Tax Audit

Avoiding IRS Audit: 6 Taxable Income You Should Report

Nobody wants to get audited by the Internal Revenue Service (IRS). It’s just too much hassle. You have to go over your records and documents in order to deal with the IRS. In other cases, you might actually have to hire a tax lawyer. So to prevent tax hassles, here are taxable incomes you should report to the IRS to avoid an audit.


Salaries & Wages

These are the most basic individual taxable income. Uncle Sam always gets part of one’s salary or wage in a bid to fuel the government’s infrastructure projects as well as social services. So it doesn’t matter if you had your wage or salary antedated, as long as it is your salary within the year, it will be charged in the year it was earned. In the same manner, if you ask your boss to issue the check under a kin’s name, you still have to report that earning to the IRS under your tax return. Bonuses are included in this too. These are considered part of your wage or salary.


Investment Income

Whatever you earn from investments is considered taxable income. Make sure you report this in your tax return. Earnings include sale from stocks and bonds, rent from investment properties, bank account, business earnings, among others. In the case of the stock or stocks, you don’t have to pay for the entire amount. You only have to pay tax from what you actually earned from the sale—meaning you deduct the base amount of the stocks.

For earnings from rent, while you have to report them in your tax return, your tax may just be offset by some deductions you are authorized to have. The deductions are from expenses in maintaining the rental property like repairs, improvements, and depreciation.

Taxes are also imposed on savings and interests on checking accounts, as well as investments on digital currencies. Some of the other taxes are imposed on the income you earn from business ventures like your share in a corporation or partnership.


Barter Income

If it sounds archaic, know that there are still modern barter systems in this generation. There are products and services you received as payment for outgoing products and services. The tax there will be taken from the market value of the products or services you received. Say you are an interior designer. You task an a dentist to do a veneer replacement for you. In return, you have to do design work in his house. Whatever the value of that dental work will be considered as taxable income on your part.


Fringe Benefits

These are extra non-cash compensation on your part. One such example is having a company-issued car. The market value of this car will be considered taxable income. Another example is the free meal that some people enjoy from their company. The same process is followed—the market value of the meal or meals that you enjoy will be considered taxable income. Other fringe benefits include transportation allowance, communication allowance, etc.

Among the benefits exempted from tax is the health insurance that the company provides and meals that are low in value and are infrequently given. One such example is when your boss feels like treating his employees to a pizza party because it’s his birthday. A birthday is celebrated only once a year so this pizza party cannot be considered a regular occurrence, hence, it’s not among the taxed fringe benefits.


Retirement Income

Not all people have this, of course. Those who have retired are not immune to taxes. Just because they are no longer working doesn’t mean they will no longer be taxed. Retirement plans like the Individual Retirement Account, 401(k) and 403b are all considered taxable income. Accordingly, up to 85% of Social Security benefits may also be taxed.



Those who receive alimony should report it as well because this is considered a taxable income. However, the person who gives the alimony will enjoy some benefit because the amount can be deducted from his taxable income.


Now that you have that information, it’s time to look at the many ways you can avoid a tax audit. Here are some of them;


Report all forms of income

Six taxable incomes are mentioned above—these should be reported to the IRS or else you can just prepare to receive a notice of tax audit from the government’s tax collection agency. Report all income so you will remain on the good side of the IRS. It’s not really that bad to be audited. The IRS will not automatically take away your properties as long as you will be able to provide the appropriate information about your income and you pay the appropriate amount of tax. But it is a hassle. You don’t want that kind of stress in your life—going through documents, possibly meeting with a lawyer and in-depth discussion of your financial standing.


Check your figures

The percentage of taxpayers that are actually audited by the IRS is quite low. But it is slowly increasing over the years with the government noticing a lot of wily Americans trying to circumvent the law in order to pay less than the required tax amount or none at all. However, you have to take into consideration that among those low percentage are some people who are actually audited just because of simple mistakes in the tax return. This is why you have to thoroughly check the figures in your document. Sometimes, it’s actually safer to just pay a professional to do your tax return. This is their expertise, so they know better than you when it comes to tax matters.


Honesty is the best policy

The consequences could be worse if the IRS realizes that you were actually lying about your income. Remember that the IRS is an agency of the government. It has the resources to actually trace your financial situation. So make sure you only put down the right information in your tax return.


Tax Tips

10 Consequences of a Tax Debt

Every individual should know this advice by heart: PAY YOUR TAXES!


Tax, as they say, is the lifeblood of every government. There will be no government services without taxes. And that’s why the government takes non-payment of taxes very seriously. So make sure you file your tax return and pay your taxes regularly. The consequences of a tax debt are not pretty. And you don’t want to experience any of it for yourself. Here are the Top 10 consequences of a tax debt:


IRS Notice

When you don’t pay your tax, the Internal Revenue Service (IRS) will send you a notice. It sounds quite insignificant, but it’s actually quite inconvenient. Once you get an IRS notice, don’t ever ignore it. Read it immediately and reply. Comply with whatever it is that you are required to do. But if you want to dispute what the IRS raised, then put it in your reply-letter. If you don’t have enough money to financially comply with the IRS demand stated in the notice, pay anyway. Pay as much as you can because it is an indication of goodwill.


Automated Collection

If you ignore the IRS notice, chances are the government will immediately put you on automated collection. The IRS Automated Collection System (ACS). This is like a call center of sorts where agents contact taxpayers in a bid to have tax debts paid. The ACS can issue liens or levy bank accounts, which are more dire consequences of unpaid taxes.


Tax Refund

Some citizens look forward to tax refunds. The IRS gives a refund when one pays more than his tax liability. However, if you have a tax liability and are due for a refund, forget about it. The IRS will be keeping that refund. But the advantage here is that you’re tax debt will be reduced—or paid in full depending on the amount of both the refund and the tax debt.


Interest on the Tax Debt

If you don’t pay your tax debt immediately, it will only balloon to something unaffordable. The IRS imposes interest rates on tax debt. The latest rate is at five percent every year. That’s already a lot and an expense that you don’t really need.



As if a five percent interest on tax debt is not bad enough, the IRS also imposes penalties on unpaid taxes. It is officially called a failure-to-pay penalty. The regular penalty rate is 0.05 percent per month. However, if you ignore multiple notices, the IRS has the option to raise the penalty to one percent every month. That would mean a 17 percent interest every year for your tax debt—interest and penalty included. And these are unnecessary expenses. You could have saved this amount and benefit from it. On the bright side, if you have an agreement with the IRS—a payment plan of sorts—then the government will reduce the penalty rate to just 0.25 percent.


Federal Tax Lien

Now on to more serious matters: a tax lien. When you don’t pay your taxes despite several notices, then the IRS will issue a Notice of Federal Tax Lien. The lien alerts creditors about your tax debt. This means you can’t easily sell properties or used any of them in a mortgage. The lien is like a tag on what you own indicating that the IRS has a stake on them. You really don’t want it to reach this point. For one, a tax lien is a public record. It is embarrassing to have a tax lien on any of your properties. Secondly, this will gravely affect your credit score.


It is worth noting, though, that once you have an agreement with the IRS about payment terms of your tax debt, the IRS will not feel the need to issue the tax lien. Also, the tax lien is usually reserved for those with tax debt over $100,000. However, even with that information, you really shouldn’t ignore notices from the IRS. At least reply to them so that it won’t end up in a lien.


On another note, declaring bankruptcy will not erase your tax debt or the lien on your properties.



When you don’t pay your tax debt, the IRS has the right to seize your properties and money in your bank accounts. You have probably heard of the term levy—this essentially indicates a tax imposition on your money or assets. Here are the three kinds of levies:


  1. WAGE LEVY. This means that the IRS would take part of your salary as a sort of amortization to your tax debt. But when you agree on a payment plan with the IRS then chances are the levy would be stopped. A wage levy is highly inconvenient especially if you already have a budget for your salary every fortnight.
  2. ACCOUNTS RECEIVABLE LEVY. If you have money coming in from side businesses, you might as well expect that it won’t reach your hand if the government has put a levy on it. The IRS has the right to levy your extra earnings if you have a tax debt. And just like the wage levy, the IRS will withdraw the levy once payment has been satisfied or at least a payment scheme has been agreed upon.
  3. BANK LEVY. If you have savings in the bank, these will be in danger of being taken by the IRS if you fail to pay tax debt. Just like any other levy, getting into a payment term with the IRS will stop the levy from continuing.


Revenue Officer

If you have been ignoring your notices, the IRS might send a revenue officer on you. You don’t want this kind of embarrassment, especially if they show up in your office or when you are having a downtime with your friends.


Travel restrictions

The IRS also has the authority to prevent you from traveling abroad if you have a large unpaid tax due. When you are labeled a “seriously delinquent” taxpayer, you better say goodbye to your travel opportunity abroad. The government does this by putting a travel restriction on your passport. If you don’t have a passport yet, then this would hinder your ability to apply for one. But you would only be called a “seriously delinquent” taxpayer if you owe the IRS over $50,000 and you have repeatedly ignored notices of tax delinquency.


Debt-collection agency

The IRS might be its own agency but if it turns over your case to a debt-collection agency, then you are in for a worse kind of hassle than just dealing with the IRS. This type of agency only has one goal in mind: to get tax delinquents to pay back taxes. Some of them could treat you nicely, while others could treat you like a common criminal.


Any of these consequences will not be good for you. But in order to prevent any of this, you only have to remember two things: 1) pay your tax debt; but if you can’t, then 2) sign a payment plan with the IRS.


Tax Tips

Income Tax : Fraud vs. Negligence

The importance of taxes is a no-brainer. Tax is the lifeblood of any government. Just as a person cannot function without blood, the government will be useless without taxes. Look around you, the roads, utilities, some buildings and many other structures—at least those initiated by the government—are financed by taxes. This is why people are required to pay taxes. If citizens enjoy the benefits from the government, then they should pay for some of it.

However, it cannot be denied that there will always be some people who will fail to pay their taxes, or at least, they will fail to pay the appropriate amount of taxes. A person’s failure to settle his taxes could either be because of fraud or of negligence. Both are bad from the standpoint of the government—but one is criminal while the other is a plain oversight.

So what is a tax fraud? This is the conscious effort to defraud the Internal Revenue Service (IRS) or evade the tax law. Here are some indicators of a tax fraud done by a person or company:

  • Failure to file an income tax return
  • Failure to pay the tax due
  • Intentionally not reporting all income received
  • Making false claims
  • Preparing and filing a false return

Is negligence a tax fraud? There’s a saying that goes: “Ignorance of the law excuses no one.” But when it comes to tax fraud, ignorance can sometimes be chalked up to negligence and not necessarily a crime. The IRS understands that the tax code is very complicated and that regular individuals are prone to make a mistake when filing a tax return. For simple errors, the IRS will not make a big deal about it. It will be considered simple negligence as opposed to a fraudulent claim.

The IRS is composed of professionals and most of their employees have been doing the job for years, therefore, they can already spot tax fraud versus negligence on the tax return. Experience has taught auditors to spot the most common indicators of fraudulent activities:

  • There is an overstatement of exemptions and deductions in the tax return.
  • Some documents attached have been falsified.
  • There is concealment of some income.
  • There are two sets of financial ledgers maintained.
  • Falsely labeling personal expenses as business ones in order to get some deductions or exemptions.
  • Putting in false information on the tax return.
  • Claiming false exemptions i.e. a non-existent child.
  • Consciously underreporting income.

But what drives people to commit fraud? It’s so risky and the idea of jail time is not enticing at all. Why do some individuals take the risk anyway? Here are some common reasons why people evade taxes:

  1. If there’s a way not to pay taxes, people would prefer that way. Some people commit tax fraud because they think they can get away with it. That will then bring us to reason no. 2…
  2. Lack of enforcement.
  3. Principle. There are a handful of people who choose not to pay taxes in protest against the government. These people are suspicious of the government’s handling of the taxes so they would rather not participate in the questionable tax system.

Tax Audit

How to survive a tax audit

So, you’re about to be audited. Don’t panic! Let’s follow some suggestions on how to survive a tax audit, so you can keep your cool and not end up losing more dollars.

The truth about tax auditors

No one likes to be the bad guy, and the tax auditor is not your enemy. He or she is already tagged as the “bad” one, or an annoying person, because of that negative first impression. That, unfortunately, adds unnecessary anxiety to these people’s job. The auditor’s responsibility is to verify if the information you provided is correct. Your reactions and behavior will be closely observed. Being nice and courteous will ease negotiations and will make your audit less stressful.

What you should and shouldn’t do during a tax audit

Don’t volunteer too much information. You’re already on edge because of the audit. Try not to worsen your situation by looking guilty.  Make sure to have a positive or negative reply to the queries. Be honest about the questions that you aren’t really sure of the “right” answer. Provide documents when asked and avoid being too much of open book. The auditor might add to your obligation for items not included in your return, so just stay within the confines of the paper in front of you.

Be honest.  It will be worse if you say something that can’t be verified. The audit is there to confirm what you claimed to have been accurate. You’ll put yourself in dire straits by stating something you made up or didn’t appear on your return in the first place.

Focus on the year in question. Don’t do something stupid like presenting old or past tax returns.  Those might just come back and bite you in the rear end. Auditors can add to your bill if they see something from your past files. Don’t stray from what the IRS is requesting from you.

Organized files and other relevant information can go a long way: You’ll create a favorable atmosphere by sharing all the requested documents that look organized and clean. There may be some missing pieces, but these can be discussed with the auditor. The IRS may give you some leeway when they realize your extraordinary efforts to keep your tax obligations up-to-date.

Keep your cool and show the auditor a certain level of comfort. The more relaxed you are during the IRS audit process, the more you put the auditor at ease. Let go of those jitters, and you’ll win the auditor’s trust that you are not hiding anything. So when asked what’s one of the secrets on how to survive a tax audit is, of course, to keep your cool.

Provide original copies upon request. Your original documents should always be in your possession. The IRS might lose the only copy you have and that would be such a tragedy. Keep those original copies close to your chest.

The IRS may apply substantial compliance for your situation. Even if your documentation may have some missing parts, the IRS will have this feeling that you’re doing your best to follow the tax laws. They might allow the deductions you initially stated.

You can appeal the audit should you disagree with it. An appeal can be made to the auditor if you are contesting the audit. If the person assigned to your case isn’t too accommodating, try appealing to the manager or go to higher management. You have every right to appeal any tax matters that you find questionable.

A tax professional might be able to help you: Call in the professionals to defend your case. It doesn’t hurt to have someone with experience in tax matters. He or she can guide you through an audit.


How you should handle a difficult auditor

Don’t allow the difficult auditor to push you around. Follow these suggestions to let them know you mean business.

You can request to have the audit delayed. No one likes to have his or her work delayed because that will affect the performance evaluation reports. Auditors don’t want delays, too. However, if you tell the difficult auditor that you might seek a delay in the proceedings, he or she might ease up on you a bit.

You may ask for a recess and return at a later time. If the difficult auditor insists that you can’t, you may tell him or her that you are hiring a tax professional. The auditor should allow you seek the help of a tax professional.

You can ask for a new auditor to review your case. The difficult auditor could trigger you to feel that things might be heating up too much and heading in an unfavorable direction. If you feel that there’s this unfairness or disrespect, you may speak with the manager that you feel you are not being treated professionally. 

You may request for a new auditor to handle your situation.  However, the request will most likely be rejected. But letting the difficult auditor know that you go straight to the manager may just warn him or her.

Let the auditor know that you can stand up for yourself.  Don’t just sit down and allow the auditor to criticize or belittle you. Ask pertinent questions so the auditor remains alert that he or she should be able to explain important information. Try not to be a bully yourself by keeping things civil and polite. But because of your tenacious nature, in the auditor’s mind, he or she may get that feeling that you’re not that much of a pushover.

You can record the audit: Ten days before the audit, submit a written request to the IRS that you will record the proceedings. When the auditor becomes aware that every move will be recorded, maybe he or she won’t become too strict or difficult.

The important thing about audits is that you are providing information that is as accurate as possible.  Make sure that whatever data you submitted was done in good faith. You might also run into some trouble with an auditor who might discredit any deductions claimed on your return.

How to survive a tax audit? Remember: there are no hard and fast rules in getting through an IRS audit. In any case, may these simple suggestions help you survive a tax audit because you have your game face on!tax debt problem help


Tax Audit

How to avoid an IRS tax audit?

There are certain “red flags” that the IRS searches for in order to deem an audit necessary. And when these red flags are prominent, the IRS can conduct a tax audit

Let’s delve into some of these reasons on how to avoid an IRS tax audit

Always state true facts:

Please be as accurate as possible on your tax return. There are three various computer programs the IRS runs to verify the accuracy of your data. They have the Discriminant Function System (DIF) that makes use of a classified formula where the IRS can determine which returns have a potential for certain errors and ranks them accordingly. There’s also the Unreported Income Discriminant Function System (UIDIF) that tries to search for potential unreported income. The Information Returns Processing System (IDF) crosschecks your return with third parties to verify authenticity and consistency. With these computer programs running such checks, it’s very difficult to put false information on your return. So if you’re asking for the best advice on how to avoid an IRS tax audit? The answer is: Be HONEST!

Seek help from a tax professional and/or use a tax software program for your tax requirements:

Calculations should be more accurate, the return should be more correct, and legibility should be more ensured when asking a tax professional to assist you. Tax software could be a big help as well. Math errors or incompleteness will trigger a red flag on your return. Avoid IRS tax audit by getting the professional’s expertise to file your return correctly. Yes, and that’s actually one of the best ways on how to avoid an IRS tax audit.

Filing a Schedule C should be done cautiously

 Those individuals who abuse deductions when filing a Schedule C increase their chances of being audited. Expenses can be coursed through an LLC or another entity to keep it legit. Business organizations are able to layer such expenses which make it quite a challenge for the government to double check what is being claimed. With this set-up, the likelihood of an IRS audit decreases.

Be careful when claiming home office deductions

 The justification for home office deductions is something the IRS really likes to check. As part of your due diligence, keep a separate phone number for business transactions, update your appointment book of clients when conducting meetings at your house, and use your home office address for billing statements rather than just a PO box. Try to maintain below 20% of the square footage of your business space located at your home.

File your tax return electronically

Mailing your tax return the last minute and not through certified mail might not get that confirmation from the IRS that it was received. Be more efficient by filing electronically and the confirmation notice from the IRS that it was accepted and received should be forthcoming quite immediately.

Have your financial records well organized and detailed

Not having receipts around to verify expenses might not avail you of accepted deductions. You could guess but the IRS computer programs might call you out on your wrong estimate. All income and expenses should be documented properly to back up what you have reported on your tax return.

File a joint return for you and your spouse

If you indicate married as your status, the IRS expects a joint return. Filing separately for couples is acceptable, but more problems may arise since this was not declared on a joint tax return.

Avoid using rounded numbers

When you round off numbers on your return, that sends a red flag to the IRS because you are not reporting an accurate amount. So, try not to do that.

Affix your signature on your return and file it

Not but not least on how to avoid an IRS tax audit is to secure your signature on your tax return. Make sure to file your return, too. So, be precise and careful with your tax return .


These tips on how to avoid an IRS tax audit should not be taken lightly. Otherwise, you should prepare yourself for being the next on queue for the IRS audit.


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Tax Audit

What is the IRS tax audit process?

 The IRS tax audit process is not something to be feared about if you’re honest. The IRS and State departments of taxation conduct audit to verify the accuracy of your tax returns. In some cases, they want to check the integrity of your return, and upon their review, you might be due for a refund.

How are tax returns selected for an audit?

There are computer programs that the IRS use to check the accuracy of your return. There are also methods not dependent on these computers. Let’s take a look at their methods for the IRS tax audit process:

The Discriminant Function System (DIF)

 Deductions and exemptions claimed may put a red flag on your tax return with this specialized computer program. You’ll be given a DIF score for the tax return you submit. Through a classified formula, the score is determined. This is one score you want to get a low mark because the higher it goes, the more likely you are to be audited.

The Unreported Income Discriminant Function (UIDIF)

 The main difference of this from the DIF system is it’s heavily focused on unreported income. The score is calculated on the individual’s income and expense ratio. Spending beyond your reported income will send a red flag to the IRS. But, if this can be verified through the filing of low-income years, then such an explanation would suffice.

The Information Returns Processing System (IRP)

Third parties (such as employers, banks, social security administration, etc.) who submit such tax information can be cross-checked to verify the accuracy of your tax return. In other words, if your employer says one thing and you file another number, then you are setting yourself up to be audited. Don’t assume you can get around this third-party verification system.

If incriminating documents are turned over to the IRS

Should the IRS come into the possession of evidence that shows intent for tax evasion, an audit becomes inevitable. The IRS just needs to check if the correct taxes were paid and identify those involved in tax avoidance scheme.

Audits of Related Entities

When the IRS conducts an audit for one entity, and it’s not syncing as it should with other returns of other entities, then that trail needs to be followed to explain the discrepancies.

Should you receive a letter notifying you that the IRS will conduct an audit, there are three examination methods  (as part of the IRS tax audit process) that they’ll probably follow:

  1. Correspondence Audit: This most common type of audit is where the IRS will request for certain documents that can be sent to them through mail.
  2. Field Audit: If your earnings are over one hundred thousand dollars, then the IRS will make a visit to your home, or place of business, or tax professional’s office to do the audit. It’s not that common for the IRS to conduct this.
  3. Office Audit: With this type of audit, you will be required to bring the requested documents and you will be meeting with a representative of the IRS to review your return thoroughly.

Once they’ve completed the IRS tax audit process, the IRS Form 4549 or the IRS examination report will present proposed changes to the tax liability. You can either agree or disagree with these findings.

Approval of Audit Findings

The copy of this report must be submitted with IRS Form 870, which is a Consent to Proposed Tax Adjustment. Putting your signature on this form means you agree with the tax deficiency, if any, and are willing to settle any penalties or interest accrued. A payment plan will be agreed upon should you be unable to pay the full amount and a monthly payment scheme will be determined.

Disapproval of Audit Findings

 You will have 30 days to submit additional documents for their consideration. This will give you an opportunity to further discuss your case with the examiner which may even lead to meeting with the group or senior manager. An appeal can be requested since you are in disagreement with the findings. Should you fail to do anything within 30 days, the IRS will deem this as a disagreement. Otherwise, if you don’t file for an appeal within, IRS will finalize will become final. 

Tax Tips

How to Select a Tax Professional?

Anybody can file a tax return. A lot of people will actually ask why they should pay for professionals when they can just file the tax return themselves. But there is actually a great advantage to hiring a professional. In most cases, it is actually more practical—financially and physically—to have a professional handle your tax return.

Tax professionals are aware of the law and the benefits a taxpayer is entitled to. Therefore, the professional can maximize the tax deductions you are eligible for to reduce the amount you have to pay. But what kind of tax professional do you actually need? Here is a brief guide:

Certified Public Accountant

A CPA is authorized to represent a taxpayer in all tax matters. An accountant is probably the most knowledgeable about tax matters that include audits, tax debt resolution, and appeals. A CPA has a field of expertise but he has knowledge in all tax-related aspects. Here are some of a CPA’s fields of expertise:

  1. Assurance services
  2. Corporate financing
  3. Financial accounting
  4. Income tax planning and preparation
  5. Management consulting

Enrolled Agent

Just like the CPA, the enrolled agent can represent a taxpayer in all kinds of tax-related activities. But while the CPA is empowered by the State, the enrolled agent is empowered by the Department of Treasury. The enrolled agent is actually the most common professional individuals hire to handle tax returns—this includes consultations, representations and actual preparations of the tax returns. Enrolled agents can represent an individual taxpayer or a company through a corporation or partnership. They can also represent an estate or a trust or any other entity that will file a tax return.

Tax Attorney

A tax attorney has a more wide scope of expertise because it covers both taxes and law—especially tax matters and legal aspects that are directly intertwined. If you own a business, especially if it is already a large corporation, a tax attorney is the best professional to help you with the company’s tax return. Here are some crucial fields of expertise for a tax attorney:

  1. Structure and treatment of business
  2. Criminal investigations by the Internal Revenue Service
  3. Lawsuits against the Internal Revenue Service
  4. Cases that have reached the Tax Court

Registered Tax Return Preparer

For simple tax returns or claims for refund, a registered tax return preparer will suffice. If you have tax issues and you need professional advice, don’t go knocking on a registered tax return preparer’s office because he is not authorized to hand out tax advice.

For people who have no advance knowledge about numbers, finances, and taxes, filing a tax return will be quite complicated. So it is better to just trust the expert to handle such matters. Aside from possibly saving some tax money by taking advantage of all the tax deductions that you are privileged to have, entrusting the filing of a tax return to a tax professional would mean less to zero stress for you.

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Tax Tips

How To Pay Off Back Taxes?

If you are unable to pay your taxes right on time, you end up owing money that you would need to pay off the soonest possible time. It’s not easy to deal with the IRS especially if you have back taxes owed. While delaying the inevitable could save you some time, facing the IRS would be your best option. There are no shortcuts to it.

When facing back taxes, you have to know exactly the sum or amount of money owed so you can keep track of your current tax situation. It would be helpful if you can document your tax payments. This will help you get into the bigger picture or an overview of your tax predicament. While there is an extension for filing taxes, there are no extensions allowed for payments. This becomes a problem for those who will not be able to make it on time.

If you happen to owe back taxes, you must not delay and be prompt with payments to avoid incurring penalties. IRS could also issue a tax lien on your assets or properties. To remain in good credit standing with the IRS, you should pay off back taxes.

Here are the best ways to pay off back taxes:

Know how much you owe

You can check out the IRS website to get a clearer and bigger picture of your tax situation. This will reflect all the payments made in the past 18 months plus, of course, the amount including penalties and/or interests incurred. Also, you may create a spreadsheet that will outline all the necessary details regarding your tax payments.  IRS will also mail you with a summary of your back taxes. More so, you can also request a transcript that can be delivered by mail or online.

Doing any of this will help you determine the best way to pay back taxes.

Pay your back taxes to the IRS

Once you receive your bill from the IRS, you need to follow the instructions stated on the bill. You can pay your taxes in cash, check, cashier’s check, money order, or an electronic funds transfer/online payment. You can also pay via debit or credit card, but this would incur processing fees.

Check your payments plans or options

You can look into your payment options if in case you would not be able to pay your balance in full to see the best way to pay back taxes.

Check if you are eligible for an installment agreement.

IRS would have to assess if you owe them less than $50,000, or if you can afford to pay the minimum payment, required on a monthly basis. You can apply for the Installment Agreement using the IRS website or Forms 9465 and 433-F.

Another option would be the Offer-In-Compromise (OIC). With this payment plan, you will be spending a certain amount that will serve as full payment for your back taxes. IRS should also accept this payment. Following approval, you should even agree to pay the total amount in five years. If unable to do so, this would be a breach of contract on your part.

Choose the best way to pay back taxes from above guide. Do note that your tax debt would be inclusive of daily interest, the failure-to-file penalty which is equivalent to 5% of your taxes due per month. Your taxes are not something you can ignore because of its daily compounding interest. It is better to deal with it now than face legal consequences in the future.

IRS Notices Tax Levy

What is the IRS Notice CP 523?

This letter is sent to you by the IRS if you default on your IRS payment plan. An explanation is given about the payment plan and if there is no action taken within 30 days, this agreement may be terminated. A tax lien may be levied against your assets after about 90 days if there is still no action taken.

For U.S. residents, notices are sent via certified mail. Those who are staying abroad are contacted through registered mail.

When is the IRS Notice CP 523 usually received?

Should your check payment bounce or other monthly payment arrangements go awry, the payment plan is considered defaulted by the IRS. Other cases may be that insufficient financial information was submitted or incorrectly inputted. Obtaining a new balance or failing to file a tax return also puts you in default. Any failure to pay will be taken as a default.

What are the steps to take when you receive the IRS Notice CP 523?

Make a payment before the termination date or payment deadline indicated in the notice. That might put you back on the installment plan. Call the IRS to confirm the payment made.

Contact the IRS immediately if there are errors in the payment agreement or the amount due is incorrect.

When your new balance accrues, that will probably lead to a payment plan default. Coordinate with the IRS or a tax professional to restructure a new monthly payment plan. The form 433-F, a financial statement, may require submission.

Request for a Collections Appeals Program (CAP) if you are unable to resolve this issue with the IRS. You must apply for this within 30 days from the date of termination.

What are the timelines that occur upon receipt of IRS Notice CP 523?

If there’s no payment made when notice was received, the payment plan may be terminated after 30 days based on the printed date on the notice. You have 45 days to appeal the defaulted agreement. Wait for the agreement to terminate, then you have 76 days to appeal the notice of intent to terminate the installment agreement.

If there is no action within 90 days, the failure-to-pay penalty rate increases, and a tax lien may be filed. Assets may be seized. Don’t wait for this to happen by contacting a tax professional to help you sort out this matter.

Again, please don’t hesitate to get information and guidance from professionals who are very well-versed with these types of cases. The Installment Agreement may be reinstated if several factors come into play. This may mean submitting more financial information so your capacity to pay can be without question. Don’t let it lag too far or you might have a more difficult time getting your monthly installments in order.

There may be some additional fees and other documents that need to be filled out and promptly given to the IRS. Avoid getting tangled up in having a tax lien levied against you. This is because you risk losing your assets that might be used to settle your outstanding tax debt liabilities.

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What are the most litigated tax issues?

When you have a disagreement with the IRS, you can apply for certain appeals to plead your case. This means that you are strictly dealing with the IRS to see if they can consider your unique situation. If you are able to give a reasonable cause, they can give you some leeway.

If you are unable to come to an agreement with the IRS, you can seek a remedy through the United States Tax Court.

This Tax Court is a separate entity from the IRS. If you are a complainant against the IRS, this particular federal court is an avenue to review your situation. Some situations may include an interest abatement, worker classification disagreements, there may be a request for relief from joint and several liabilities on a joint return. Bankruptcy Court and the U.S. Court of Federal Claims may review other matters that are not under the jurisdiction of the tax court. There is a right to an appeal the decision of any of these courts with some limited exceptions.

Your petition needs to be filed in a timely manner — no excuses or extensions. Then it gets calendared. If there is no settlement, a trial may occur. Tax courts have no juries so a judge will hear the case.

The following are some examples of the most litigated tax cases:

  1. Accuracy-related penalty.
  2. Trade or business expenses.
  3. Summons enforcement
  4. Gross income
  5. Collection due process (CDP) hearings.
  6. Failure to file penalty, failure to pay penalty, and failure to pay an estimated tax penalty.
  7. Civil actions to enforce federal tax liens or to subject property to the payment of tax.
  8. Frivolous issues penalty.
  9. Charitable deductions.
  10. Passive activity losses and credits.

More than half of these cases reviewed were filed by taxpayers who represented themselves. They didn’t acquire legal representation. The Latin term for this is pro se meaning for one’s self or on one’s own behalf. Pro se seems to be the de facto status for those who are found to have the delinquencies of failure to pay, failure to file, other estimated tax penalties, and frivolous issues penalty. The main reason for this is because it involves personal stories. These may not be covered by statute or case law but these personal statements still need to be shared.

The best course to take is to seek professional help from those experienced with these legal issues. Representing yourself may seem like a good idea at the time. In your personal capacity, you can perhaps explain why you are unable to fulfill the tax requirements cited against you. But, there may be other issues that you might miss. Ask for referrals or conscientiously look for that tax professional who can give you sound advice on how to positively present your case.

Perhaps, the most important thing to produce will be showing adequate records. This will be your best evidence to prove that you did your utmost to comply with the requirements of the law. Keep your files in order so that you will be able to show these when necessary.