Taxpayer Rights: What You Need to Know If You Get Audited
Feb 22nd 2011 6:00AM
Updated Feb 23rd 2011 6:55AM
The three most intimidating letters of the alphabet for most Americans are I-R-S. Very few things strike more fear in a taxpayer's heart than the thought of being audited by the Internal Revenue Service.
For years, reports of abuse of power and poor treatment from the IRS ran rampant. That led Congress to pass two Taxpayer Bill of Rights in the 1990's.
These rights cover the basics, such as placing the burden of proof in tax disputes on the IRS (not the taxpayer). But they don't tell the whole story. So today we'll reveal the real rules of engagement so you understand the rights that will help you deal with the IRS should you receive that dreaded letter or phone call.
1. The Right NOT to Meet with the IRS
We're not telling you to skip town or miss meetings, but we are saying you have the right to conduct a correspondence audit through the mail. Think of the benefits: You avoid the stress of an in-person meeting, the hassle and expense of taking time off work, and the possibility you will say something that can be misconstrued by the agent.
Simply ask for a "correspondence" audit and take some of the pressure off.
2. The Right to Eliminate Penalties
This is one of the best kept secrets on the planet.
A common issue taxpayers tangle with the IRS over is penalties – probably because there are more than 150 different penalties contained in the tax law, and the IRS can find one to hit you with at every turn.
On the positive side, each of those penalties is subject to cancellation ... though the IRS generally "forgets" to tell you this (surprise, surprise). That means that all penalties have the possibility of being canceled when you can show you acted in good faith and not out of an effort to deceive the IRS.
3. The Right to Appeal Any Decision Made by the IRS
This is one of your most important rights, so don't forget it. Whether you're faced with an audit, lien or some other judgment by the IRS, you have the right to appeal.
If you get audited and you're not satisfied with the results, you have the right to challenge an auditor's decision through the IRS appeals office. You'll then have 30 days to exercise your appeal rights (though it could be a year or more before your appeal is heard).
Here's the best part: If you do challenge, the IRS's own statistics reveal you will win your case about 64% of the time.
Of course, the best way to save yourself a few headaches is to avoid getting audited in the first place – here's how to make your deductions airtight.
4. The Right to an "Installment" Agreement
If you do end up owing the IRS money, things can get ugly ... and fast. Their notices make it clear they want the money now - all of it. What they don't make clear is your right to an installment agreement.
To negotiate a reasonable payment, get a copy of IRS Form 433-A, the Financial Statement. This lists your income, expenses, assets and liabilities, and will accurately present how much you're able to handle paying.
You'll also need to file Form 9465-an installment request.
The IRS charges a $52 fee on installment plans that use direct debit (where payments are automatically deducted from your bank account) and $105 if you don't use direct deposit.
5. The Right to Challenge IRS Notices
The IRS mails tens of millions of notices each year, most of which are demands for more money. But don't automatically reach for your checkbook!
According to the Government Accounting Office, 48% of these notices are "incorrect or incomplete." So why does the IRS keep sending them? Because research has shown that, rather than fight the IRS, most taxpayers would rather just cough up the money!
Don't let Uncle Sam pull one over on you. You can challenge and cancel those notices if you disagree and act promptly.
6. The Right to Use the Taxpayer Advocate Service
The IRS is a huge bureaucracy, which can make it incredibly frustrating to deal with, even to get the most obvious errors corrected.
If you are ever dealing with the IRS and no one seems willing or able to help, your best bet is to contact the Taxpayer Advocate Service (formerly known as the Problems Resolution Office).
The TAS was created to assist citizens whose problems seem to fall through the gaping cracks in the floor of the IRS' "We Care" Department. The service is free and confidential. You can find your local advocate in the phone book (if you still have one!), on the IRS web site under Contact Your Advocate or you can call 877-777-4778 begin_of_the_skype_highlighting 877-777-4778 end_of_the_skype_highlighting to speak with an advocate.
7. The Right to Make Audio Recordings of Any Meeting with the IRS
If you're audited by the IRS or are subject to a tax collection procedure, you are allowed to tape record the meeting. However, you have to notify the IRS 10 days in advance of your meeting.
Taking advantage of this right prevents the IRS from changing the rules midway through the audit. It also helps control the meeting and limit discussions of irrelevant and unnecessary issues as far as the topic at hand (your potential tax liability) goes.
8. The Right to Represent Yourself Before the IRS
This is one right you may not want to exercise. You can act as your own advisor when faced with an audit or with having to go to United States Tax Court, but tread carefully here...
The only way you should consider representing yourself is if you're audited for something fairly simple, confident in your tax knowledge, familiar with all of the most current IRS tax laws and are prepared for any items of dispute that the IRS may question you on.
As far as standing up in U.S. Tax court, however, be mindful you're walking on very thin ice. Tax laws can be very complex (and the judgment outcomes can be harsh), especially for matters brought before the U.S. Tax Court.
The next time the IRS comes knocking on your door, remember these rights before automatically forking over any of your money or talking with an agent. You do have rights - don't be intimidated into thinking any differently.
Taxes are one of those things in life nobody enjoys dealing with. That's why we work hard to simplify them for you. Let us show you simple ways to get your refund faster.
More From Ken and Daria at Dolans.com:
11 Commonly Overlooked Tax Deductions
Simple Ways to Avoid a Tax Audit
How to Get Your Tax Refund Faster