Dealing effectively with the Internal Revenue Service (IRS) usually requires some knowledge of their prior position statements. For example, at the end of 2019, the IRS announced they would be ramping up their collection efforts across the country. It was designed to be a focused campaign to ensure compliance for both business and individual taxpayers.
That campaign was part of a plan to hire 1,700 new full-time employees, which followed the IRS’s 2018-2022 Strategic Plan to “protect the integrity of the tax system by encouraging compliance through administering and enforcing the tax code.” According to the IRS, “when noncompliance occurs, we’ll use behavioral insights and robust data analysis to address the noncompliance in the most appropriate way. This will include expanding self-correction options and early intervention treatments, allowing taxpayers and tax professionals to resolve errors quickly, without compounding issues over time.” (IRS Strategic Plan, Fiscal Year 2018-2022) here. One way they intended to “resolve errors quickly” was through increased field visits to taxpayers who owe delinquent taxes or who have unfiled returns.
Face-to-face visits from revenue officers are nothing new; however, they still pose potential risks for taxpayers. During these intensive visits, taxpayers can inadvertently disclose unnecessary information and be pressured to make agreements that are not in their best interest.
It is important for taxpayers to know what to expect when the IRS comes to visit and what you can do to protect yourself and your business. And, while COVID-19 has prevented many of these face-to-face visits, they still happen and will increase in frequency as the restrictions related to COVID-19 are reduced.
Here’s how increased IRS compliance will affect you.
What happens during an IRS field visit?
A revenue officer’s primary job description is to collect delinquent taxes and secure unfiled tax returns.
When meeting face-to-face with businesses and individuals for the first time, a revenue officer’s intention is to collect the amount owed in full and secure any unfiled tax returns immediately. If the revenue officer is unable to do so, their focus shifts to assessing the taxpayer’s financial situation, particularly the ability to pay the tax due.
For businesses, this includes evaluating day-to-day operations and making note of assets, including property and equipment. For individuals, the revenue officer will determine the condition and value of real property, such as the taxpayer’s home. The revenue officer also takes note of other assets: vehicles, recreational vehicles, jewelry, home furnishings, art, antiques and anything else that determines collectability or that could be sold to satisfy the tax debt. This can result in liens being filed against a business’s real property and equipment or an individual’s primary residence, vacation homes, real property and other assets. If deemed necessary, following restrictive guidelines, the IRS can seize property and auction it off to satisfy delinquent taxes.
What is the difference between a tax lien and a tax levy? We break it down here.
A face-to-face visit is also used to attempt to secure, review and discuss financial statements in person. Business owners are asked to provide a wide variety of documents, including:
They may also be asked to provide information on their personal property and assets.
Individuals can expect to be asked for verification of income sources, bank statements and proof of expenses. The IRS refers to much of this information within the Internal Revenue Manual as “levy sources.” With both business and individual taxpayers, the revenue officer will usually ask for the taxpayer to complete a financial statement on a designated IRS form.
For a business, these office visit meetings may result in corporate officers, or those in control of the business cash payment potential, being notified about their personal responsibility for certain unpaid taxes required to be paid by assessment of a Trust Fund Recovery Penalty. This allows the IRS to personally assess the trust fund portion of the taxes—the amounts withheld from employees—to the corporate officers or others it deems liable and collect 100% of those taxes from their personal income and assets.
After reviewing all the information, a revenue officer who is unable to secure full payment of delinquent taxes will attempt to establish and document a plan for resolving the case, such as arranging for a full payment of the taxes on a future date or through an installment agreement.
How much time are you given to provide this information to the IRS?
The revenue officer typically wants to get everything done within the shortest amount of time possible. However, there are several problems with condensing this process to a short timeframe. The taxpayer often feels rushed to put together the large amount of financial information quickly, and they usually don’t understand how the information they provide to the IRS will be utilized.
If the information the taxpayer provides is incomplete or inaccurate, this can skew the revenue officer’s perception and calculations of what a taxpayer can afford to pay. Taxpayers feel pressured to make full payment, whether that is feasible or not. When full payment is not possible, taxpayers frequently agree to repayment terms that are not financially viable, putting themselves at risk of creating further financial hardship.
So how do you put the brakes on a revenue officer, whose visit is most likely unscheduled, when they are standing at your door?
Do you have to handle the IRS by yourself?
No doubt, the rapid pace of a field visit can prove beneficial to the IRS, but it can be detrimental to taxpayers. One of the easiest ways to slow the process down and ensure you remain in control is to let your revenue officer know immediately that you wish to consult someone to represent you or your business, or both, in the collection process. Hiring qualified representation is an effective way to protect your business and personal assets when the IRS comes calling.
To the IRS, a qualified representative usually means a CPA, attorney or enrolled agent. Requesting the ability to contact your representative should halt the interview process and give you a minimum of 10 days to contact someone to represent you. You can then talk about the visit, put together the requested documents and submit them to your representative for use when dealing with the IRS.
Need help working with the IRS?
Your representative will submit a Form 2848, a Power of Attorney Declaration of Representation, so they can communicate with the IRS, including the revenue officer, on your behalf. Your representative can assist you in completing the requested financial statements to ensure important determining factors, such as deductions for self-employed taxpayers, are included. They can advise whether the information requested by the IRS needs to be disclosed in order to repay the tax liability, limiting the IRS’s access to your income and assets. They can speak to the revenue officer on your behalf during the interview, and on a separate basis, to further protect you from unknowingly disclosing anything to the IRS that may jeopardize you or your business. They can request additional time for filing missing returns, appeal decisions made by the revenue officer, and they may be able to reverse a decision to levy wages or assets. Finally, they can recommend and request a repayment plan that fits your financial needs.
Understand the Importance of Having a Representative on Your Side
Hiring someone to represent you allows you to stay in control of the conversation with the IRS through someone who knows IRS procedures and policies, reducing your risk of tax overpayment, penalties, interest and the stress of the whole matter.
Do you have missing returns or delinquent taxes? Let us keep you protected and negotiate with the IRS on your behalf.