Most people view the process of trying to straighten out a problem with the IRS with the same enthusiasm they reserve for a root canal. However, there are relatively painless ways to resolve tax-related issues. Whether you have a tax bill you cannot pay, or have received a notice or letter, taking the appropriate steps immediately will save you a great deal of time and anxiety. What action you need to take will depend on what kind of problem you have. The list below outlines the most common problems and the best plan for dealing with them.
- It's April 15th and you owe more than you can pay: Whether it is due to an error in withholding, a sudden windfall, or an unexpected change in their circumstances, many people find themselves with an unexpected tax bill at the filing deadline. What's a taxpayer to do?
- Don't ignore it: Eventually, the IRS will put things together and come looking for their money. You will then be liable for the original balance due plus penalties and interest.
- Pay as much as you can by the due date of the return: this will minimize penalties and interest.
- Request an installment agreement: Use Form 9465, available on the IRS website or through most commercial tax preparation services. This allows you to determine an approximate monthly payment and payoff period. The actual amount will depend on the IRS; you will have to pay interest, an installment plan fee, and possibly penalties on the amount you are unable to pay. You will normally get a response to your request within 30 days, sometimes a little longer if it is close to the filing deadline. NOTE: The IRS must agree to accept the full amount of your tax liability in installments if certain conditions are met. See the IRS for details.
- You have received a letter or notice: These are issued for any number of reasons, some of them as simple as a missing signature. The body of the letter itself will normally tell you what kind of response the IRS is looking for. So, important things to do are:
- Read it. Read the entire thing completely, and review all attachments and corresponding documentation.
- Do your best to understand the problem and what you need to do to resolve it. If you feel the IRS has made a mistake, you are entitled to point out (and prove) that there is an error. Call and ask questions: Most notices contain a telephone contact number, as well as a case or letter number. If you don't understand something in the letter, call and ask for clarification. Keep in mind that you will need to resolve the problem in writing, usually by submitting appropriate documentation, but an initial phone call to make sure you understand exactly what is happening may save you some time.
- Follow the instructions: Again, the letter will spell out what you need to do to respond. Typically, you are asked for additional documentation of certain items. For example, you may be asked to prove that a child you are claiming on your tax return is a dependent you are legally entitled to. You will be given list of acceptable proofs, such as school or medical records, and asked to compile and send them to the IRS.
- Ask for help: If you used a paid preparer, you can typically turn to that person for help. The large national tax prep services usually have at least one office open year round, as do CPA's and banks or credit unions. A professional tax preparer deals with letters, notices and audits as a matter of course. Even if you did your return yourself, you can still contact a professional if you have a problem. Most will charge by the hour or by the type of documents they must prepare in response.
- Taxpayer Advocate Service: If you are unable to resolve your problem through the normal channels, you can turn to the Taxpayer Advocate Service. This is an independent organization within the Internal Revenue Service that helps individual taxpayers resolve problems and that works to identify systemic changes that will eliminate future problems.
You can request the help of an Advocate by calling toll free 1-877-777-4775 or by going to the IRS Taxpayer Advocate contact page.