How to Fix Your Tax Problems With the IRS

Navigating tax problems with the Internal Revenue Service (IRS) can feel overwhelming. Understanding the steps to address these issues is important for resolution. Tax problems arise from unfiled returns, unpaid balances, or IRS-identified discrepancies. Proactively addressing these concerns prevents further complications and penalties. This guide outlines the process from identifying the problem to exploring solutions.

Recognizing Your Tax Problem

Identifying the specific nature of a tax problem is the first step toward resolving it. Official IRS correspondence often indicates an issue. For instance, an IRS Notice CP2000 suggests a discrepancy between your reported income and information received by the IRS from third parties. This notice proposes changes to your tax return based on differing information.

Another common communication is a Notice of Deficiency, indicating the IRS believes you owe additional taxes after reviewing your return, often following an audit. This notice grants 90 days to dispute the assessment in Tax Court. More serious issues are signaled by a Notice of Intent to Levy, which warns the IRS plans to seize assets, like wages or bank accounts, if a tax debt is not addressed. This notice precedes IRS collection actions.

Tax problems can also be self-identified, such as unfiled tax returns or an unpaid balance from a previous filing. Failing to file a required return can lead to the IRS filing a Substitute for Return (SFR) on your behalf, often resulting in a higher tax liability. Understanding whether your problem involves unfiled returns, an underpayment, or an audit is key to determining the appropriate course of action.

Preparing Your Information and Documents

Once a tax problem is identified, gathering and organizing all relevant information and documents is an important step. Essential items include your Social Security number (SSN) or Employer Identification Number (EIN), copies of previously filed tax returns, and any IRS notices. These documents provide an overview of your tax history and the specific issue. Past tax returns are important for adjustments or amendments.

Additional documents are necessary depending on the tax problem. For an audit, you will need income records like W-2s and 1099s, plus expense receipts and bank statements to substantiate claims. For an Offer in Compromise (OIC) or Installment Agreement, financial information statements require documentation of income, assets, liabilities, and living expenses. Thorough preparation streamlines the resolution process and ensures accuracy in submissions to the IRS.

Exploring Resolution Options

Several avenues exist for resolving tax problems, each tailored to different financial situations. An Installment Agreement allows taxpayers to pay their tax debt in monthly payments over an extended period. This option suits individuals who cannot pay their full tax liability immediately but can make regular payments. Penalties and interest continue to accrue, so paying as much as possible upfront is beneficial.

An Offer in Compromise (OIC) permits certain taxpayers to settle their tax debt for a lower amount than what they originally owe. This is considered when a taxpayer faces significant financial hardship, and the IRS determines there is doubt as to collectibility. An OIC can also be based on doubt as to liability or to promote effective tax administration.

Penalty Abatement involves requesting the IRS to remove penalties assessed on your account. Penalties for failure to file or failure to pay can be abated if there is reasonable cause, such as a natural disaster, serious illness, or reliance on incorrect advice from a tax professional. The IRS assesses these requests on a case-by-case basis.

Amending a Tax Return is the process of correcting errors or omissions on a previously filed tax return. This might be necessary if you discover you missed a deduction, failed to report income, or need to change your filing status.

For taxpayers facing an Audit Notice, resolution involves cooperating with the IRS to provide requested documentation and explanations for items on your return. The process requires substantiating the information reported and can result in additional tax owed or a refund.

Navigating the Resolution Process

Implementing a resolution strategy involves specific steps and forms. To initiate an Installment Agreement, taxpayers use Form 9465, Installment Agreement Request. This form can be submitted with your tax return, online, by phone, or by mail. While penalties and interest still accrue, a setup fee applies.

For an Offer in Compromise, the primary form is Form 656, Offer in Compromise. This is submitted with financial information statements that document your financial situation to help the IRS evaluate your ability to pay. An application fee is generally required, though low-income taxpayers may be exempt. The completed forms and any required initial payment are mailed to the IRS.

To request Penalty Abatement, taxpayers can use Form 843 or submit a written request explaining the reasonable cause for the failure. This request should detail the circumstances that prevented timely compliance and provide supporting evidence. The IRS reviews these requests on a case-by-case basis.

Correcting a previously filed tax return requires Amending a Tax Return using Form 1040-X. This form allows you to report original amounts, corrected amounts, and provide an explanation for the changes. Paper filing remains an option.

When Responding to an Audit Notice, the response depends on the audit type. You will mail requested documents for correspondence audits or bring documentation to in-person appointments. Providing clear, organized, and complete information is important for a successful audit resolution.

Knowing When to Get Professional Help

While many tax problems can be navigated independently, certain situations warrant the expertise of a tax professional. If you are facing a large tax debt, complex audit issues, or aggressive collection actions like an IRS levy or lien, professional assistance is beneficial. Tax laws are complex, and a professional can help interpret regulations and develop an effective resolution strategy.

Enrolled Agents (EAs), Certified Public Accountants (CPAs), and tax attorneys are qualified professionals who can represent taxpayers before the IRS. Enrolled Agents are federally licensed to represent taxpayers for all tax matters. CPAs are licensed by states and provide accounting services, including tax preparation and representation. Tax attorneys, licensed legal professionals, provide legal advice and represent clients in tax court, useful in complex disputes or litigation. Their experience helps protect your rights and achieve the most favorable outcome.