Handling Interest Charges

You give yourself IRS problems if you settle your taxes late or don't pay at all. The unpaid tax is considered as borrowed money, so you are charged interest on your unpaid taxes, as required by the U.S. Congress. Not only that, you are also charged penalties for late payment.

You'll know you're punished by the IRS with the interest and penalties on your late/unpaid taxes. Furthermore, it doesn't take long for the tax bill to double or triple up. It's because interest is computed based on the entire amount, starting on the time the tax was due, and penalties are assessed and compounded on a daily basis.

You'll still be charged interest, regardless why you have unpaid/late taxes. Even if it's a mathematical error on your tax return, interest will increase for the amount of taxes not paid. Unless the IRS receives full payment, interest will not stop accumulating. Interest is posted every 3 months but compounded every day. It can go from 4-10% per year.

A detailed interest and penalty printout is available when requested. This printout will show: 1) lists of all your tax penalties and interest computations; 2) the dates, interest rates, any penalties assessed, and credits for payments or refunds; 3) interest and penalty charges on tax amounts; 4) penalties that were already applied; 5) an account summary showing amount due, which will include updated penalty and interest figures.

Our company can help you go over the documents to see if you do, in fact, need to pay the interest and penalties charged to you. Unless it was wrongly applied or is due to delays by the IRS, interest is normally never abated or cancelled. An Offer in Compromise may lessen or eliminate the interest, if you are eligible.

IRS Computer Notices

If you have IRS problems, you might be afraid your mailbox. Will I get a notice from the IRS today? Was an error found in my tax return by an IRS computer audit? Do I need to pay the IRS more money?

Because the IRS doesn't have the manpower to perform face-to-face audits with every taxpayer, it uses its computer system to check tax returns and send out notices. If an error was uncovered on your tax return, you'll receive a notice informing you of it and you may be required to pay more taxes or given a refund, which is very unlikely. Interest and penalties will be on the balance due. The information the IRS computers use is from its own files and from other sources.

This example is just one of approximately 300 kinds of IRS computer notices generated. These are the most common notices:

• Claims you did not report all of your income: The IRS computer determines if you've reported all of your income by searching its files and comparing your information.
  
• Claims you made a math or clerical error: The IRS computer analyzes your return to check the math and clerical responses.
  
• Claims you failed to file your return: The IRS computer can see if a return was filed as needed.
  

If you receive any of the 300 computer-generated notices and you do not agree with it, do not hesitate to challenge the IRS and ask that it be corrected. File copies of all IRS correspondence in your records.

If the notice is right and you do owe the IRS money and don't settle in a month, you will start receiving a series of computer-generated bills known as the "500 series". The "500 series" will include a reminder that you have a tax debt (CP-501), your speedy action is required (CP-503), and a levy will be issued if you don't reply as soon as possible (CP-504).

What's with a Correspondence Audit?

A correspondence audit through the mail is commenced when an error on your tax return is uncovered by the IRS computers. You will be told of the discrepancy on an IRS notice and you will be asked to submit documents to substantiate the tax return. You will either be issued a refund or asked to settle the additional taxes if the error is mathematical.

Be prepared against IRS problems and audits by always making copies of your return and its attached documentation. Cooperate with a correspondence audit.

No matter what the IRS�s request is, make sure you compare a copy of the return with what's written on the IRS notice to verify the necessity of a correction or the need of additional taxes. Do not automatically send the requested money without further inquiries. They can make mistakes too.

Follow the instructions in the IRS notice promptly. Ignoring it will only make things worse.

If you don't agree with the IRS notice, follow the directions on it in a timely manner. Other documents should be attached. On the other hand, if you agree with it, simply sign and date the IRS notice and send it with the correct payment.

If you disagree with the notice, the IRS will evaluate your claim, and if it is allowed, you will be notified and the audit with stop. An Examination Report will be sent to you if the IRS disallows your claim, and you have 30 days to accept the changes and sign it or ask for an appeal.

If you have queries regarding the audit, you can contact the name and number that is listed on the notice or write to the auditor,requesting for him to contact you.

Facing an IRS Audit

The two kinds of audits done by the IRS are the face-to-face audit and correspondence audit. Your IRS issues are just starting if you receive notice of either of these 2.

The Correspondence Audit

The mail is how a correspondence audit is done. Corrections on tax returns are found by the IRS computers. If so, a notice is mailed to the taxpayer. This IRS notice shouldn't be dismissed. If you need to pay more taxes, act immediately. Interest and penalties may be added to the bill if there are delays. If you do not agree with the notice, mail your reply and attach documentation to support your case. You should have copies of the correspondence.

Face-to-face Audit

You know you have an impending face-to-face audit if you get a notice specifying a date and time to meet with a tax auditor or revenue agent or requesting you to contact them for an appointment.

What must be done?

• Do not dismiss the notice. If you do not reply within thirty days, the IRS will take action. You might receive a bill next time.
  
• Read the notice and follow the directions. You'll be informed which items are under review and the information you will need to take with you to the audit.
  
• Organize your documents. It is your responsibility to prove that your tax return is accurate. If you go to the audit organized and prepared for the auditor�s queries, it will make the job easier for the auditor. Consider this a plus.
  
• Ask for copies of missing records because you need supporting documents to prove your case.
  
• Don't take information not required to the audit. If information that was not required is brought up, tell the auditor that it isn't on hand.
  
• Be calm and polite in the audit.
  
• Only copies must be given to the auditor, not the original documents.
  
• Try to answer inquiries with either "yes" and "no." Small talk may lead you to divulge sensitive information. The auditor will have cause to believe that you have not reported all your income on your tax return when you speak about big purchases or vacations. This could tell him that he has to expand the audit.
  
• Know that you have a right to an appeal if you do not agree with the audit's outcome.