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Colorado Springs: What Exactly is the IRS Collections Process?

 

How many of us desire to be contacted by a collection agency?  I would say none of us want to be contacted by a collection agency, especially if the collection agency is the Internal Revenue Service.  If we failed to file an income tax return and/or failed to pay our income taxes you can count on getting the series requesting payment of your taxes.

Why is it important to still file my tax return, even if I cannot pay the tax?  One reason is that you want to start the statute of limitations on your tax return and the payment of your taxes.  If you do not file your tax return, then the statute has not started and essentially you give the IRS a longer period of time to collect the taxes due.

Under IRS Code Section 6502,  the IRS has ten years from the date of assessment to collect outstanding tax liabilities. This why it is important to file your return and to start the 10 year clock.  For example, if you wait three years to file than you just gave the IRS an extra 3 year to collect from you. Under some circumstance this period can be extended.  Also, if the IRS does not collect the debt within this 10 year period, the liability is typically no longer enforceable.

The IRS Collection Process begins when a taxpayer fails to pay their tax bill. Initially, the IRS sends a series of notices and demands for payment. If the taxpayer does not respond or set up an installment agreement, the IRS can take more aggressive actions. Some of the options include liens on property, levying bank accounts, or garnishing wages.

Taxpayers have a right to have an Enrolled Agent (EA) represent them though this process. An EA can help the taxpayer to setup an installment agreement, prepare an offer in compromise, or speak to the IRS on the taxpayer's behalf. 

Having a tax professional help you during the collection process is vital for you to understand the processes and timelines.  An EA will help you to be informed and to mitigate the impact of IRS collection efforts. 

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: Can I Appeal This IRS Collections Notice?

Few pieces of mail cause as much stress as a certified letter with the Internal Revenue Service in the return address area.  Then, when you open the letter you see a large balance due that you did not expect.  What can you do to navigate this challenging situation?

1. Hire a tax professional: An Enrolled Agent (EA) can represent you before the IRS, review your tax records, and provide expert guidance on how navigate the appeals process

2. Understand the Notice: An Enrolled Agent will carefully read the collections notice and help you to understand the amount owed, the reasons behind it, and the  deadline for responding, which is crucial to avoid further penalties.

3. Gather Documentation: An EA will help you to identify the relevant documents, including tax returns, payment records, and any correspondence with the IRS. The proper documentation is essential to building a case with the IRS.

4. File a Written Protest: After careful review of all the information and if you disagree with the notice, an EA will prepare to file a written protest.  The protest will clearly state the reasons for disagreement and provide supporting evidence.  The more comprehensive the protest the better.  Make sure the protest is timely filed. 

5. If Needed, Request an Appeals Conference: An EA can represent you in an appeal conference. The IRS Independent Office of Appeals operates separately from the collections division and aims to resolve disputes impartially. During the conference, your EA will present your case and any additional evidence.

6. Explore Alternative Solutions: If appealing the notice is not feasible, explore other options like installment agreements or an offer in compromise, which allows you to settle your tax debt for less than the full amount owed. 

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: What If My Colorado Income Taxes are Unpaid and Not Filed?

 

Many times when taxpayers are behind on their federal taxes, they are also behind on their state taxes.  When it comes to tax collections and notices, the Colorado  Department of Revenue can be more aggressive than the IRS.  What is the best action for a taxpayer to take when both the IRS and the Colorado Department of Revenue are owed large sums?  You need to promptly address the issue

To start you will need to prepare the federal return first, because information from the federal return is use in calculating the Colorado tax return.  Depending on your circumstances, you may file the Colorado return before filing the federal tax return.  This determination is made on a case by case basis.

If you owe tax the Colorado Department of Revenue will assess penalties and interest on the tax.  You can calculate the interest and penalties with the tax on the return and include with the payment.  If you are unable to make the full payment, submit the tax return anyway.  The Colorado Department of Revenue will process the return and send you balance due notice.

After the tax, interest, and penalties have been assessed you can make a payment by check, money order, or online.  If you are unable to pay in full, you can setup a payment plan by following the Colorado Department of Revenue guidelines.  In some cases setting up a state payment plan is to your advantage if you also owe federal income tax.  This is why I mentioned earlier the possibility of filing the Colorado income tax return before filing the federal income tax return.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: The IRS is Charging Me a Penalty. How Can I Get the Penalty Abated?

The IRS charging you a penalty?  Did you file your tax return late? Did you not pay your federal income tax on time?  Did you fail to pay your taxes at all?  If you answered 'yes' to any or all of these questions, then do not be surprised if the IRS is charging you a penalty.  The Internal Revenue Code Section 6694 allows the IRS to charge penalties for taking unreasonable positions, reckless conduct, and/or willful conduct.

When the IRS charges a penalty, what options are available?  Taxpayers can request and receive penalty abatement or removal of penalties under conditions.  Consulting with an Enrolled Agent, (EA) is wise to help you navigate through the process of obtaining penalty abatement.

What are the types of Penalty Abatement?

1. First-Time Penalty Abatement (FTA): Available to taxpayers who have a clean compliance history for the past three years and have not previously requested penalty abatement

2. Reasonable Cause Abatement: If you can demonstrate that your failure to comply was due to circumstances beyond your control, such as natural disasters, serious illness, or other significant life events.

3. Administrative Waivers: Sometimes, the IRS provides administrative relief for specific groups of taxpayers or under certain conditions.

A tax professional like Marcelino Dodge, EA, CTRC, can review your tax records and review your eligibility for a specific type of penalty abatement.  After this review, the gathering of documents is required to help with the preparation of the necessary forms for submission to the IRS.  Your request is then submitted to the IRS.  

You will need to follow-up on the request after a reasonable period of time.  Patience is important as the IRS can take a while to process the request.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

 

Colorado Springs: What Can I Do If I Disagree With the Amount the IRS Says I Owe?

 

You receive an IRS notice saying you owe a large sum.  But, you disagree with the assessment, because there is a legitimate question about the correctness of the assessed tax amount.  What you can do is file a "Doubt as to Liability" Offer in Compromise.

Is this the correction option for your case?  Possibly it is, possibly it is not.  You need to consult with a tax professional, such as an Enrolled Agent (EA) because there are pros and cons to this type of offer. 

Some of the pros are:

• Collections stops
• Forces audit reconsideration
• Can reopen Trust Fund Recovery Penalty Assessment
  

Some of the cons are:

• Must offer something (even if it is a $1)
• Compromises future liability (no refunds)
• Taxpayer must be compliant

Remember, this option is designed for taxpayers who genuinely dispute the accuracy or existence of their tax debt. This could be due to errors in the IRS's calculations, misinterpretation of tax laws, or missing information that could alter the liability. Importantly, this type of offer cannot be rejected simply because the IRS cannot locate your return or verify the liability.

To qualify, you must present a compelling case that reflects what the IRS might reasonably expect to collect if the matter were taken to court. This involves providing substantial evidence and documentation to support your claim. The IRS uses its discretion to determine whether your offer is reasonable, considering the potential outcomes of a court case.

If you believe there is a genuine error in your tax assessment, submitting an OIC based on Doubt as to Liability could be a viable path to resolving your tax issues.
For more detailed information consult with an EA, who specializes in tax resolution to ensure your offer is well-prepared and stands the best chance of acceptance.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: Why Is My Return Being Examined by the IRS?

You filed your tax return and think that everything is okay.  Then, a few months later your get the dreaded letter with an IRS return address on it.  When you open the letter you learn that your return is being examined for any of the following reasons:

1. Failure to report all your income
2. You need to verify your dependents for Child Tax Credit
3. Documentation is needed to claim the Earned Income Tax Credit
4. Any other discrepancy the IRS finds resulting from information provided by third parties

These IRS examinations of income tax returns  are to ensure compliance with tax laws and to maintain the integrity of the tax system.  How can you avoid one of these examinations?

First, be sure to report all your income. It vital to keep good records of every place you work during the year.  If you move, immediately inform employers of any address change to ensure timely receipt of your W-2's.  As a self-employed person report all income received for product and services, including cash payments.  Your clients or customers could send in a 1099 for the payments they made to you.  The IRS used matching software to verify if what is on the tax return matches the amounts reported by third parties.

Second, if more than one taxpayer tries to claim a qualifying child for the Earned Income Tax Credit (EITC), the IRS will often examine a return an request documents supporting the claim for the credit.  If the IRS determines that a payment for EITC as made in error, the taxpayer that received the payment in error will have to pay the EITC credit amount back to the IRS, often with penalties and interest.

Third, high-income earners and those with significant business expenses also attract attention. If your lifestyle or deductions seem disproportionate to your reported income, the IRS may investigate to ensure that all income is accurately reported and that deductions are legitimate.

Last, charitable contributions that appear excessive relative to your income can also prompt an audit. The IRS wants to verify that these deductions are genuine and not inflated to reduce tax liability.

In summary, the IRS examines tax returns to detect discrepancies, ensure accurate reporting, and prevent fraud. By understanding these triggers, taxpayers can file more accurately and reduce the likelihood of an audit.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

 

Colorado Springs: What If the IRS Files a Substitute Return For Me?

Forget to file your tax return?  Did you think that if you did not file your tax return the IRS would not notice?  Whatever you are thinking, note that the IRS has more information than you realize.  IRS code section 6020 allows the IRS to file a tax return for you with the information they have that includes 1099's, W-2's, and other tax reporting forms.

The question is what can you do if the IRS has filed a Substitute for Return (SFR) on your behalf?

1. Hire a Tax Professional: An Enrolled Agent (EA) that specializes in tax resolution matters can review your circumstances and assist you in taking the proper steps to resolve this tax matter.

2. Gather Your Documents: Collect all tax returns and relevant financial documents, including W-2s, 1099s, receipts, and any other records that support your income, deductions, and credits for the tax year in question.

3. File Your Original Return or Accept the IRS Prepared Return: Depending on your circumstances, you may not even need to file the original return.  Each case is different, especially if you have several years of unfiled tax returns.

4. Respond to the IRS: Work with your tax professional to timely respond to IRS notices.  I recommend sending any mailings certified with with a return receipt. 

Taking these steps can help fix the situation and potentially reduce your tax liability. Always aim to file your returns on time to avoid the complications of an SFR.

 

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

 

 

 

Colorado Springs: How Can I Get Audit Reconsideration? What is an Audit Reconsideration?

 

Been audited by the IRS and received a notice with bad news.  Are you stuck with the results?  Or, can you take action to get a result that you feel is more accurate?  Anytime we deal with the IRS the process can be daunting.  But if you disagree with the results of an audit, you have the right to request an audit reconsideration. This process allows taxpayers to present new information or evidence that was not previously considered, potentially leading to a revised audit outcome. 

Here’s a step-by-step guide on how to obtain IRS audit reconsideration:

1. Hire a Tax Professional - An Enrolled Agent (EA) can provide guidance, help you understand eligibility, and ensure your request is thorough and accurate.

2. Gather Documentation: Collect all relevant documents that support your position. This may include receipts, bank statements, or any other evidence that was not available or not considered during the initial audit.

3. Prepare a Written Request: An EA will write a detailed letter on your behalf  to the IRS explaining why you disagree with the audit results. The letter will clearly explain how the included information or evidence impacts the audit findings. 

4. Submit Your Request: Your written request and supporting documentation will be sent via certified mail to the IRS office that conducted the original audit. I recommend keeping copies of everything sent for your records.

5. Follow Up: Patience is important.  It will take several months for the IRS to review your case. It is essential to promptly response to any IRS request for additional information.  

By following these steps, you can effectively request an IRS audit reconsideration and possibly achieve a more favorable outcome.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: Can I Challenge a Bad IRS Tax Assessment?

 

Nothing causes worry and stress more than receiving a piece of mail with the Internal Revenue Service as the sender.  Then, after you open the piece of mail to your surprise the IRS is assessing you tax and penalties on income that you are not even sure is income you earned.  What do you do?

Step one is to contact a tax professional to help you sort through this and determine if the assessment is even correct.  Marcelino Dodge, EA, CTRC will assist you in determining if the assessment is correct

Next, if it is determined the tax bill is wrong, contacting the IRS to discuss the issue will sometimes resolve misunderstandings or errors. If the initial contact does not resolve the issue, a formal challenge the assessment would be next.

Taxpayers have the right to request a review of the penalty before it is assessed. If the penalty has already been assessed, Marcelino Dodge, EA, CTRC  can help you request a penalty abatement either before or after the penalty is paid.

If the abatement request is denied, you can appeal the decision. An appeal is sent in writing to a different IRS office.  This written request for consideration by IRS Appeals is an impartial reconsideration because your request is being seen in an IRS office that did not initially review your case.

Should the appeal not resolve the issue, the next option is to take your case to Tax Court.  Sometimes though after you file the petition to Tax Court, your case may be settled before even going to court.  If you do go to court and the court finds in your favor and determines that the IRS’s position was largely unjustified, you may be eligible to recover some of your administrative and litigation costs.

Navigating any tax dispute can be complex, so it’s helpful and recommended to consult with a tax professional who can provide guidance tailored to your specific situation. Remember, you have rights and options to ensure fair treatment by the IRS.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com