- Ignoring Inquiries From Tax Authorities Comes At Own Peril
- May 20, 2011 | Author: Duane H. Henning
- Law Firm: Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP - Bakersfield Office
Have you received either unwelcome or undeserved inquiry from the IRS, California Franchise Tax Board, or other taxing authority claiming that you owe taxes or are being audited? Did you do anything about it? KDG’s tax controversy attorneys have saved clients hundreds of thousands of dollars by effectively and efficiently responding to unwelcome or undeserved inquiries from the IRS, the California FTB and other California taxing agencies.
While every day is “tax season” for the IRS, the California FTB and the various state taxing authorities, the key for you to deal effectively with these inquiries is to make every day count if you are notified that a tax audit, compliance investigation, or collection of tax related to your return has begun. Whether you are an individual, a business, a return preparer, or a government agency, should you receive a letter from the IRS or your state taxing authority, act on it immediately to gain the advantage. If you either do not respond or do not have effective representation, that could result in you paying taxes, penalties and interests that you do not owe, or could legally avoid.
Delays in dealing with tax matters are only likely to make the situation much worse, as penalties and interest may increase. The period of time in which you have to act on your tax matter can pass, preventing you from resolving your dispute within IRS procedural time frames and resulting in a tax assessment. Even if the tax assessment is in error, you have only a limited time to deal with it. In other words, even if the taxing authority is wrong, you will have to pay the tax (and penalties and interest) if you ignore them or do not have effective representation.
Informal inquiries by you, your accountant or others DO NOT preserve your taxpayer rights. Properly handling the matter is essential to avoiding paying taxes you would not otherwise owe. How you handle your tax matter can have serious consequences.
Examples of recent tax news events below are just the tip of the iceberg. The key for you is to not be left with a tax dispute of titanic proportions.
Tax Preparer Indicted: According to a recent news article, a federal grand jury returned a 49-count indictment on January 27, 2011, charging Bertha Renell Vaughn, aka Bertha Renell Milton, of Kern County, with aiding and assisting in the presentation of a false income tax return to the Internal Revenue Service. According to the indictment, Vaughn owns and operates Nationwide Tax Solution, a tax preparation business in Bakersfield, also referred to as Vaughn’s Tax Service.
To help protect yourself from this type of possible fraud, always request copies of your tax return from your tax preparer of what is electronically filed. Be wary of tax preparers who claim they can obtain larger refunds than others. If you choose to have someone other than yourself prepare your tax return, choose that preparer wisely. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. A person who prepares tax returns for others should have a good understanding of tax matters.
IRS 2011 Offshore Voluntary Disclosure Initiative: The IRS announced on March 8, 2011, that it is offering people with undisclosed income from offshore accounts an opportunity to participate in a new, voluntary disclosure initiative to get current on their tax returns. The 2011 OVDI will be available only through August 31, 2011. Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the August 31 deadline.
Protect Yourself: You may represent yourself before the IRS or any taxing authority. But, should you attempt to do so? The rules that apply are technical and complicated, and if you do not understand them, your rights could be lost. Although you are likely to find a nice and honest person to speak with at the IRS or other taxing authorities, their job is to collect taxes from you, not to help you. (Remember President Reagan’s “nine most terrifying words in the English language”? They are, “I’m from the government and I’m here to help.”)
With proper written authorization, a competent tax professional can represent you. Your IRS representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. At KDG, our tax controversy attorneys have the experience and expertise to effectively represent you. Duane Henning is a former IRS auditor and estate tax attorney, and Kevin Findley has successfully represented clients in high tax controversy matters.
A completed IRS form 2848 Power of Attorney and Declaration of Representative is required to enable the IRS representation. A taxpayer can authorize any individual to represent him or her in matters involving the FTB. A completed FTB Form 3520 Power of Attorney or letter of explanation must be provided if you would like the FTB to contact someone other than you.
Your tax return may be examined for a variety of reasons, and the examination may take place in any one of several ways. After the examination, if any changes to your tax are proposed, you can (1) agree with those changes and pay any additional tax you may owe, or (2) disagree with the changes and appeal the decision. Here is where time frames become critical, because obtaining representation for your audit can take time to get established. Obtaining representation at the last minute prior to appeals, or at a later time, may result in unfavorable consequences. If you are going to obtain representation, it is better to undertake it at the beginning of the audit with someone experienced in dealing with the tax authority. This also allows your representative to be involved with your tax issues, which is very helpful to your resolution of them. It also helps ensure a proper case is developed for appeals.
Please note that if your federal income tax return is examined and changed by the IRS and you owe additional tax, you must report these changes to the California FTB within six months of the final federal determination if California state income tax applies to you. If the changes made by the IRS result in a refund due from California, you must claim a refund within either (1) two years after the date of the final federal determination, or (2) the normal statute of limitations - whichever is later.
The complexities of tax dispute resolution matters involve many IRS and FTB procedures that can be very “taxing” to the regular taxpayer. Your tax professional should have a solid understanding of these procedures to represent you in the best possible manner. Ask for an explanation. If you undertake representation, be selective in your choice, and do yourself a big favor - don’t leave it to the last minute!