How to Successfully Handle IRS Tax Assessments

How to Successfully Handle IRS Tax Assessments

If you have just gone out to the mailbox only to receive a IRS tax notice and gotten an assessment, don't fret yet. Many IRS assessments are by their very nature geared towards getting your attention and to create the highest based tax owed based only on what the IRS has to date. Accordingly frequently many of these original assessments can be quickly reduced or potentially even eliminated by giving to the IRS the needed information to complete and close their file.

For example, if you filed you Personal Return/Form 1040 and inadvertently failed to report independent contractor wages then the IRS will eventually send to taxpayers an assessment based upon the gross monies received. Tax law, however, allows that you are legally able to reduce the gross sales or independent contractor monies by valid business expenses. Thus this assessment can quickly and easily be reduced to the correct amount legally owed by the filing of an amended return and the reporting of gross revenues collected and just and legal business expenses. Assessments for failure to originally report independent contractor or proprietorship profits often results in a very high initial assessment as not only are federal and state income taxes due but also the Self-Employment Taxes, which are reported and assessed on Personal Form SE. Thus, the valid deduction of expenses can often have a substantive impact. This is the first and best step in this particular assessment, because without amending and correcting the original return, there is no true way to know exactly what is owed.

Similarly there may be circumstances where payroll tax returns have been filed on an ongoing basis for a company for a period of time and then suddenly the operations either cease or all employment ceases. During these times often those responsible will fail, for lack of attention to detail, to let the IRS and applicable state authorities know of the ceasing of business operations. During these times, the IRS will often validly presume absent any other information, that the operations are continuing as they recently have and will assess tax monies and liabilities accordingly. As you can see, in this circumstance as well, keeping the IRS well apprised by the timely filing of reports an essential component of accurate reporting and the avoidance of unnecessary assessments.

After you have determined your true liability then it is time to begin looking at payment options such as paying all the correct taxes owed in full, an installment plan or an Offer in Compromise. These are just a few of the many variables in addressing tax situations and the attendant tax solutions available. Working closely with your CPA is your best defense to good cash and tax management.

John Dillard is a Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life's 9/11's: Job's Journey visit http://www.john-dillard.com/