you are paying for, how much, and when, before ever paying a single dime to a tax resolution firm.

One of the most common fee models is a retainer model, which is a carryover from the world of legal and CPA firms from which many tax practitioners come. Under this model, you pay an up front amount, which the firm holds on to and then bills against on an hourly basis. Close to the time when the retainer is all used up, you will  get a bill showing what was done, how long it took, and the hourly rate it was billed at. This bill will usually also include a request for additional retainer. The key thing to remember here is that if you don’t keep paying, they don’t keep working.

If you’ve been researching particular companies online, you may already have come across BBB, forum, Attorney General, and other complaints against some firms that aggressively bill down retainers, and are constantly asking their clients for more money, without making much significant progress on a client’s actual tax case. It is important that you thoroughly vet a company before giving them money, in order to avoid becoming another victim of a devious company.

Another common fee model is a flat fee-for-service model. This fee model has a large number of variations, from a flat fee for a specific package of quoted services, to a “menu of services” model where each service you can order off the menu has a specific fee. This latter method is very akin to the most common pricing model used in tax return preparation, where each specific tax form has a particular fee for preparing it. You’ll see this fee model used at many CPA firms and most retail tax preparation outlets.

When you are speaking with any tax firm regarding a package of services, it is very, very important that you understand exactly what services you are being quoted for, and what the company’s policy is regarding fees for additional services. When it comes to tax matters, it is not uncommon for additional services to be required, which will require additional fees if they are … Continue reading