How to talk so the IRS will listen
No one wants to be audited, but following some simple guidelines can make the process less painful -- and maybe less expensive.
Talking with the IRS is no one’s idea of a picnic, but there are plenty of ways to make it more like a walk in the park than a slog through a murky, dangerous swamp.
Whether the IRS is auditing you, or you’re trying to work out a payment plan on a big tax bill, meeting an agent face-to-face -- and all the fear and resentment that situation may bring -- can lead taxpayers to make serious missteps, experts say.
The good news is audits are relatively rare: Just 1.1% of individual returns filed in 2009 were audited in fiscal year 2010, and 78% of those audits were by mail, not in person, according to the IRS. Still, that’s a not-insignificant 1.6 million returns. Taxpayers with heftier earnings should be more worried: 8.4% of returns with income above $1 million were audited.
Meanwhile, if it’s a big tax bill you’re struggling with, remember that if you owe $25,000 or less, you’re likely eligible for an installment plan. You can request one online. See more on this IRS page.
If the IRS does contact you, avoid some common taxpayer mistakes to make sure you keep your tax pain to a minimum.
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Rule No. 1: Don't ignore the IRS
Whatever the reason for the IRS's attention, don’t ignore the tax man.
Put yourself in the IRS agent’s shoes, said John Barrie, a tax lawyer and partner at Bryan Cave LLP. “If you call someone several times and they don’t return your call, you get a little ticked off,” he said. “If you’re an agent with a large stack of cases, your sympathy level drops off if you can’t find someone.”
Plus, delaying may bring new misery. The IRS “has an automated collections system,” Barrie said. “They will start issuing notices. Each notice gets a little more harsh.”
Soon enough, the IRS may place a levy on your wages or bank account.
Rule No. 2: Stop talking
You need to communicate with the IRS, but that doesn’t mean telling them everything. Unfortunately, taxpayers often get defensive -- and chatty.
“We’ve all seen somebody who gets a ‘yes’ or ‘no’ question who then wants to justify [their position] for 10 minutes,” said Robert McKenzie, a partner in the Chicago-based law firm Arnstein & Lehr.
“The more they say, the more follow-up questions that leads to. That can lead to more issues for review,” he said.
Others agreed. Taxpayers should “shut up and take notes,” said Jim Camp, chief executive of Camp Negotiation Systems and author of “Start with No.”
“The agent will want you to spill the beans,” he said. Instead, “try to answer all questions with questions of your own ... you can steer the dialogue and find out more about your options.”
Rule No. 3: Be humble
Treat the agent as an equal. “My view is that, the smarter my clients, the more likely [they are] to cause problems,” McKenzie said. A doctor, for instance, may imply with facial expressions that: “I’m a doctor -- how dare you ask me questions?” he said.
That won’t go over well with the IRS. The agent’s unspoken reaction is likely to be: “I’ll teach you who’s smart,” McKenzie said.
Also, maintaining emotional control is key, Camp said. “Emotions such as fear, anger, and neediness are deal-killers,” he said. Agents will go “to their superiors and take a position on what they think the final judgment should be against you,” he said. “They can be in your corner strongly, or they can be against you strongly.”
To keep the agent on your side, “get into a calm state in which you are fully in the present and unconcerned,” he said, in an email. “Don't look back with remorse at how you got into this situation.”
Rule No. 4: Don’t rush to pay
Don’t arrive at your meeting with the IRS ready to write a check, and don’t respond to an IRS letter by dropping a check in the mail.
Why? The IRS may be wrong. “Many times the taxpayer may not owe the money,” said Cynthia Jeanguenat, an enrolled agent in Virginia Beach, Va. She said one client received an IRS letter stating he owed back taxes because he failed to report income from a Form 1099. Jeanguenat responded to the IRS with a detailed explanation of where the income had been reported on his tax return.
“Sometimes it’s a matter of pointing [the IRS] in the right direction on the tax return,” she said. “You’re just clarifying.”
Another reason to avoid rushing: Just like negotiations in other realms of life, Camp said, hurrying to an agreement may jeopardize your position. “They’ll see you as someone too anxious to get this over with,” he said.
That said, once you and the IRS reach agreement on a payment plan, he said, stick to it.
Rule No. 5: Bring documentation
When the IRS comes calling, Jeanguenat said, ask yourself: What is it that they are questioning, and what can you provide to prove your case? Receipts, canceled checks and other documentation “give you more leverage in being able to negotiate,” she said.
Jeanguenat said she walks into audits with as much documentation as she can gather or reconstruct, including copies for the auditor.
For instance, the IRS often challenges taxpayers’ mileage claims. “Even if the taxpayer has not kept the best mileage log, we can reconstruct one,” she said. One tip: Use receipts from oil changes that show mileage at that time. “A lot of it is looking at a calendar and trying to reconstruct some of the documentation that perhaps they didn’t keep.”
Why is documentation so important? Because “the agents do have some discretion,” Barrie said. Say you claimed a charitable-donation deduction but failed to leg down the required letter from the charity acknowledging that you received no goods or services for your donation.
If you get the charity’s letter after you’re alerted about the IRS audit, an agent “may overlook that if the rest of your filing was complete, and you received acknowledgments from other charitable organizations,” Barrie said. “But the burden is still on you to prove your case. If you don’t have the documents, you’re going to lose.”
Rule No. 6: Ask questions
Tap the agent as a resource in resolving the issue at hand, Camp said. “When you talk with the IRS, they will lay out for you every single thing that you can do,” Camp said. “All you have to do is ask.”
Some questions he suggested: What am I allowed to do? What are the policies? Where can I find more information in writing? What are the rules for appealing this?
Rule No. 7: Don’t go it alone
It’s no surprise tax pros recommend you hire a tax pro for a face-to-face audit. Still, their arguments are persuasive.
For example, say you’re a salesman, claiming your driving costs. The IRS agent may ask you about your first sales call each morning: Do you drive directly to the prospective client, or to your office first?
“Taxpayers will answer truthfully,” McKenzie said. They’ll say, “Sometimes I go directly to the sales call and sometimes I go to the office first,” he said.
The auditor will respond, “Then I’m going to disallow some of your commuting expense,” McKenzie said, because it’s against the rules to deduct miles driven to the office. “Just by giving a truthful answer, it’s almost automatic that the auditor will trim some of your budget for travel,” he said.
“If I were asked that question, I’d say, ‘I’ll have to check with my client,’ and it may never be asked again. And I could truthfully do that.”
Consider hiring a pro -- a tax lawyer, certified public accountant or enrolled agent -- or, if you can’t afford that, try one of the IRS’s tax clinics for low-income taxpayers. Read more on IRS.gov.
If you feel the IRS has treated you unfairly, seek help from the Taxpayer Advocate, an independent organization within the IRS that represents taxpayers. Read more on IRS.gov.
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Great article but forgot to mention that taxpayers have worse odds succeeding with the IRS than gamblers have against the house.
First of all, IRS agents are prejudiced against you. In their view, you are a criminal, a tax cheat or an idiot who doesn’t know how to file. Either way they look at you with contempt and prejudice and therefore, being the scumbag you are, it is only fair that they extract as much money out of you as possible.
Second, the complexity of the tax code puts taxpayers at an incredible disadvantage.
Ideally, the IRS ought to present you with an annual tax bill. That would give Congress a powerful incentive to simplify the tax code. It would also make taxes fair because it would share the burden of proof on both sides. But the chances of getting a fair treatment from Congress and the IRS are zero because they don’t have any incentive to be fair. The more money an agent squeezes out of taxpayers the better the chances for his career advancement.
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