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PART IV: Computer Notices
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- Each year, the IRS issues about one hundred million notices of every
description, covering billions of dollars in account transactions and changes.
Unfortunately, the United States General Accounting Office's studies
show that those notices are wrong as much as 50 percent of the time. The
1997 Taxpayer Advocate's report to Congress places notices as number
three on the list of the most serious problems faced by citizens. Tax professionals
placed them number six on their list.
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- And while the error rate is high, many people are intimidated by the
IRS in general and its communications in particular and they believe it
is just easier to pay than to fight back. What is more, even when people
are willing to fight back, they are generally unaware of their right to
fight back. When they seek help, either from the IRS or from tax professionals,
they are left with the impression that the battle is either hopeless or
far too expensive to undertake. As a result, the vast majority simply pay
the bill even if they do not owe it.
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- PROBLEM 11
ERRONEOUS NOTICE RECEIVED ASSESSING ADDITIONAL TAXES.
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- CONSEQUENCE:
- If you ignore the notice or respond incorrectly, the tax is assessed
and you must pay the tax with its accompanying interest and penalties.
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- SOLUTION:
- Respond in writing demanding abatement. The IRS routinely sends out
notices--tens of millions every year--claiming that citizens have made
mistakes in their tax returns. The mistakes could be math errors, they
might involve tax calculation problems or any number of other possible
scenarios. The notice usually explains what the alleged error is and how
the IRS recalculated your tax. It then asks you to pay the additional amounts,
often with interest and penalties.
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- And while the agency is responsible to tell you clearly and simply
what your rights are with regard to the bill, it rarely does so in an understandable
manner. As such, too many people either respond incorrectly or not at all.
This leads to a permanent assessment which the IRS is then entitled to
collect with all of the enforcement tools at its disposal, including wage
levy, bank levy, property seizure and tax lien.
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- When you receive a computer notice you do not understand or with which
you clearly disagree, you have the right to challenge it. However, it must
be done in writing and must be done within a set period of time. Failing
to respond in a timely or proper manner ensures that you lose your rights.
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- The tax code affords sixty days from the date of the notice in which
to respond. You must respond by explaining that you disagree with the tax
calculation. You must demand that the tax be "abated," or canceled.
When you do this, the IRS has no choice but to abate the tax. Do not phone
or otherwise question the IRS, just respond in writing demanding the abatement.
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- If the IRS feels you legitimately owe the amount due, it must mail
a so-called notice of deficiency. This is an itemized statement
explaining exactly why you owe the tax. (More on the notice of deficiency
in Part V of this Problem Solver.) You have the
right to appeal the notice of deficiency before paying the additional tax.
In approximately half the cases, the IRS never mails the notice of deficiency
because its initial tax calculation is bogus to begin with. As such, a
simple letter and a postage stamp are all that are necessary to correct
the problem.
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- For a comprehensive guide to dealing with IRS computer notices, please
see chapters two and three of The IRS Problem Solver Book. These chapters take you by the hand through more
than a dozen common IRS computer notices and explain exactly what they
are and how to respond to each one.
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- PROBLEM 12
IRS MAILED A COMPUTER NOTICE CLAIMING I UNDERREPORTED MY INCOME.
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- CONSEQUENCE:
- If you ignore the notice or respond incorrectly, the tax becomes assessed
and you must pay it plus interest and penalties.
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- SOLUTION:
- Demand abatement of the tax. With over one billion information returns--Forms
W-2 and 1099--filed annually, it should come as no surprise that many of
them are in error. In fact, as many as 30 percent of all information returns
could have some element of error to them. Thus, if an information return
reports that you earned income you did not earn, the IRS is likely to mail
a computer notice claiming you failed to report the income on your tax
return.
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- Respond to this notice much the same way you handle the computer notice
mentioned above. However, in this case, you should be more definitive about
the alleged income and its source. Provide a concise notarized statement--an
affidavit--claiming that you did not earn the income in question or that
you did not work for the company in question. Make an affirmative declaration
that all income earned by you during the period in question was reported
on your return. If you know the company that issued the erroneous information
return, contact them directly in writing and ask that it be corrected.
Provide a corrected copy to the IRS. If you do not know the company or
if the IRS made the mistake (as is common), your signed and notarized declaration
should be enough to defeat the claim.
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- An exhaustive discussion on how to deal with the claim of unreported
income is presented in my book, IRS, Taxes and the
Beast. This book contains detailed guidance on how to cope with any
IRS claim that you failed to report your income accurately.
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- PROBLEM 13
VALID NOTICE RECEIVED DEMANDING PAYMENT OF TAXES
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- CONSEQUENCE:
- If the bill is not paid or satisfactory arrangements are not made,
the IRS begins enforced collection action, including wage levies, bank
levies, property seizures and tax liens.
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- SOLUTION:
- Respond to the notices timely and properly. Collection notices refer
to taxes that are currently assessed. Generally, they involve back tax
debts. You cannot ignore these notices. If you do not respond to the initial
notice seeking payment, the IRS sends a series of further, more harsh demands.
The culmination is a final notice, notice of intent to levy. This states
you have thirty days to pay in full or enforcement may begin. The IRS is
not kidding. It will enforce collection with all tools available if you
do not address the problem.
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- Always respond to the first notice. Do not wait until the cycle has
run to the final notice. Respond in writing, not by phone. Explain that
you do not have sufficient income or assets to be able to pay in full.
Explain that you need an installment agreement. Ideally, you should send
a copy of Form 9465, Installment Agreement Request, with your letter. Enter
the amount of monthly payment you can afford. As I explained in my discussion
of Problem 5, this sets the wheels in motion
to establish a formal installment agreement. Once that agreement is in
place, the IRS is foreclosed from enforcing collection as long as you meet
the terms of the agreement.
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- Chapters four and five of the book How to Get
Tax Amnesty have a full and thorough discussion of all elements of
the collection process and how to handle each notice in the collection
cycle. Anybody with a back tax debt must read that book. Most people make
their problem worse by ignoring it, hoping it will just go away. They do
this because they do not know what to do to solve the problem and they
cannot afford quality professional help--even if they can find it. But
ignoring the problem does not help. The problem does not go away. If you
have an outstanding debt now, do not wait a moment longer to deal with
it.
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