On Sunday, March 16, 2025, United States Department of the Treasury Secretary Scott Bessent confirmed during an interview on Meet the Press that the Internal Revenue Service (IRS) will be waiting until after their “game day” to make significant adjustments to the IRS workforce.

He explained that while other federal departments are making cuts now, the IRS is presently in its playoffs since it is March leading to Tax Day, April 15, 2025, being their game day. Secretary Bessent indicated that after the IRS Game Day/Tax Day, then the IRS workforce will be reviewed in May 2025.

When reviewing adjustments to the IRS workforce, Secretary Bessent confirmed the IRS will prioritize the following IRS functions:

1. IRS Collections;

2. Taxpayer Privacy; and

3. Customer Service.

Whether Secretary Bessent was speaking with candor or if he actually has a say in how the Department of Treasury functions or operates, provided the current administration(s), is yet to be determined. However, he did indicate that collections would be a priority.

Furthermore, the IRS does have the power of the courts and may cause a tax debt to be even more expensive to both collect and defend if the IRS is eventually eliminated. So those of you hoping the IRS may just go away, hope is not a plan. Taking advantage of the collection defense options and strategies that are implemented by our tax law firm may need to be implemented before they are terminated and you get dragged into court.

If you are a California employer, you likely have lots of tax responsibilities including fulfilling your IRS and California payroll tax obligations and tax compliance responsibilities. Not only do California employers need to pay their employees a reasonable wage, but they also have to be compliant with the Employment and Development Department (EDD) filing requirements.

The EDD is California’s state taxing entity for payroll filing compliance. One of the first forms needed to proceed with processing payroll for your employees is EDD Form DE1. EDD Form DE1 is usually completed online. If your business entity is a California corporation you need to have an active status with California’s Secretary of State. Once active, entities are issued a California Secretary of State corporation number.

While online transmissions and processing are sometimes convenient, there are sometimes “glitches” especially when the government is involved. Such is the case with the EDD’s Form DE1. To complete EDD Form DE1 online, a California corporate employer needs to enter their California Secretary of State corporate number. However, due to a glitch created by updates over the years, a hack is needed to complete this tax form. The nerds who programmed the EDD’s Form DE1 programed the processing of the form were so brilliant that the user attempting to complete the Form DE1 Is unable to proceed in processing or completing the form unless the California Secretary of State corporate number is provided. However, due to nerd complexities and glitches, the end user needs to know a simple hack to help them overcome the EDD Form DE1 glitch.

To overcome the EDD nerd glitch, the end user needs to Enter the letter “C” before entering the California Secretary of State number on the EDD website. Once the glitch is overcome by this tax hack, the end user should receive a confirmation number for processing the EDD Form DE1 application which should take approximately ten business days.

· 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!