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  The Tax Prophet Newsletter Issue #4, September, 2003

In This Issue:
Don't Panic
Review Interest Charges
Check Penalties
Correspond in Writing
Be Certain IRS is Correct

TAX PROBLEMS

You've got Tax Problems! What To Do If You Get A Notice For Additional Taxes
 

Don't Panic Read the notice carefully. At least initially, take the position that IRS is wrong and you have no tax problems until you conclude otherwise. Ask yourself to which tax year does the notice apply? What information is the government requesting and is there really a tax problem? If you had someone else prepare your taxes for the year in question, contact that person and ask about the notice and whether you have a tax problem. If your tax preparer is unresponsive or if you feel your tax preparer is trying to cover up his or her mistake, immediately get a second opinion regarding any tax problem.



Review the Interest Charged IRS often miscalculates interest charges; an estimated 25 percent of all IRS notices contain incorrect interest calculations. You should first determine whether the interest calculation is based on the correct year in which the tax problem occurred; then, check the amount. Although the interest rate is determined semi-annually and compounded daily, to achieve a rough estimate, calculate the interest as 10% per year or .8% per month. If the notice states you owe interest on your tax problem in the sum of $1,000 for two years, the interest should be approximately $200. Interest, unfortunately, is not usually negotiable with IRS. Once the correct tax is determined, you will have to pay the full amount of interest on your unpaid taxes.



Check the Penalties Does the IRS notice include penalties with respect to your tax problem? Often, the IRS computer will generate penalties that can be abated in full. For instance, a negligence penalty does not automatically apply if the taxpayer is wrong about a tax problem - the taxpayer must be negligent regarding the tax that gave rise to the tax problem. Unlike interest, penalties are negotiable.



Put Everything in Writing Try to communicate with IRS in writing about any tax problems. Avoid negotiating your tax problems over the telephone, but if you do, immediately write a letter confirming your conversation. Always keep a copy of your correspondence regarding any tax problems. Also, do not throw away any correspondence from IRS regarding your tax problems. As your matter progresses through the IRS bureaucracy, invariably IRS will ask you for all copies of previous correspondence pertaining to your tax problem.



Don't Pay Until You are Certain IRS is Correct Whatever you do, don't immediately send a check to IRS in response to your tax problem. If you pay an erroneous statement involving your tax problems, it is extremely difficult to get the money back. As long as you have something IRS wants, you are in a much stronger bargaining position regarding the outcome of your tax problem. If you then determine that you owe the tax and any penalties associated with the tax and that the interest is calculated correctly, then send in a check (write the tax year and your social security number on the check) along with the notice pertaining to your tax problem. Retain copies of the notice stating your tax problem and your check.





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All contents copyright © 1995-2003 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.