So you were minding your own business having a great year in your business, but you were not consulting a tax professional. To make matters worse, you were using your brother-in-law as your advisor. Not that your brother-in-law doesn’t know the tax rules, but he more than likely was not trained nor experienced in tax matters. So, in the end, you did not factor in the taxes due on your great business year. Furthermore, you did not get your bookkeeping done until August of the year your return was due and filed both the business and individual return in September. What’s the big deal? Well, you now find yourself with a large tax bill, late filed returns (because you did not file the extensions), and penalties and interest to go with it. Of course, you don’t have the cash to even make a dent in the amount due to the IRS. What do you do?
Well here are the 5 Dirty Little Secrets about dealing with the IRS notices you have or are about to receive.
1) Don’t ignore the notice – If you ignore the notices, they just keep coming (usually every 30 days) and eventually they get more threatening. The IRS has ways of finding out what your bank account number is or who you work for and will levy your bank account or garnish your wages. Trust me, it is a lot easier dealing with this head on instead of looking over your shoulder when will they take the money.
2) Focus on why the notice was issued – Did you owe them from the return just filed or are they saying you did not report all of the income on your return? It is possible that some notices are reported wrong depending on what they are asking you (or I should say telling) what to do or how much you owe.
3) Follow the instructions – Each notice usually tells you what the issues or problems are and what you need to do. In the upper left corner, they usually provide a phone number you can call to get some further information. But if you call them, please plan to be on hold for 1-2 hours before you get to talk to someone. Also, call in the morning as early as you can. Some phone numbers are staffed as early as 7am EST.
4) Watch out for Scams – The IRS does not call you or email you to say that you owe them money. The IRS has a strict policy that they do not use email to send personal information. As a tax professional, even I cannot get an email from an IRS agent with information that contains personal information. There are people out there that say they are from the IRS (even the caller ID says they are from the IRS) telling you that they have a warrant out for your arrest and if you pay the bill within a couple of hours they can cancel it. The are scam artists who are just trying to get you to part with your hard earned money.
5) Consult a professional – Many times people panic, become fear stricken or even have their stress levels elevated and if they had just talked to a tax professional, they could have told them that it was not as bad as it first seemed. I had a gentleman that was referred to me by a mutual friend. He received a CP2000 (type of notice) notice from the IRS that said he owe over $11,000. He received this notice on a Friday afternoon right before he was going to see a Van Halen concert that evening with his then 18 year old son. What do you think he thought about most of the night? Well when he came to see me the following week, it turns out that his notice was 100% completely wrong. He did not owe the IRS even a penny.
Please know that there are many qualified professionals that know how to deal with IRS notices and even fewer professionals that know how to deal with the issue when you actually owe a large sum of money. Make sure you get the right person to assist you so you can sleep better at night.