Tax Resolution, Audit Defense
Posted Sunday, July 31, 2022
From time to time you might receive a tax notice from the IRS, state or local taxing authority. These are never pleasant. Further, it is a common misconception that the government and their respective employees are never wrong. However, their systems are run by humans, and while we like to believe that the best and brightest people are employed by our government agencies, sadly they are like any other human. To make matters worse, these notices might contain threatening language and are routinely delivered after business hours on a Friday.
Historically, resolution was accomplished quickly either with a mailed or faxed letter, or with a telephone call to the taxing agency. However, today what used to take 20-30 minutes to resolve now takes 3-4 hours. Specifically, during 2021, the IRS received a record 282 million calls, but only 32 million of those calls were answered by Revenue Agents. That’s 11%, and is an all-time low.
Moreover, according to the IRS website on 2022’s mid-year report to Congress, “through May 21, the IRS processed 5 million taxpayer responses to proposed adjustments. It took an average of 251 days to do so – more than eight months. That is more than triple the processing time of 74 days in 2019, the most recent pre-pandemic year.”
States are similar especially California and other populous states with complicated tax systems.
Tax Resolution Landscape
As you can tell, the resolution landscape has changed significantly, and WCG must be mindful of our resources and how they are efficiently deployed. WCG makes every attempt to not nickel and dime our wonderful clients. However, we only have time to sell on earth, and we cannot inventory it nor is it refundable. Therefore, and while it is a crummy situation that affects you directly, we are introducing a tiered approach to tax resolution when assisting you with your IRS or state agency correspondence.
We will review the correspondence and provide the initial analysis and action steps. From there, four options exist-
- The notice is informational, and we agree with it.
- The notice has a tax assessment, we agree with it, and a formal response is not necessary.
- The notice is income tax related, and requires a response. From here we determine if this was caused by WCG error’s or omission. If so, then we start resolving it immediately. If not, then we present an action plan, and give you the option of resolving the matter directly or using to WCG resolve it.
- The notice is payroll tax related, and requires a response. If the notice is during a period when WCG was processing payroll, we will forward to ADP or Paychex, and monitor their progress.
Advanced Tax Resolution
Advanced correspondence includes telephone calls to the IRS or state agency, and written responses. Examples of advanced correspondence include responses regarding missing estimated or extension income tax payments, generic tax return processing delays and related issues, mismatch of payments and tax forms (usually payroll related), among other things.
Our initial (usually final) fee for Advanced resolution is $500. However, should more time be required and / or if the IRS or state agency escalates the tax matter, then we will discuss an extended plan of action and the associated expectations.
Comprehensive Tax Resolution
Examinations or audits of tax returns are a way of life, and defending them can be distracting. We will assist in the defense of your federal and state corporate and individual income tax returns. Most audits are resolved with telephone calls. Should an office or field audit be required by the IRS, we will request the case to be transferred to the Colorado Springs or Denver office. As a side note, most clients lose audits due to incomplete records or documentation supporting their tax position.
We will represent you in all levels of IRS or state agency examinations except tax court. Our initial retainer is $750 which includes 2 hours. Most cases can be resolved in this time, however some audits get extended in scope and then duration.
There are other problems that we assist with as well.
Delayed refunds are more common than ever with some taking over 6 months. If it has been at least 6 months since your tax return was electronically filed and you have not received your tax refund, we will contact the IRS or the state agency via telephone under Advanced Tax Resolution above.
Missing Tax Documents
There are two common tax documents that are missed on individual tax returns (Form 1040)- W-2s from old or side jobs, and 1099s from brokerage accounts. With the proliferation of digital tax forms, these documents are commonly missed by taxpayers. There are two paths to resolution-
First, the IRS or state agency accurately has computed a new tax due or tax refund. These are generally accepted as-is without the need for a tax return amendment. Should income tax be due, an online income tax payment might be required to minimize penalties and interest. We will review the correspondence and compare it with your tax return generally at no charge.
Second, the IRS or state agency does not have the complete picture and is only assessing taxable income without expenses or cost basis. A common example is a missing brokerage statement which shows you selling a bunch of stock for thousands of dollars. However, the IRS or state agency might not have the cost basis (what you paid for the stock) and therefore the capital gains is not being calculated correctly. In this example, a tax return amendment is required to accurately calculate the new taxable income. We commonly offer a discount for this if we prepared the tax return.
IRS or State Escalation
Recall that the IRS and some state agencies are several months behind on processing mailed or faxed responses. Therefore, their computer systems automatically escalate tax matters with increased aggressiveness and tone. At times, we must contact the IRS or state agency to either resolve the matter directly with faxed correspondence or have the escalation be paused until the response letter has been processed.
If this occurs, this is considered Advanced tax resolution, and our fees above might apply depending on your unique situation.
Late S Corp Problems
When preparing and filing a Late S Corp election, certain problems might arise with the IRS and certain states. Typically, we have already briefed you on these issues. In addition, we also anticipate these issues (given our several hundred late S Corp elections over the years) and have included resolution services in our fee.
Tax Resolution Engagement
We will perform the following tax resolution services-
- Prepare and present to you for signature the required Power of Attorney (POA) and file with the respective taxing agency;
- Review the tax notice and provide you with our initial analysis and action steps to take;
- Communicate with the respective agency to determine legitimacy of claim;
- Perform a preliminary review of the adequacy of documents provided;
- Submit our findings to the taxing agency;
- If necessary, assist in negotiating a settlement with respect to any disputed items;
- Any further and/or additional services to bring the matter to a final resolution.
WCG or its employees are not warranting or representing a particular outcome. Some tax resolution outcomes might be adverse.
WCG Is At Fault
If we are at fault and created a tax notice or other correspondence requiring resolution, our fees do not apply of course. Additionally, we will reimburse for penalties and interest.