· Organize your financial documents early to ensure a smooth tax filing process.

· Filing taxes early can reduce the risk of penalties and help avoid audits.

· Keeping detailed records of income and deductions is essential for audit preparation.

· A tax audit checklist helps ensure you’re organized and ready for any IRS inquiries.

· Consulting a tax professional before an IRS audit can provide peace of mind and prevent costly errors.

Tax season often brings its share of stress, but with proper preparation, you can navigate the process more smoothly. Whether you’re a first-time filer, self-employed, or simply trying to stay organized, it’s crucial to take steps to get ahead of tax season and be ready for any potential audits. This guide will walk you through key tax season preparation strategies, tax filing tips, and how to handle an audit with confidence.

Smart Tax Season Preparation

One of the best ways to reduce tax season anxiety is to be proactive. Start by organizing all of your financial documents, including W-2s, 1099s, and receipts for any deductions you plan to claim. The earlier you gather this information, the more time you’ll have to ensure your return is accurate. Setting a timeline for gathering your tax materials and filing your return can help you stay on track and avoid last-minute stress.

For many, using tax software can streamline the filing process, but if your tax situation is more complex, it may be beneficial to seek professional help. A tax professional can ensure that you’re not missing any key deductions or credits. Filing early is another tip that can help you avoid penalties and even reduce your chances of being audited, as early filers tend to face less scrutiny.

Preparing for a Tax Audit

While no one likes to think about being audited, preparing in advance can help ease the stress if it happens. A tax audit involves the IRS reviewing your financial records to ensure accuracy, and this process can be intimidating. However, knowing your rights as a taxpayer is key. You have the right to professional representation during an audit and can request additional time to gather any necessary documents.

Accurate and detailed record-keeping is critical during tax audit preparation. Keeping track of your income, deductions, and expenses will not only make your tax return more accurate but will also serve as a defense in the event of an audit. If you do receive an audit notice, try to stay calm. It’s important to approach the situation methodically, gathering all relevant information and consulting a tax professional if needed.

Creating a Tax Audit Checklist

A tax audit checklist can be an invaluable tool for keeping your audit preparation organized. Start by reviewing your past returns to ensure there are no discrepancies or errors. This is also the time to gather any receipts and documentation that support your deductions and credits. Ensuring that all tax forms, such as W-2s and 1099s, are correctly filled out and readily available will streamline the process.

Preparing for an IRS Audit Checklist

When preparing for an IRS audit specifically, you’ll want to take extra care to ensure everything is in order. Double-check all the numbers and details in your past returns and compile supporting documents like bank statements, charitable contribution receipts, and any other proof of deductions. It’s important to ensure your tax returns and calculations meet IRS requirements to avoid further issues. Before submitting anything, having a tax professional review your materials can provide peace of mind and help avoid any costly mistakes.

Ensuring Audit-Ready Tax Filing

Tax season doesn’t have to be overwhelming if you approach it with the right preparation. By staying organized and following essential tax filing tips, you’ll reduce the chances of mistakes and stress. Should an audit arise, preparing an IRS tax audit checklist will help you stay calm and compliant. Taking proactive steps now will lead to a smoother tax season and peace of mind, knowing you’re ready for whatever comes your way.

Did you receive the dreaded “We may contact others for information” notice from the Internal Revenue Service (IRS)? There are things that most people want to keep private. Among those are their income and money problems. If you have fallen on hard times, struggling to pay the bills, the last thing you need is someone telling the neighborhood, or your co-workers your dirty laundry, pressuring you to shut them up by paying them money that you don’t have.

The IRS is that nightmare debt collector that will knock on your neighbor’s door and spread debt truths better untold at your work’s watercooler telling everyone that they think you are a deadbeat who doesn’t pay your taxes. Each situation is different, but the IRS will wake up your neighbors first, and they are telling you that they are coming.

IRS Collection Notice LT40 is one of the most scary and intrusive notices someone who owes money can receive and is very scary. If you get behind on your car payment or a medical bill, most people wouldn’t expect your car dealership or your doctor to knock on your neighbor’s door or tell your co-workers that you are broke. But if you owe the IRS, you need to expect it.

The IRS has recently issued a batch of IRS Notices LT40 for the first time in a long time officially announcing since the Pandemic that their tax enforcement efforts are fully operational and that the IRS collection department is back and is knocking on doors to get the IRS tax debt that you owe. IRS Notice LT40 specifically warns:

“We intend to contact other persons such as a neighbor, a bank, an employer, or employees.”

The IRS Notice LT40 is one of many IRS collection notices that are strategically drafted to inform you of IRS collection practices but truly intended to elicit a response: Distressed Payment. The IRS knows that people don’t want their financial dirty laundry spread around town, so the IRS collection letter is intended to scare you into paying your tax debt.

However, payment of a tax debt isn’t just that easy. In most cases, there is a reason that the tax debt is owed that needs to be corrected before simply writing a check that may be difficult to cash. There may be options available to taxpayers that can’t simply cut a check that can stop the taxman from knocking on your neighbor’s door and our law firm offers a free consultation for people who want to find a way to keep the IRS from knocking on their neighbor’s door as threatened in IRS Collection Notice Letter LT40:

So, you may have made an error on your taxes, or forgot to change back your tax withholdings on your paycheck stub after covering some unexpected expenses and ended up owing Internal Revenue Service (IRS) taxes or California Franchise Tax Board (FTB) taxes. Or perhaps, you were audited by the IRS or California’s income taxing entity, the FTB. Either way, you are staring a tax bill and wondering if it you owe more than “average”.

Unfortunately, if you owe a California FTB tax debt, they will tell you, and the public at large that you owe a big tax debt. They will even post your name online, try to suspend your drivers license and state issued professional license that you may have in order to force you resolve your tax liability. This is known as the “Top 500 past due balances” list and its most recent victims has just been published.

Initially started as a list of the top 250 by California Assembly Bil No. 1424, it has been amended and expanded to the top 500 individual taxpayers who owe $100,000 or more in California FTB tax debt and is published twice a year.

The current list updated in June 2024 has the lowest liability published as $102,409.61. With penalties and interest on tax liabilities, you may be closer to being published than you think. There are tax collection defense strategies that can be implemented to keep you off of this list, or remove yourself from this list if you see your name on the list. But it is up to you to pursue those tax defense strategies before the tax man pursues you. So, if you do have a California Tax Debt that is getting “Big” you may need a consultation with our law firm to determine if there is an FTB collection defense that may work to keep your name from being published as a top 500 past due balance.

We have all heard the saying “if you want something done right, do it yourself.” Let’s explore the applicability of that phrase in the context of filing tax returns. It all depends on how we define “yourself.” We have explained in previous articles that you cannot escape the requirement to pay taxes by not filing, and failing to do so may lead to serious consequences. And if you fail to file one or more tax returns, you run the risk of the IRS filing taxes for you in the form of a “Substitute for Return.” The IRS will prepare an estimate of what should be owed based only on information reported to them via third party information returns (W-2, 1099). The tax due on a SFR is almost always overstated because it does not take into account the correct credits, deductions & exemptions. The IRS generally allows only one exemption, the standard deduction, and a filing status of “single,” or “married filing single.” In other words, the IRS is not going to make sure it is “done right.” They will overstate the tax and “round up,” essentially placing the burden of claiming exemptions, credits, and deductions on the taxpayer. Once the SFR has been completed and the taxpayer has been given an opportunity to respond (including the opportunity to file their own return instead of relying on the SFR), the tax is officially assessed, and then the IRS can go into collections mode with enforcement tools such as liens and levies.

Even though filing yourself is best, we don’t always recommend that the taxpayer personally do the heavy lifting. In other words, when we say that filing “yourself” is best, what we mean is it is better to take care of it yourself with the help of a tax preparer as opposed to leaving it in the hands of the IRS SFR. If you have a very simple tax return, there is no reason why you couldn’t use self-file tax software, or even the IRS Free File program if you qualify, to knock it out in a few minutes. However, for most of our clients, we really prefer that they hire a tax professional to prepare their returns. That doesn’t always mean an accountant is necessary. For many taxpayers, an experienced preparer is sufficient. You just want to spend some time getting to know the preparer and their experience level and attention to detail. So, yes, if you want something done right, do it yourself, but only if you truly know what you’re doing. If you need help or have questions, don’t hesitate to contact Montgomery & Wetenkamp.

If there is one letter that the IRS should eliminate, it’s the 2645C letter. This letter has never really worked the way it was intended. We first described the rationale behind the 2645C way back in 2014. It wasn’t working then, and it doesn’t work now, almost 10 years later. It is supposed to function as an acknowledgement that the IRS has received something from the taxpayer and that the IRS will review and provide some kind of response (or request for additional time) within the next 45-60 days.

If something is mailed to the IRS, an acknowledgement letter is not a bad idea… in theory. For example, an acknowledgement letter might eliminate the need to call the IRS to make sure they received what was sent. During the pandemic it was not a good idea to send physical mail to the IRS because they literally were not opening it, and even snail-mailed tax returns were not being processed normally. Things are somewhat better now, but I think this period of inattention has made taxpayers, and particularly tax professionals, very reluctant to send physical mail to the IRS. However, the 2645C letter doesn’t work for a few different reasons:

1. The 2645C letter is too vague,
2. The 2645C letter is not mailed out promptly,
3. The follow-up estimates are not accurate.

The 2645C is not customized so that it pinpoints what exactly was received, so if there are multiple concurrent issues on a tax account, it is impossible to determine what the letter refers to. Also, the 2645C is often mailed out weeks – or even months – late, causing all kinds of confusion to the taxpayer and their representative. Sometimes these letters appear out of nowhere after the issue has already been resolved. And we’ve all seen a 60-day follow up turn into 90, then 120, and so on. This has become more like the rule than an exception.

Sometimes the IRS will even send out the 2645C letter following a telephone contact from the taxpayer or their representative. Again, an acknowledgement letter might theoretically be helpful when sent in response to something that was mailed to the IRS, but what good is a 2645C letter that is sent in response to a telephone inquiry? If you’re already on the phone with the IRS, why would you require a 2645C letter sent by the IRS to confirm that they received your call? It is just confusing and unnecessary, especially if the letter comes weeks after the phone call. If you can think of a good reason to keep this letter, or if you have ever found it helpful, please explain in the comments! If you need IRS tax assistance or more information about our tax debt relief services, contact us today.

Does the IRS offer settlements? If you owe a tax debt that you cannot afford to pay, you may want to consider negotiating your tax debt through a tax settlement. The procedure is known as an offer in compromise. The Internal Revenue Service (IRS) began charging taxpayers who want to attempt to reduce their tax liabilities through a tax settlement an offer in compromise application fee in November 2003.

Beginning April 27, 2020, the application fee for IRS offer in compromises will be $205.00. This is an increase from $186.00. According to a memorandum from Director of Collection Policy Nikki Johnson, the Department of Treasury reviewed the offer in compromise program costs and issued final regulations to increase the amount of the application fee imposed under section 300.3 of the Treasury Regulations for processing an offer in compromise.

There will be a grace period through May 27, 2020 for taxpayers that have submitted an offer in compromise with the prior fee of $186. The IRS will require any shortfall be paid prior to continuing the offer investigation. While the increase in the IRS offer in compromise application fee is only $19.00, the IRS will continue to waive the application fee for low-income taxpayers and those taxpayers that base their offer to settle based on doubt as to liability.

Additionally, if you live in California, the IRS has changed the unit that will be assigned to investigate your request for an offer in compromise. I believe there is a group of IRS agents in Brookhaven, New York that is now very happy that they won’t have to fight with our attorneys anymore. We hope this helps you understand how to get a settlement with the IRS.

Contact us today for more information on how to settle debt with the IRS or a free consultation!

What is IRS form 1040-SR? The IRS rolled out a new tax form this filing season called the 1040-SR. It’s basically a simplified, large-font 1040 form similar to the 1040-EZ. I know the IRS means well, but was this really necessary? Who can use form 1040-SR? There are a number of restrictions on who is permitted to actually use this form; and of those that are, it is questionable just how many will want to. If you itemize your deductions, you may not use this form. If you earn over $100k, presumably you should be able to afford to hire a tax professional to file your taxes, and you may not use this form. If you have investment income or income from a business, you may not use the new 1040 form. And if you are under 65 years old, regardless of how bad your eyesight is, you may not use this form. Side note: I know many people under 65 who would benefit from a tax form 1040-SR, one of them being the referee at my son’s basketball game the other day.

Furthermore, the large font only helps if you’re actually filling out the form by hand with a pen. These days a vast majority of taxpayers file electronically and even pay someone else to do it. I suppose if there are any traditionalists left who fill out tax forms by hand, they probably fall in that 65+ group. But even that group may derive only a small benefit from the new form if they use any of the lettered schedules because none of the tax schedules and attachments have been updated with larger fonts. The IRS even admitted that the group of taxpayers who will benefit the most from Form 1040-SR makes up less than 10% of all tax filers.

It’s always easier (and more fun) to poke holes in IRS programs and the way they administer the tax code than it is to identify what they’re doing right. It just seems like they’re often more concerned with the minutia and less relevant details. It’s the same brand of thinking that results in the auditing of small business owners, sometimes year after year, while major corporations often avoid taxes altogether. Age 65 is not that old anymore. Seniors are resourceful; they wear glasses, they use computers, and they pay younger eyes to do what they no longer can. My thinking about taxes won’t change when I’m 65; I guarantee I’ll care way more about the size of my tax obligation than I will about the size of the font on my 1040.

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The IRS is constantly coming up with new convenient payment options for taxpayers with back tax debts. As we know, the IRS is always so very concerned about the taxpayer, and they like to be as generous and accommodating as possible. Payment option language takes up some of the most prominent positions in collection notices. And clicking that “Pay” tab on the IRS website reveals no less than seven different payment options. Of course, when my clients tell me that they don’t know how they’re going to pay their tax bill, its usually not because they can’t decide between writing a check or paying in cash. As usual, the IRS is missing the point and still thinking inside the box, and their latest attempt to beef up collections from people who can’t pay is very concerning to me. The IRS is now allowing private debt collection firms that have contracted with the federal government to accept payments from taxpayers (see IRS News Release IR-2019-165, October 8, 2019).

The IRS has tried using private debt collection agencies (PCAs) off and on, unsuccessfully, but never before have they been authorized to accept payments. There are concerns that these programs often cost more than the revenue collected. There are concerns from the National Taxpayer Advocate and others within the industry about security of information and violation of taxpayer rights by employees who do not have the same ethical standards as the IRS (Did I just suggest that the IRS has standards?). And probably the most glaring problem I see is a potential diluting of the message that the IRS and others (myself included) have been preaching for years: you don’t send federal tax payments to anyone other than the IRS/Department of Treasury.

It’s no secret that some people have a hard time distinguishing between communications from the IRS and communications from scammers. I think it muddies the waters a bit now that it is permissible to give credit card info to Pioneer Credit Recovery, for example, besides the IRS. No longer is there a bright line rule about sharing sensitive information. For the record, there are only four potential PCAs that have contracts with the IRS: Pioneer, CBE, Performant, and ConServe. But if it is difficult for some to distinguish between the IRS and criminal IRS impersonators, then it’s only that much harder to distinguish between authorized third-party collection agencies and their unauthorized criminal counterparts. Even the IRS seems to acknowledge the added risk to taxpayers since a good portion of their news release appears under the subheading “Be aware of scammers.”

The IRS promises that PCA employees will not make threatening calls and that they will abide by the Taxpayer Bill of Rights and the Fair Debt Collection Practices Act, but how much oversight and control do they really have over these private firms and their employees? I don’t know the answer to that question, but I know how well-trained and well-behaved actual IRS employees are who work under the same roof as their supervisors, so I can only imagine.

Contact us today for more information or a free consultation!

A follow-up to the last article (Aug 2019) about the IRS CP504 notice to compare it to IRS LT11 notice.

In this article I am going to dissect that notice’s evil cousin: the LT series letter. The one I happen to be looking at for reference today is a LT11 notice. Again, the notice code can be found in the upper right corner of the first page along with the notice date, social security number (often times partially masked these days), case reference number, and IRS phone number.

There are many similarities between the CP and the LT letters. Both come with a payment coupon at the bottom of page one. Both contain information about the denial or revocation of a US passport, information about penalties and interest, and information about “what you need to do immediately.” The LT11 has a more descriptive section on Federal Tax Liens, but for the most part it actually has less information than the CP504. I think the rationale is that they have already spelled things out in previous letters and its just not necessary to repeat everything.

The first thing a taxpayer will probably notice on the IRS LT11 notice is what appears in the boldest, biggest font on the front page: “Intent to seize your property or rights to property / Amount due immediately: $_______.” The heading, which actually appears above this phrase, is “notice of intent to levy and notice of your right to a hearing.” The right to a hearing is key because without it the IRS can’t move forward with levies. Some of the types of property that become subject to levy are listed on the first page of the LT11 notice: wages and other income, bank accounts, business or personal assets (including your car and home), Alaska Permanent Fund dividend and state tax refund, Social Security benefits.

Another major difference between LT11 and CP504 is where the letter comes from. The office address is in the upper left corner of the notice, and the LT letters will come from ACS or “ACS Support.” ACS stands for “Automated Collection System.” ACS is difficult to define because it is an IRS operation/function, it is a physical place (or places) with support sites in Atlanta, Cincinnati, Fresno, Kansas City, and Philadelphia, and it is a case status. According to the Internal Revenue Manual:

Automated Collection System Support (ACSS) is a Compliance Operation, supporting ACS Call-Sites, resolving correspondence from taxpayers, their representatives, and/or third party contacts. These include Taxpayer Delinquent Accounts (TDA) with a balance due and/or Taxpayer Delinquency Investigations (TDI) with delinquent returns.

IRM 5.19.6.2 (02-20-2018)

As for the “what you should do immediately” section of the letter, the options are (1) pay what is owed; (2) make arrangements to pay/resolve what is owed; or (3) request a Collection Due Process hearing. If you do not believe you are responsible for the tax, it might be worth while to file a CDP hearing request. If you know that you owe, but can’t pay, then you’ll want to explore other resolution alternatives such as an installment agreement or offer in compromise. Everything from this point on in your case is extremely time sensitive. Even if you’ve been able to fly under the radar for several months, once you’re in collections, things start to move more quickly. A tax attorney can help you decide which is best for your individual circumstances, help you to meet important deadlines, and get you back on track with the IRS.

Contact us today for more information or a free consultation!