Frequently Asked Questions

Some Frequently Asked Questions

 

 

Should I deal with the IRS on my own?

I normally do not suggest calling the IRS on your own or representing yourself with the IRS Collection Department or IRS Examination Department. Many times, more information is provided to the IRS than is needed and it can actually end up hurting your situation.

 
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Who can help me with Tax Problems?

There are only three categories of professionals that can legally represent you before the IRS. They are an enrolled agent (EA), a CPA and an attorney. Experience is a key factor, just because someone holds a professional designation, does not mean they have the experience you will need.

 
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Do I need the help of a tax professional?

Experienced Tax Professionals deal with tax preparation as well as tax issues on a regular basis. An attorney, might be familiar with the law, but may not have the practical knowledge of basic income tax issues and IRS issues. Generally, you may only need an attorney if you plan on going to tax court, have a criminal tax issue, or are planning a bankruptcy. There is a misconception that all CPA’s know taxes. Income taxes and accounting are two different areas of practice.

 
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What is an Enrolled Agent?

An enrolled agent is a person who has earned the privilege of representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before. Income tax preparation and IRS tax collection issues are separate areas of expertise and practice. Just because someone knows how to prepare your tax return does not mean they can help you with IRS tax issues. Don’t rely on an amateur!

 
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What is a Tax Court Practitioner?

I am the only Non-Attorney Tax Court Practitioner in Hawaii.  I have passed a rigorous exam and been admitted to practice before the United States Tax Court, the same as an Attorney.

 
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Do I have to pay all the taxes I owe?

You first need to find out why you owe the taxes. While this may seem like a no brainer, you need to determine if you agree or disagree with the amount of taxes that the IRS states that you owe. If you agree with the taxes, you will have different options available to you than if you don’t agree with the taxes due. This is assuming that your disagreement is not based on philosophical grounds, but because of a legitimate reason. If you disagree, you may have other options than just paying the tax due. Tax Relief Services will present the most common payment options available to you. We will also present the most common solutions if you agree or don’t agree with the taxes due. The information we provide are options that the IRS or even other tax professionals don’t bring up.

 
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Do I have to be up-to-date with my tax return filings?

Before you will be able to do anything other than pay the tax due in full, you will need to be in compliance. This means you will need to be up to date with your income tax filings. If you are self-employed or have other income with no withholding, you will also need to be current with your estimated taxes.

 
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Do I have to file all my missing or unfiled tax returns?

If you have missing or unfiled tax returns, the IRS has Policy Statement P-133. Under this Policy, only the last 6 years of unfiled tax returns will need to be completed. This is not to say that you might not have a filing requirement for more than 6 years, but if you are trying to get an extension of time to pay, an installment agreement or doing an offer in compromise, you will not be able to take advantage of one of the options listed without first filing the missing returns. Six years of returns is the magic number that the IRS will be looking for. Don’t file more years than the IRS wants. Contact the IRS at 800.829.1040 to find out what returns you need to file. Of course, if you have filed more years already and have liabilities owed or have tax liabilities from returns filed by the IRS, this Policy may not apply to you.

 
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What if I don’t have all my records or income data?

In most situations, the IRS will be able to provide you with wage and income data to help prepare the missing tax returns. You can call 800.829.1040 to order the available information. Many times, it is quicker and easier to contact your former employer to get a copy of the information. The IRS will only have federal withholding information which may not be completely helpful if you need to file State tax returns. If you are self-employed, you can contact the IRS for additional methods in reconstructing your income. When you call the IRS ask them if they can help you to prepare the missing returns or where you can get free or low-cost help through a local tax clinic. You can get back tax forms from the IRS at no cost if you want to complete the returns yourself.

 
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Is the IRS there to help me?

The IRS is generally not looking out for you. While they can offer some limited help, if you owe taxes, their job is to collect the taxes due. If they cannot get voluntary compliance, they have the authority to take enforced collection action against you and your property. Remember, they are not your friend.

 
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I can’t pay the taxes I owe, should I still file?

Yes! There are generally two penalties you will be liable for. They are the failure to file a tax return by the due date, usually April 15 and the failure to pay penalty for not paying the tax due by the due date. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file timely, even if you can’t pay, this will not apply. That’s why even if you can’t pay the tax due, file your tax return on time. This can cut the penalties down by about 50 percent. The other penalty is failure to pay. This penalty can be as much as 22.5 percent of your unpaid liability.

 
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Can penalties be waived?

You may be able to avoid part or all the penalties if you can establish that you failed to file or pay your taxes on time because of a reasonable cause. A reasonable cause waiver is generally granted when a taxpayer exercises ordinary business care and prudence in determining their tax obligation, but is unable to comply with those obligations due to circumstance beyond their control. Some common examples are due to divorce, death in the family, substance abuse or illness, to name a few. There are other types of penalty waiver relief, but we do not cover them because reasonable cause is the most common. The IRS will not volunteer to waive penalties. You will have to request a waiver.

 
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Can interest be waived?

Interest is mandated by Congress and is generally not abated by the IRS. There are exceptions for presidentially declared disaster areas, military personnel, terrorist actions or IRS error or delays. If applicable, interest is in addition to the penalties, and it is applied to both the taxes and penalties. The interest rate changes each quarter based on the federal underpayment rate which is the federal short-term rate plus 3 percentage points.

 
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I never filed a tax return, so why did the IRS send me a bill?

If you haven’t filed, the IRS has the authority to file on your behalf.  This is called a Substitute for Return. They will file a tax return based on your known available wage and income data. The IRS will have sent out a series of notices asking you to file. If you don’t file, they will file you as single or married filing separate with one personal exemption. Once they file for you, they will assess the tax due and send out a bill for the tax due.

 
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Can I dispute an IRS-prepared Substitute for Return Filing?

Yes, by filing your own Original Tax Return. The IRS will treat your filing as an Audit Reconsideration and adjust the balance you owe either up or down. Many times, you can eliminate the balance due and generate a refund. If you do file an original return, make sure it is to your advantage. By filing, you will start the 10-year collection statute all over again on the new assessment.

 
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How can I request an Audit Reconsideration?

If your tax return was audited, but you never responded to the IRS or never presented supporting documentation, you may be able to do an audit reconsideration. An IRS audit is a review/examination of tax return and financial information to ensure information is being reported correctly, according to the tax laws and to verify that the amount of tax reported is accurate. If you owe taxes because of the audit, you may be able to ask for an audit reconsideration to present additional information to disagree with the changes made by the IRS. The two most common types of audits are the CP 2000, notice of proposed changes or an in-person examination.

 
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Will my Audit Reconsideration be accepted?

The IRS will generally accept an audit reconsideration for review and processing, but it may

not be available to you if you agreed with the assessment and/or paid the tax in full. You may be able to file an amended tax return.

 
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What if the Audit is not over yet?

If your audit is not over, provide information requested by the Tax Examiner to dispute their position and/or support your position.

 
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What if I don’t agree with the Tax Examiners outcome?

You can contact the Group Manager to see if the disagreement can be resolved with the Manager. If it cannot be resolved, you can go to Appeals or Tax Court.

 
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What is Appeals?

The Appeals division is supposed to be a neutral independent branch of the IRS. The mission of Appeals is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the Taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

 
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What is an Amended tax return?

An Amended tax return is generally done if you discover an error after your return has been submitted and you may need to amend your return to correct it. Also, if you paid the tax in full because of an audit, a substitute for return filing, or with your original return, you can file an amended return to claim a refund.

 
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How long do I have to file an Amended tax return?

Generally, you have 3 years from the date of filing or 2 years from the date of your payment to qualify for a refund. If it is filed after two years, you may be able to reduce the amount owed, but you will not be able to get a refund. An amended tax return is filed on a Form 1040X. The collection statute should be reviewed to make sure it is to your benefit to file an amended tax return.

 
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How long does it take to process an amended tax return or audit reconsideration?

Amended returns and audit reconsiderations may take 90 days or longer to process. Until it is processed you will have to deal with the tax liability that is currently owed. The IRS may provide a temporary hold on your account to allow for the processing of the amended tax return or audit reconsideration. If they don’t you may temporarily have to set up one of the payment options to keep the IRS appeased. Generally, you will need to deal with the amount they claim you owe, even though when the return you submitted or the audit reconsideration is processed you will owe less or even nothing at all.

 
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Can I get a hold on the IRS Collection activity?

Depending on what notice status you are in, it may be possible to obtain a temporary hold on your account from 2 to 6 weeks. When you talk to the IRS tell them you need time to review and determine if you agree or disagree with the balance due.

 
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Who do I contact at the IRS about my situation?

Generally, you want to call the number on your notice or the person who has contacted you.  If you are not sure, start by calling the IRS toll free number at 800.829.1040 and they will refer you to the correct department. I generally don’t recommend contacting the IRS without professional representation.

 
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Will the IRS call or email me?

Generally, the IRS will not call you. They will never send you an email. It is possible that they may show up at your door, but you will always be contacted by letter before that happens. The IRS will not demand payment or threaten to put you or your family if jail if you do not pay them.

 
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Does the IRS use collection agencies?

The IRS can refer your case to a collection agency and they will call you and send you letters.  The IRS will inform you by letter if your case if referred to a collection agency.

 
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Should I pay the taxes I owe?

It depends. If you agree with the tax due, by paying in full you will save money by avoiding accumulating penalties and interest. You may save money in the long run by borrowing money, using a credit card, selling an asset, or using retirement funds to pay the taxes you owe. If you pay in full or have already paid in full, you can still claim a refund within 2 years of the payment. If you do not agree with the balance, consult a tax professional before paying.

 
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What payment methods are available?

Payment can be made by cash at most local IRS offices, with a check, money order, cashier’s check, credit card, debit card or electronically.

Additionally, an installment agreement can also be made as a direct debit from your savings or checking account or as a payroll deduction or online.

 
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Can I pay the IRS over time?

Yes, this is called an installment agreement. An installment agreement request can be made when your tax return is mailed in, by telephone after you receive a notice, in person at a local office, or online at IRS.gov. Even with a formal installment agreement, the IRS may file a tax lien to protect their interest against other creditors. A tax lien attaches to your personal or real property until final payment is made, and it may have a negative impact on your credit rating. A tax lien is recorded through the County recorder’s office, and it becomes public information. There are conditions that must be met when you set up an installment agreement. Payments must be made for the full amount and by the due date. You must remain current with your taxes and file and pay future tax return liabilities on time and for the full amount. Failing to meet the required conditions will default the installment agreement, and it may subject you to enforced collection action.

 
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How long will the IRS give me to pay?

You may be able to pay the balance due over 72 months.

 
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How many years can the IRS try to collect taxes from me?

Generally, the IRS only has 10 years to collect the taxes that you owe them. This is call the collection statute of limitations. Exceptions apply and additional research may be necessary.

 
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What happens if I owe under $25,000.00?

If you owe under $25,000, including interest and penalties, you may qualify for a streamline installment agreement for up to 72 months. There are generally user fees to set up the installment agreement ranging from $52 to $105 dollars.

 
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What happens if I owe over $25,000.00 but under $50,000.00?

If your tax liability is larger than $25,000 but under $50,000.00, you may still qualify for an installment agreement. When your balance is over $25,000, the IRS may file a tax lien.

 
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What if I can’t pay the IRS within 72 months?

You may be able to obtain a Partial Pay installment agreement, based upon your ability or lack of ability to pay. You might also qualify for a suspension of collection temporarily, but generally a tax lien will be filed by the IRS. Contact our office to see if you qualify.

 
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What if I can’t afford to make any payment?

The IRS may temporarily suspend collection on your account. Contact our office to see if you qualify.

 
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What is a tax lien?

A federal tax lien gives the IRS a legal claim to your property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against other creditors. A tax lien informs the public that the U.S. Government has a claim against your property. This includes property owned at the time the notice of tax lien is filed and any property acquired after the tax lien is recorded. A lien will affect your credit rating.

 
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When can a tax lien be removed?

Once the tax is paid in full, the tax lien will be removed.  Also, the IRS has a “Fresh Start Program” that may allow the tax lien to be withdrawn before the tax is paid in full.  Contact our office for full details.

 
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Can the IRS levy my bank account?

The IRS can levy your bank account and take your money. The money will not be released unless you can establish a financial hardship. The money is kept by the bank for 21 days before being turned over to the IRS. This will give you time to seek the release of the money taken. It is common for joint bank accounts to be levied and money taken that is not all yours. If the IRS has taken funds improperly through a wage garnishment or levy, contact our office immediately.

 

 
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Can I settle for Pennies on the Dollar with the IRS?

Don’t believe all those radio ads or late-night television commercials that you have been bombarded with. Many of the firms are only interested in separating you from your money, without fully performing what they promise. Some individuals may qualify to pay a fraction of what is owed, but you must meet specific IRS criteria to qualify.  The process is called an Offer in Compromise. Exercise caution when using these types of companies.

 
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What is an Offer in Compromise?

The offer in compromise is a settlement program that the IRS offers to individuals or businesses that qualify. You must meet the criteria, before you can qualify, but if you do qualify, it is a way to settle all your tax liabilities, interest and penalties for an amount less than the full amount. There is no set amount that they will generally accept. It is usually based on your financial information. The most common type of offer in compromise is doubt as to collectability, which simply means that you agree you owe the taxes but because of your financial condition, you can’t afford to pay the taxes owed even if you wanted to. The other types of offer in compromise are doubt as to liability and effective tax administration. Contact our office to see if you qualify.