Tax season can be a daunting time for anyone, especially if you owe back taxes. The Internal Revenue Service (IRS) is known for its formidable reputation, and saying the wrong things during interactions with them can lead to some serious difficulties.
To protect your interests, it's important to know what not to say. According to tax advisors and specialists, the following 9 things are those most likely to land you in hot water.
1. Make excuses for not responding to IRS
Rule No.1: Never Ignore IRS Notices. When you get something in the mail from the IRS, like an LT11 or LT1058 notice, they're not just saying 'hi.' These notices are the IRS's way of telling you there's something you need to look at, and fast.
The LT11 is basically a heads-up that they're about to get serious about collecting what you owe. And the LT1058? It's a friendly reminder that you can ask for a hearing about your unpaid taxes before things get really legal.
And here's something you might not know: the IRS charges interest on your unpaid taxes. We're talking about a 3% interest rate plus the federal short-term rate, and yes, it adds up every month. So, the next time the IRS drops you a line, don't just shove it in your 'I’ll deal with it later' drawer. Give it the attention it deserves. If you're unsure what to do next, it's OK to ask for help from a tax advisor.
2. Oversharing about anything
When you're dealing with the IRS, it's like playing a game of chess, not charades. You want to be strategic, not theatrical. The golden rule? Only answer what they ask – nothing more, nothing less. The IRS has the authority to request specific tax documents, and compliance is not optional. This requirement stands firm, as established by the precedent set in U.S. v. Sullivan, where it was determined that the Fifth Amendment doesn’t apply to the submission of tax documents.
However, while you must provide the requested documents, be mindful about verbal communication. The rule of thumb here is simplicity and precision. Respond directly to the questions asked, but avoid offering unsolicited information or elaborating beyond what is necessary. Remember, anything you say could potentially be used to further the investigation into your tax matters.Think of your conversation with the IRS like a Q&A session. They ask, you answer, but you don’t go off-script.
3. Saying anything that is not truthful
Here's a non-negotiable rule when dealing with the IRS: never, ever lie. Even if the truth isn't exactly in your favor, bending it won't do you any favors. The IRS has zero tolerance for dishonesty, and any deviation from the truth, no matter how small, can seriously backfire. Lying during interviews or falsifying your tax returns is not just frowned upon, it's a criminal offense.
According to 18 U.S.C. Sec. 1001, being untruthful to any government entity or agent is a serious crime, carrying penalties that can range from 5 to 8 years in prison. If you're ever in doubt or unsure about a response, the safest route is to simply state that you can't recall or don't know. This approach is far better than venturing into falsehoods. Remember, the truth might be inconvenient at times, but in dealings with the IRS, it's your best defense.
4. Answering any questions you don't fully understand
It's crucial to remember that when it comes to tax matters, guesswork or uncertain answers can lead to more problems than they solve. Responding to questions you don't fully understand can lead to inaccuracies. The IRS deals with facts and precise information. If you're unsure about a question or a part of your tax situation, it's far better to acknowledge this uncertainty than to provide a potentially incorrect answer. Remember that you also have the right to seek professional representation. This isn't just a privilege; it's a legal right that can significantly impact the outcome of your tax situation. Whether it's consulting with a Tax Relief Specialist, a Certified Public Accountant (CPA), or a Tax Attorney, having professional guidance can make a world of difference. These experts can provide clarity on the law, help you understand your obligations and rights, and assist in formulating responses to the IRS.
5. Agreeing to a payment plan you can't afford
When the IRS proposes a payment plan, it's meant to be a mutually agreeable solution. However, agreeing to a plan that you're unsure you can adhere to can lead to more significant issues down the line. If you're unable to meet the agreed-upon payments, you could face additional penalties, potentially worsening your financial situation.
Before committing to any plan, take a thorough look at your finances. Can you realistically make the payments as proposed? Are there other expenses or financial obligations that might impact your ability to comply? If there's any doubt, it's crucial to communicate this to the IRS.
6. Threatening an IRS agent
Threatening the IRS, whether out of overconfidence or a misunderstanding of the situation, is a move fraught with serious legal risks. It's crucial to understand that making threats against a federal agency is not just unwise; iit's potentially a criminal offense. Such actions can escalate your tax situation from a civil matter to a criminal one, inviting scrutiny and legal consequences far beyond the original tax issue.
7. Losing your temper
Yes, dealing with the IRS can be a nerve-wracking experience, and it's totally normal to feel a bit upset or stressed when navigating these waters. But here's the key: keeping your cool is crucial. Losing your temper or letting frustration take the driver's seat won't make the journey any easier. Anger can damage the working relationship with your IRS agent, especially in complex cases where long-term interaction is likely. A positive, patient attitude not only makes the process smoother but can also lead to more favorable outcomes. Remember, a calm approach fosters better negotiation and understanding, making the entire experience more manageable and productive.
8. Saying you didn't understand or had bad guidance from 'a friend'
Nothing says "I'm clueless" like sharing a"hearsay" as tax wisdom to an IRS agent. Plus, the IRS doesn't usually buy the "my friend told me" story. Tax laws are complex and ever-changing, making it crucial to ensure the accuracy of your deductions. Friends might offer outdated or incorrect information, putting you at odds with the IRS. When you file your taxes, you're solely accountable for accuracy. If the IRS detects improper deductions, you'll be responsible for any owed taxes, penalties, and interest. Audits can be stressful and time-consuming, even years after filing.
9. Treating IRS agents like the enemy
Viewing the IRS as an opponent rather than a collaborator can make your tax resolution process more difficult. Approach interactions as opportunities for finding mutual solutions.