|
Know your tax rights
|
 |
April 10, 1998: 9:43 a.m. ET
Armed with the right information, you can confront the IRS and win
|
NEW YORK (CNNfn) - Perhaps the revolutionary battle cry of our forefathers should have been "no taxation without more information." Most taxpayers fear the tax man like no other and are unaware of rights that could make encounters with the IRS significantly less arduous.
"If you just understand a few of your rights, you will never be abused by the IRS," said Daniel J. Pilla, a tax litigation consultant and executive director of the Tax Freedom Institute.
But the IRS may never readily explain these entitlements to you, simply because it is not in the agency's financial interest to do so, according to Pilla.
Some of the most basic rights guaranteed by the IRS include privacy and confidentiality. You have the right to know why the IRS is asking for certain information, how it will be used and what will happen if you do not provide requested information. You are also entitled to professional and courteous service. If you are treated by any IRS employee in an unsuitable manner, you can and should tell that employee's supervisor or, if that fails, the IRS District Director.
You also are entitled to legal representation, but Pilla says if you know your rights, you will not need a tax lawyer the vast majority of the time.
Rights during an audit
If you are flagged by the IRS for an audit, do not panic. Intimidating as it may be, an audit does not mean you have done anything wrong.
"You've got to get out of the defensive attitude," said Pilla.
One of your most powerful tools is the right to conduct an audit by mail, avoiding any face-to-face confrontations with the IRS. You will never be caught off guard and will be able to think through any responses you send to the IRS.
If you choose to conduct an audit in person, you are entitled to choose a time and place that is convenient to you. You also have the right to tape record an audit, but be aware the IRS can do the same if this is what you choose. A recording prevents the IRS from changing the rules midway through the audit.
Remember not to give auditors any information or documents outside the scope of the examination. If you supply other years' tax returns, for example, the IRS may make adjustments for those years, too.
Finally, you do not need a receipt or canceled check to prove a deduction. Oral testimony, affidavits and reconstructed records are often acceptable.
When the IRS is wrong
To err is human, but the IRS is pretty good at it, too. General Accounting Office studies indicate IRS notices are incorrect 50 percent of the time.
If you receive a notice asking for additional taxes, penalties after an audit or even a wage levy, it is in your best interest to appeal it. More than half of the decisions made by IRS auditors are deemed wrong once challenged, according to the TFI.
Pilla suggests writing a simple protest letter stating what you don't agree with and why. Make sure you use certified mail with a receipt in all correspondence with the IRS.
If you are appealing an audit, make a Freedom of Information Act request for the auditor's records, so you know what you are up against.
If you disagree with the findings of the IRS Appeals Office, you can then take your case to U.S. Tax Court, U.S. Court of Federal Claims or the U.S District Court where you live. Citizens who use their right to appeal auditor decisions, along with their right to petition the Tax Court, win 60 to 90 percent of the time, according to the TFI. In most cases, the IRS chooses to negotiate a settlement to avoid a trial.
If at any point during your dealings with the IRS you believe the IRS could cause you undue economic hardship, appeal to the Taxpayers' Advocate or the Problems Resolution Office. These divisions act as liaisons between you and the IRS. The Taxpayer Advocate can sometimes establish installment agreements or even lift certain levies. To find the Taxpayer Advocate nearest you, call 1-800-829-1040.
What if I can't pay?
You've exhausted all your options and the IRS says the time has come to pay up.
Maybe not.
Certain IRS programs are designed to aid taxpayers who cannot afford to pay their debt. You can request "uncollectible status," during which the IRS will stop the collection process while you get back on your feet financially. To qualify, file a financial statement on form 433A demonstrating that all the money you earn covers only basic living expenses for you and your family. Uncollectible status is only a temporary fix, but it helps you avoid wage levies and property seizures. It also buys time while you apply for other debt forgiveness programs.
The "Offer in Compromise" program acts much in the way a Chapter 13 bankruptcy filing does. The IRS collects fees that would otherwise be spent to secure a bankruptcy as partial payment of the tax. In short, you are asking the IRS to accept less than the full amount owed. In 1996, the IRS accepted more than 27,000 such offers and according to the TFI, the average national settlement under the OIC program is 13 cents on the dollar.
If you file for bankruptcy, chances are you can discharge some or all of your tax debt. Under Chapter 13, taxpayers sometimes can pay back taxes based on their ability to make monthly payments. Under certain rules, whatever cannot be paid back in five years is usually discharged. If you file for a Chapter 7, certain taxes may be forgiven entirely. IRS publication 904 outlines the specifics.
Just knowing your rights can keep you from ever having to use them. The collection process and enforcement is complicated and expensive. Settling ensures the IRS it will get at least some of what it is owed. Last year alone, the IRS canceled $3.89 million in penalties.
-- by staff writer Nicole Jacoby
|
|
|
|
|
 |
|
