IRS Tax Resolution Cannot be Taken for Granted
Posted by Dean Alexander on Thu, Feb 02, 2012
A tax resolution to your tax problem is a saga that will have to start by hiring a professional such as a CPA or an IRS tax attorney. Or, if you are a do it yourselfer, the only resource for the tax help is you and your knowledge, good or bad.
The first order of business is to talk to the IRS. Your representative should do an exploratory conference with the IRS, whereby he or she should obtain your filing records. At this point there are a few objectives. First, the rep needs to know your back taxes as recorded in the IRS records, year by year. He also needs to know how your tax debt was determined. He needs to know if you filed those tax returns or the IRS filed them for you. Those returns that the IRS filed on your behalf are called SFR's.
The second thing that your CPA or your IRS tax attorney will do in order to provide the required relief is to ask the IRS to put a hold on IRS collection actions until you study the case and start doing what needs to be done. Your rep may be able to put a hold for thirty days. This step is aimed at preventing IRS levy, wage garnishments, among other things.
The third step is to order all the transcripts for all the unfiled returns and for the SFR's. The SFR's in most cases will need to be filed. Invariably, by filing the SFR's, you would reduce the back taxes that you owe. When the IRS files the SFR on your behalf, they don't care about expenses that offset your income. They only care about the income which is reported to them by a third party through the 1099 system.
For example, if you are selling drilling tools to Exxon for a million dollars, Exxon reports the million dollars that it paid to you. The IRS, when filing the substitute return will send you a possible tax bill of, say, three hundred thousand dollars. Never mind that you have paid nine hundred thousand dollars for the drilling equipment. If they had taken into account the cost of goods sold, you would have owed, say, only thirty thousand instead of the three hundred thousand dollars.
In fairness to the IRS, they don't know how much it cost you to buy the tools. The only thing they have is your income, so they hit you with it. The burden of proof is on you. You may be surprised to know that many taxpayers have accepted the liability as it is in the records of the IRS without any challenge.
To be continued in a future blog