Being Represented in front of the IRS
IRS Representation is when an Enrolled Agent or other authorized person (e.g. a lawyer) represents a taxpayer before the IRS.
Steps in IRS Representation:
Analysis: This is the first and more important step. The potential client has a situation. It can be years of un-filed taxes, a notice from the IRS, a tax lien, a tax levy, an audit, tax penalties, a large IRS debt, etc. In very simple matters, these things can be handled directly. Usually, that is a mistake. At Torchlight, our first steps are to work out an engagement letter with the client (work out with him what he wants us to do for him), get a Power of Attorney (P0A) and other legal forms signed, and send the POA naming us his representative to the IRS.
We then request transcripts from the IRS. And we request them broadly. We ask for earlier years too. Why? The answer is “Why not?” If IRS is asking about 2014, maybe they are going to ask about 2015 or 2013 next week. In doing this transcript request, we utilize a special advanced computer tax service we subscribe to. This allows us to see all the original assessment amounts by year, with the various penalties added and interest by year, in a tabular format. We can also see what was reported to the IRS on forms W-2, 1098. 1099. etc. If we were to make an analogy with poker, we see what cards the IRS is holding. The IRS has a Statute of Limitations (SOL) in which they can assess tax and collect tax. Using our advanced computer tax program, we can get this displayed in a table. We can see if a tax debt is about to disappear because of the SOL. We can see what penalties are eligible for reduction.
Now, the next step is to get client to fill out a questionnaire. It includes a lot of financial and income data. We do NOT give this data to the IRS, at least not at this point. Instead, we give it to our computerized tax service/program. And the computer tells us WHAT THE IRS IS SUPPOSED TO ACCEPT. That’s right. Before we negotiate with the IRS, we know what the IRS should say. Now, it requires an Enrolled Agent to oversee this and understand and interpret what the computer is saying.
There are number of options that could result:
- An Installment Agreement where in taxpayer has to make regular payments.
- Penalty Abatement where certain penalties plus interest can be canceled.
- An Offer In Compromise where the IRS would accept a lesser amount.
- Currently Not Collectible Status wherein the IRS acknowledges they cannot collect the funds.
- The IRS Statute of Limitations is about to expire for one or more years, and we can let it expire.
Some of these are not mutually exclusive. At this point we would verbally advise the client as to his options and recommend a course of action.
Many of you have seen TV Ads “If you have $10,000 or more of IRS debt, call the tax _____” or “The IRS has a new program and people are paying “pennies on the dollar” for IRS Debt. Well, this is sometimes true. The Tax Analysis will tell us what the IRS will accept. Then we will implement the handling based on the computer analysis and our own professional analysis.
1) Installment Agreement
Here we simply work out the most beneficial for you installment agreement. Based on the size of your debt, you may or may not have to give your financial data to the IRS.
2) Offer in Compromise
This is the often promoted “pennies on the dollar scenario” and it can work that way. An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, will not qualify for an OIC in most cases.
In most cases, the IRS will not accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer's ability to pay. The RCP includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income less certain amounts allowed for basic living expenses.
I have often heard potential clients say they want to make a bunch of money so that they can make an offer to the IRS. The logical idea that they want to have funds so they can negotiate with the IRS does not work that way. If you have the money or assets, the IRS will not negotiate. They will levy the money and assets. I do not recommend hiding the money so and falsifying financial records to the IRS. The best time to negotiate with the IRS is when you don’t have lots of money in the bank or leviable assets. You can have a decent car and a decent house IF they have sufficient debt owned on them that there is no profit to the IRS in seizing and selling them. You do not need to be on the street to get an OIC approved.
If our tax analysis indicates an OIC is approvable, we will represent you in the representation. cycle if that is your wish. Before we collect a fee for an OIC, we will do the tax analysis. There are other options that may be more advantageous to you than an OIC. And we will not accept a fee for an OIC knowing it will be disapproved. Our job is to look out for your best interest.
Also, it is important to understand that while an OIC is pending, the IRS Statue of Limitations (SOL) stops running. If the SOL on tax debt is about to run out, and the IRS cannot collect, then an OIC would likely not be in your best interest.
3) Currently Not Collectible
This means the while you do have an IRS debt and interest and penalties may be accruing, the IRS cannot collect. There are legal limits on what the IRS can collect on back taxes based on your income. This varies by cost of living wherever you live. You are allowed to make enough income to survive before you can be forced to pay the IRS. Once again, this is calculated by our advanced computer tax service, based on the questionnaire you filed out that gave us your current income, assets, where you live, etc.
The disadvantage of CNC status is that it does not automatically last. If you starting making more money or have an inheritance or other windfall, and can afford to pay the IRS, they will come after you for the full debt, including penalties and interest that were accrued while you were CNC.
There is a judgment call here. If you are retired and on a fixed income and are CNC, there is no particular reason to request an OIC. The IRS SOL is running and will run out and the debt disappears. However if you expect to make more money or have some windfall you think is coming your way, it would likely be to your advantage to do an OIC.
At Torchlight Tax, we will go over your options after we do our analysis, and recommend a course of action based on your benefit. We work for our client and his best interest, not the IRS or the largest fee.
4) Penalty Abatement
Under certain conditions the IRS can abate penalties, and sometimes they are REQUIRED to abate penalties. This is often done in conjunction with an Installment Agreement. Once again the initial tax analysis will guide us toward the penalty abatement options. It may not be as “sexy” as “pennies on the dollar”, but an installment agreement that give you six years to pay a debt reduced by a penalty abatement may be much better than tax liens, wage garnishment and levies against you bank accounts and property.
5) Other situations and options
There are many other situations that may require Tax Representation. I have had a client get her wages garnished by the State of California Franchise Tax Board because she had not reported she left the state. It was necessary to prove to the FTB that she left California years ago, and the garnishment was stopped. Tax liens, levies, garnishments, IRS letters have different handlings. There is no cookie cutter solution for all tax situations. But a good EA knows what to do and what tool to apply.
In most cases, back logged tax returns will have to be filed up to the present time. Earlier returns may need to be amended. How many years have to be back-filed or amended depends on the exact situation.
In most cases, a tax analysis will point the way to the most advantageous solutions. Getting a Power of Attorney signed, all necessary back taxes filed and a tax analysis done are basic actions of IRS Representation. Communicating well with the IRS is also important. Usually, the taxpayers did not understand something and got himself in a mess. Often the mess he is in is not the mess he thinks he is in. If the client communicates directly with the IRS, he may already be confused, and may say the wrong things. Also, the IRS employee he is talking to may also be confused. I have not, in general, found the IRS employees I have deal with to be bad people. People are people. However, not all IRS employees are well-trained for their jobs. And when a confused client talks to a poorly trained IRS employee, you are not likely to get the ideal solution.
More on Being Represented in front of the IRS
It can be daunting to know that you have to appear in front of the IRS for some tax issue when you are not sure of the procedures, what is to be expected information-wise, how to go about it and how much time it will take. It happens to the best of us. But the biggest issue being faced is the unknown - what exactly is it that I am needing to present and what evidence do I need to bring with me.
Professional representation can be vital during an audit, and our experience with tax authorities enables us to guide clients in their dealings with federal and state agencies. If you have been chosen for an audit, the professional representation you can find with our firm can put many of your worries at bay. We are ready and willing to answer any and all questions the IRS may be asking of you.
IRS Representation for Companies
Nothing is more unsettling than receiving a notice from the Internal Revenue Service, but you can rest easy with the knowledge that you won’t have to go it alone when Torchlight Tax is on your team. We offer IRS Representation services to support you in the event of an IRS notice or audit.
We work with you to collect all the needed information and communicate with the tax authorities on your behalf. In the event of a tax audit or any notice from the IRS, you have the peace of mind that your trusted advisor is in your corner with the expertise required to achieve a satisfactory resolution.
It is in our best interests to represent you and to resolve the situation as best the situation allows as this is what we have been taken on to do. We will represent you and throw our full might and power behind the defense and make sure that you are treated fairly and protected by all the laws and rules governing taxes. This is what we do and we do it well.
IRS Representation for Individuals
When dealing with the IRS, it is wise for an individual to be represented by an Enrolled Agent. He knows the law and he knows IRS regulations.
Taxpayers tend to be chatty in talking with Revenue Agents. They try to talk themselves out of problems, real or imagined, usually with the opposite result. I never allow a Revenue Agent to interview a client, except in conditions controlled by me, when I know it cannot harm the client.
The IRS is entitled to examine a taxpayer’s books and records. It is even entitled to tour the taxpayer’s business premises, at a reasonable time. But the IRS is not entitled to interview a taxpayer.
We offer complete IRS and State Tax agency representation personally or on behalf of your Business. We will manage, negotiate and settle any claims, audits, payments, or debt you may have against the Internal Revenue Service
Representation duties include:
- Stop a wage garnishment or bank levy
- Obtain relief from a spouse’s tax debt
- Settle or contest an existing tax liability
- Get representation for a tax audit
- File back tax returns for multiple years
- Re-negotiate a monthly payment plan
- Full IRS Representation
- Release or withdraw a tax lien
- Reduce or eliminate tax penalties
- State and Federal representation for Tax Delinquencies and Deficiencies
- Minimize liability from unpaid payroll tax
What to do next?
The first step if you are wondering if you need IRS Representation is to contact an Enrolled Agent. If you have read to this point, you have a good idea what we stand for. If you want to learn more so as to improve your situation, you are welcome to visit our website, watch our videos or read our articles. Your next step is to contact Torchlight Tax for a free consultation. See if we connect. Ask us some questions. Ask yourself if you trust us. See if you can work well with us. Being under IRS Tax stress is no cake walk. If we trust each other and can work together, we can work out the optimal attainable solution to your tax situation. You have better things to do in life than be under IRS scrutiny or be locked in battle with the IRS. We would be glad to help you.