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Frequently Asked Questions
IRS Audits (Examinations)
Does the IRS use email to inform a taxpayer or business of an audit?
NO, NEVER! The IRS will never contact an individual or business via email for an initial audit appointment. Contact related to being selected for an IRS tax audit will be made via telephone or mail only, due to disclosure requirements. IRS only allows internal correspondence via email.
Does filing an amended return increase my chance for audit selection?
This is a fallacy, the fact that you filed an amended returns does not increase your chance of being audited due to the DIF Score alone. You chance of being audited is no greater than if you had filed the amended return, as an original return. IRS scores all tax returns. Understand, that amended returns are all reviewed by a person (agent) and if that agent sees something that they feel warrants a referral to examination, they can!
Why and How was my return selected for audit?
As a general rule, when tax returns are filed, they are compared against “norms” for similar returns. The “ IRS norms” are developed from audits of a statistically valid random sample of returns. These returns are selected as part of the National Research Program which the IRS conducts to update return selection information, known as the Discriminant Function System (DIF) or the Unreported Income DIF.
After the return is selected by the computer, it is reviewed by an experienced tax auditor, tax examiner or Revenue Agent. At this point, the tax return may be accepted as filed or if based on the auditor’s experience questionable items are noted, the agent will identify the items noted and the return is forwarded for assignment to an examining unit.
Where will the IRS tax audit be held?
It depends on the type of audit being conducted.
1. Audits by Mail – Correspondence Audit.
2. This type of tax audits are conducted entirely by mail. In a Correspondence Audit, you will receive a letter from the IRS asking for additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. Make sure you are timely when responding to all IRS correspondence. If you do not respond IRS will feel you agree with the changes and proceed to assess any additional tax.
3. Office Audits In-Person Audits are audits conducted at a local IRS office.
4. These are usually a couple hour audits on two or three items.
5. Revenue Agents will usually come to your home or place of business.
These are longer more complicated tax audits. You should always be represented for these type of tax audits.
Can you request the tax audit be conducted at the IRS office instead of at your place of business?
If the audit has been scheduled to be conducted at your location, it will generally be conducted where the books and records are located. Requests to transfer the audit to another location, including an IRS office, will be considered but may not be granted. Treasury Regulation 301.7605-1(e), Time and place of audit, discusses the items considered when a request for a change in location is made.
If you are represented by a tax professional the tax audit will usually take place at the office of your tax representative.
Can the audit be transferred to another IRS office?
You can request a transfer of an audit if you have moved. Several factors will be considered such as your current location, the location of the business and where the books and records are maintained.
If the audit is by correspondence, you can request a face-to-face meeting because the books and records may be too voluminous to mail.
How long should the records related to a business or other long-term asset be kept?
In the case of an asset, records related to the asset should generally be kept for as long as you have the asset plus three years. If the asset was exchanged, the basis for the new asset may include the exchanged asset so the records for both assets will need to be retained until the new asset is disposed plus three years from date of disposition
How long should payroll records be kept?
In general, payroll records should be kept for six years with a review of the file to see if any items relating to current employees should be retained with current records.
After an auditor completes the audit, will the case be reviewed to ensure the audit results are correct?
All cases may be reviewed by the auditor’s manager either during the audit or upon completion. If errors are noted by the manager, the auditor will contact you to advise you about the proposed correction and what impact this may have on the amount of tax due.
Understand, unless it is a glaring noticeable error, managers tend to back the audit and you will likely never hear about an error. That is but one of the reasons you should be represented by a Certified Tax Resolution Specialist. The average taxpayer will never notice an error.
What happens if you are not ready?
If you do not have all the information requested, contact your auditor at the number reflected in the notification letter to discuss what information is currently available. It may be possible to begin the audit with the information available rather than postpone the appointment. The quicker the audit begins, the quicker it can be resolved. In addition, if the initial appointment is scheduled beyond 45 days from the initial action, managerial approval is required.
How far back can the IRS go to audit my return?
Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial underreporting (greater than 25%) is identified. Generally, if a substantial error is identified, the IRS can go back an additional three years.
When am I likely to receive an Audit Notice?
RS likes to have at least one year remaining on the Assessment Statute Expiration Date (ASED) after you have been notified. Therefore, you are likely to be notified late in the second year on a random audit. IRS tends to send out of Audit notices in December. Yes, I know, rotten Christmas present.
Should I sign a statute extension?
If the tax audit is not resolved and the Assessment Statute Expiration Date (ASED) date is nearing, you may be asked to extend the date. This is a mixed bag and requires an informed decision. An extension will allow you additional time to provide further documentation to support your position, request an appeal of an unfavorable decision and claim a tax refund or credit. Understand, it also allows the IRS time to complete the audit and provides time to process the audit results.
If you do not agree, the examiner will be forced to make a determination based upon the information they currently have. Therefore, the examiner may not be able to consider additional adjustments, such as expenses, that could lower the amount of tax due.
Is there a statute for Tax Fraud?
NO! There is no statute of limitations for tax fraud.
What are usual fees for Tax Audit Defense?
It all depends on the complexity of the case and shape that the records are in.
IRS Bank Levy Form 668-A(c)
Why did I Receive a Final Notice of Intent to Levy?
The Internal Revenue Service is required to send, via certified mail, a Final Notice of Intent to Levy prior to any levy action. This notice provides you with a period of time (30 days) to take positive steps toward resolving your tax problems. Potential solutions are;
IRS Payment Plans and Installment Agreements
Offer In Compromise
Expiration of the Statute of Limitations on IRS Collections
IRS Bankruptcy Filing for the Discharge of Back Taxes and IRS Debts
Innocent Spouse Tax Relief
Where Does IRS Get The Information To Know Where To Levy?
The IRS is limited to information provided by the taxpayer (tax returns) and third party information (1099M, 1099INT/DIV, 1099B, 1099R, W-2s, K-1s, etc. The IRS tends to seek out the lowest hanging fruit (bank accounts, wages).
How Long Is My Bank Required To Hold The Fund Before Transferring To The IRS?
The bank is required to hold the funds for 21 days from the date of seizure before releasing the funds. During this time you or your representative have to convince the IRS to release the funds back to the taxpayer. It is just a waste of time to contact the bank. They will ONLY release the funds upon a formal IRS Release of Levy.
My Bank Account Was Just Levied, What Steps Do I Take To Remove My Levy?
First of all you have to determine whether you feel comfortable handling this situation. Twenty One days goes by quick. Once the IRS has your money, they are very reluctant to give it back. There is a lot to do in the 21 day; 1) Determine whether IRS procedures were followed 2) Compliance must be checked 3) Financial Information must be gathered, and 4) A Proper Action Plan formulated.
How Quickly Can The IRS Bank Levy Be Released?
The time period required to release a levy is determined by the specifics of the case. IRS requires that a taxpayer be in compliance (tax returns filed, estimated payments made) before releasing a levy. The taxpayer must present financial information to determine the amount and/or ability to pay. Information supporting the financial information statement must be gathers.
How Can You Help With My Bank Levy?
We have worksheets and procedure that can assist in getting the levy released quickly. A taxpayer is at severe disadvantage when trying to get a levy released on their own and the IRS is certainly no help. The clock is ticking! Let the experts at us represent you. Work with our team of Certified Tax Resolution Specialists to resolve your issue(s) quickly. Best of all, you don’t have to talk to the IRS or State; we can speak on your behalf.
What do I have to do to qualify for this program?
You must have a legitimate hardship. This is not an easy case to establish! Taxpayers often try it on their own only to find out they do not qualify. In order to determine if you qualify, you MUST disclose ALL your financial information (income, employment, banking, retirement and all assets) to the IRS. So now you understand, you can really make things worse if you DO NOT QUALIFY!
Do you owe the IRS and can’t pay, call us at 888-991-1829 to see if you qualify for Hardship Status.
How long has this program been around?
This program has always been around. It’s just not a program that the IRS will likely tell you about.
How do I know if I qualify and when could I find out?
The IRS will determine if you have the ability to pay using the National Standards Program. This test is very similar to the means test for Chapter 7 Bankruptcy. If it can be determined that paying the IRS would create an extreme hardship, your case may be placed in a Non-Collectable Status.
IMPORTANT POINT: If you qualify for non-collectible status you may also qualify for Bankruptcy under Chapter 7. Should you qualify your IRS debt MAY BE dischargeable! A professional analysis by a Certified Tax Resolution Specialist will be needed to make the determination of dischargeability.
How long will my case stay in the Non-Collectable Status?
Your status will remain non-collectible for at least one year, most times for three years. It will likely be reviewed at 18 months and periodically thereafter. Depending on your tax returns, your case could stay there for the life of the statue.
What forms are necessary to complete the Hardship Test?
Form 433A or 433F Information Collection Statements are the IRS forms needed to complete this test. Supporting documentation will also be needed to support the information provided.
What other situations qualify for Hardship Status?
1. The taxpayer has a terminal illness or excessive medical bills;
2. The taxpayer is incarcerated;
3. The taxpayer’s only source of income is social security, welfare, or unemployment;
4. The taxpayer is unemployed with no source of income.
Each situation is truly unique and must qualify for hardship status based on ability to pay
What will the IRS use to review my case?
IRS will require a 433 Information Collection Statement with corresponding documentation;
IRS will search and verify the value of your assets through DMV and County Courthouse records;
IRS will use the National Standards Test to your qualify expenses.
What do I have to do to qualify for this program?
You must have a legitimate hardship. This is not an easy case to establish! Taxpayers often try it on their own only to find out they do not qualify. In order to determine if you qualify, you MUST disclose ALL your financial information (income, employment, banking, retirement and all assets) to the IRS. So now you understand, you can really make things worse if you DO NOT QUALIFY!
Do you owe the IRS and can’t pay, call us at 888-991-1829 to see if you qualify for Hardship Status.
How long has this program been around?
This program has always been around. It’s just not a program that the IRS will likely tell you about.
How do I know if I qualify and when could I find out?
The IRS will determine if you have the ability to pay using the National Standards Program. This test is very similar to the means test for Chapter 7 Bankruptcy. If it can be determined that paying the IRS would create an extreme hardship, your case may be placed in a Non-Collectable Status.
IMPORTANT POINT: If you qualify for non-collectible status you may also qualify for Bankruptcy under Chapter 7. Should you qualify your IRS debt MAY BE dischargeable! A professional analysis by a Certified Tax Resolution Specialist will be needed to make the determination of dischargeability.
How long will my case stay in the Non-Collectable Status?
Your status will remain non-collectible for at least one year, most times for three years. It will likely be reviewed at 18 months and periodically thereafter. Depending on your tax returns, your case could stay there for the life of the statue.
What forms are necessary to complete the Hardship Test?
Form 433A or 433F Information Collection Statements are the IRS forms needed to complete this test. Supporting documentation will also be needed to support the information provided.
What other situations qualify for Hardship Status?
1. The taxpayer has a terminal illness or excessive medical bills;
2. The taxpayer is incarcerated;
3. The taxpayer’s only source of income is social security, welfare, or unemployment;
4. The taxpayer is unemployed with no source of income.
Each situation is truly unique and must qualify for hardship status based on ability to pay.
Installment Agreement FAQs
What Are the Payment Methods the IRS will Accept for the Monthly Payments?
- Direct Debit from your bank account
- Payroll Garnishment from your work paycheck
- Money Orders or Personal Checks
- Electronic Federal Tax Payment System (EFTPS)
- Credit Cars
Why Would the IRS Terminate My Existing IA?
- You failed to file subsequent returns
- Your Collection Information Statement was inaccurate (Form 433A or Form 433F)
- Your total tax liability since you begun your IA has increased
- You missed a payment
Can the IRS put a tax lien on my property if I am in an Installment Agreement?
Yes, the IRS may put a tax lien on your property during an Installment Agreement just to secure themselves against other creditors with interest in your property. The deciding factor is the total outstanding balance. The IRS just raised the limit to 25K.
Why Would the IRS Reject a New IA Request?
- Collection Information was inaccurate or incomplete
- You previously defaulted on an IA
- You have outstanding tax returns
- Your necessary living expenses on Form 433 are unreasonable
What Installment Agreement is Best if Owe over $25k?
If you owe over $25k to the IRS, you will need a verified installment agreement, which means you have to prepare a Form 433, a Collection Information Statement.
Can the IRS levy my property if I am in an Installment Agreement?
If you are in compliance (all returns filed) and all period are under an installment agreement, the IRS should not levy or seize property.
What if I miss an IRS Installment Agreement Payment?
A defaulted Installment Agreement could lead to you receiving CP Letter 523, Notice of Federal Tax Levy. Missed payments, breaks the agreement with the IRS. This will make it difficult to reestablish another installment agreement and the IRS is more likely to file a lien.
Can I use the IRS's Online Payment Agreement to setup an Installment Agreement even if I filed and have yet to receive an IRS Bill?
Yes. Based on IRS instructions you can set up a “pre-assessed Installment Agreement” With Form 9465. It is best to wait for your bill and then set up the Installment Agreement.
What is the Deadline to Appeal an Installment Agreement?
You have 30 days from the postmarked date of your rejection letter to file an appeal on a rejected IA proposal. Regarding a termination notice (of a preexisting IA), you have 30 days to request an appeal, then on day 46 the IA is terminated leaving you until day 76 to request an appeal at all.
Will the IRS Levy my Property if my IA was Rejected?
The IRS can levy your property if you fail to file an appeal within 30 days of your rejection. If filed timely, the IRS must then wait until your appeal is either accepted or rejected, to levy your bank, wages, or any other personal property.
Once Appeals Make a Decision Can I Appeal that Decision?
Once the Appeals process is over after a CAP hearing, the decision is binding and you cannot request a judicial review of the Appeals’ decision.
IRS Notices Letters and Forms
What is my first step?
If you received a letter or notice, a decision has to be made. Do you feel confident to handle this situation on your own? If it is a simple issue and you already know the answer, call or write them. If the issue is more complicated, you need to hire a Certified Tax Resolution Specialist by calling 888-991-1829. The IRS or State will take full advantage of your lack of knowledge and experience.
What is Your Next Step?
The next step is to determine if the notice was sent in error. Verify the social security number listed on the notice of the letter is yours. You should always compare it to your federal tax return in question and make sure the document is notice or letter is correct. Do you have an outstanding tax liability? Do you have unfiled or incomplete returns? If correct, you must address the issue immediately.
If the IRS Notice or Letter is incorrect, what should I do?
Again you must determine if this is a situation that you feel comfortable handling yourself. If not, you should contact a Certified Tax Resolution Specialist by call 888-991-1829..
If you believe the issue is not complicated or is easily explained, there will always be a telephone number on the letter. There are dedicated telephone lines that the IRS uses to correspond with the problem you are having. Make sure the case file is closed from the IRS computer system.
What cautions are there when contacting the IRS?
Always make sure you get the ID or badge number and the name of the IRS agent working on your case. It is the only proof you spoken to the IRS. The trouble with talking to the IRS as a non-professional the IRS’ main objection in the conversation is to gather as much collection information about you as possible. The IRS will try back you up in the corner. It is difficult to defend answers you directly gave to the IRS.
What are the most common notices and letters the IRS sends?
Listed are the most common Notices and Letters the IRS sends out. Please open ALL Notices and Letter, especially those that come certified. You MUST address ALL certified Notices and Letters.
IRS Form CP11 – Changes to your tax returns.
IRS Form CP14 – Your balance due to IRS.
IRS Form CP22A – Data processing adjustment and the balance is more than $5.
IRS Form CP49 – Overpayment applies to another tax period.
IRS Form CP90/CP297 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
IRS Form CP297A – Notice of Levy and your right to a hearing.
IRS Form CP91/CP298 – Final notice before levy on social security benefit.
IRS Form CP501 – Reminder Notice, balance due IRS.
IRS Form CP503 – Second IRS notice on balance due.
IRS Form CP504 – Final Notice balance due.
IRS Form CP521 – Installment Agreement reminder notice.
IRS Form CP523 – Default of installment agreement
How can I tell get more information about my Notice, Letter or Form?
Go to the main page of this website and look for “IRS Tax Notices, Letter and Forms”. It is broken down by 1) Audit 2) Collections 3) Return Errors 4) Unfiled Returns 5) General Letters and 6) Business Notices, Letters and Forms. Look up your form for detailed information about your Notices, Letter or Form.
What You Don’t Want to Do!
What you don’t want to do is nothing. Your tax problems will only get worse if you ignore them. If you cannot pay, there are a number of potential solutions available to those who are otherwise in compliance. In compliance means having all tax returns filed and any balances paid or on a payment plan. If you have outstanding debts or unfiled returns, you need to get hire a Certified Tax Resolution Specialist.
The IRS could still audit you as a result of your response.
Be extremely careful in how you respond. The information supplied can either make matters better or extremely worse. You are supplying information that will be review by a Compliance Officer. That person’s job is to verify that the information supplied resolves the outstanding issues listed on the Letter 4883C. The Compliance Officer can easily make an audit referral if he or she believes the information creates more concerns than it explains.
Does the IRS have to send out certified letters and notices?
As a general rule the IRS sends out only very important letters by certified mail. Certainly, a final notice of intent to levy would be sent certified. Any notices of garnishment, federal tax levy, final notice of assessment and notices of tax deficiencies are sent out to you certified.
What happens if I receive an email from the IRS?
Do not respond. It is fraudulent; report it to the federal government. The IRS does not use emails for contacting taxpayers! Beware, these are scams artists.
IRS Offer In Compromise FAQs
What is an Offer in Compromise?
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer’s tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may legally compromise for one of the following reasons:
- Doubt as to Liability: Doubt exists that the assessed tax is correct.
- Doubt as to Collectability: Doubt exists that the taxpayer could ever pay the full amount in the remaining Collection Statute Expiration Date (CSED).
- Effective Tax Administration: There is no doubt that the tax is correct and no doubt that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise. The taxpayer bears the burden of proof to show their OIC qualifies for public policy or equity considerations. They must show that their circumstances are compelling enough to justify acceptance of their OIC compared to other taxpayers in similar circumstances.
What are the requirements for an OIC?
In order to be considered for an OIC, a taxpayer must meet all of the following requirements:
- Prepare and submit Form 656, Offer in Compromise, 433-A and 433-B, “Collection Information Statements;
- Submitted the required application fee, or Form 656-A, “Income Certification for Offer in Compromise Application Fee,” with the Form 656;
- Filed all required federal tax returns;
- Filed and paid any required employment tax returns on time for the two quarters prior to filing the OIC, and be current with deposits for the quarters while the offer is pending;
- Not have filed as an open bankruptcy case.
Taxpayers must comply with all federal tax filing and paying requirements for a period of five years following acceptance of their OIC, or until the OIC is paid in full, whichever is longer. This also includes making required estimated tax payments and federal tax deposits.
How is the minimum offer amount determined?
The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income times a factor. The factor is determined by the type of offer (cash or deferred). The factor for a cash offer (must be paid in 5 month or less) is 12. The factor for a deferred offer (must be paid in 24 months or less) is 24.
How do I complete an OIC?
Note: While it is your right to do so, we do not recommend that taxpayer prepare an OIC submittal on the own. The acceptance rate for experienced Certified Tax Resolution Specialists is significantly higher than that of the general public. This is what we do, day in and day out!
First obtain a Form 656, Offer in Compromise package. The package includes information and instructions for completing the form, as well as a worksheet that can be used to calculate an amount to offer. Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and Form 433-B, Collection Information Statement for Businesses, are included in the Form 656 package and may need to be completed as well depending upon each individual situation. Taxpayers will need to review and include amounts for items such as housing and utilities from the Collection Financial Standards, and Necessary Expenses, to complete their collection information statement(s).
NOTE: For corporations and partnerships, Form 433-A may be requested from corporate officers and individual partners.
When does a Form 433, Collection Information Statement, need to be completed?
Collection Information Statement(s) are required for doubt as to collectability and effective tax administration OICs, and doubt as to liability involving Trust Fund Recovery Penalty assessments.
Are the forms available on-line?
Yes. Most forms are their uses are available on this website (See the Google Search Box at the top of the page). The forms needed to complete an OIC are available on-line. Also, forms may be obtained by calling 1-800-829-3676 or by visiting a local IRS office.
What forms are submitted to request an effective tax administration OIC?
Note: There is a very low acceptance rate for Effective Tax Administration Offer for trained professionals. They are almost unheard of for the do it yourselfer.
To receive consideration on this basis, a taxpayer must submit:
- Form 656, “Offer in Compromise”
- Collection Information Statement (Form 433-A and/or Form 433-B)
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