Steve Klitzner, the IRS Problem Resolution Attorney, joined Good Morning Keys on KeysTalk 96.9/102.5FM this morning to talk about audits.
Audits have been on the uptick lately.
Klitzner said, “They are. We talk about letters from the IRS, it’s like the IRS should publish a diet plan. Because whenever they send somebody a letter that person immediately can’t eat and they lose a whole lot of weight. So they probably should trademark that. We are seeing more audits, the IRS has announced they’re going after higher income people. They’re raising that rate. That doesn’t mean they’re forgetting about the little guy, they’re still going to be auditing everybody. One of the common types of audits is when the IRS has information about income or maybe income that they received that’s not on the tax return. So they send the taxpayer a letter saying hey, we don’t see this on your return. Explain. I have a new case now, where it’s a husband and wife and they called me. They’re in their 60s. They have a modest income. They get a letter from the IRS saying it looks like you didn’t report $400,000 for these jobs you did around the country over the last year, which looks like obviously identity theft, somebody is selling his social security number. But, I had to verify it. I did say to his wife, has he gone out for groceries and been gone for more than two days? And she said, no. So I know for sure he didn’t earn the money. Now, the burden of proof is on the taxpayer, we have to prove that we didn’t make the money. But I think it’s going to be pretty obvious to the IRS that he didn’t make $400,000 traveling around the country, doing odd jobs.”
Where is the IRS getting this additional information that they’re then asking you to disprove?
Klitzner said, “It gets reported to them. So this is one of those things, it’s not necessarily the IRS’s fault. They’re just asking, tell us about this income that’s been reported from 1099s. The problem is you get the letter and I’m tempted when I respond to the letter to just shred my response, put it in an envelope and save them the time, because in the case of these folks, they tried to respond. The IRS ignored it, and they received a 90 day notice of deficiency, meaning, if they don’t file in tax court, in 90 days, they owe the money. We can still get it reversed. But they don’t owe the money until the 90 days is up. So luckily, despite them trying to resolve it themselves, they came to me. I’ll file a petition in tax court. This may be one of the few times I actually allow my client to talk to the IRS and explain to them, he’s not some evil genius who’s traveling around the country, making all this money.”
It’s not really a solution that a person can offer the IRS a certain amount of money to make it all go away.
Klitzner said, “In order for you to make a deal for less, you have to show them, you can’t pay it. They don’t make deals with people who can pay the money, because that would send a horrible message. So it’s a long process. Every so often, somebody says to me, I know this guy that called and they waived all the interest or they made a deal with him on the phone. I don’t know who this guy is, but everyone seems to know him because he’s the only one I ever heard of that could actually do that. Everything or most everything with the IRS requires paperwork, verification, financial information and of course, you have to have all your returns filed to make a deal.”
What should someone do if they’re contacted by the IRS and they’re going to be audited?
Klitzner said, “I’d like to say call and straighten it out. But all too often that doesn’t work. You have to prove your case. I was at an audit several years ago, it was an office audit. At the IRS they have these cubicles. While I was there for my client, my client of course was home relaxing, there was a lady or it sounded like a young girl next to me, talking to a an auditor, and they were laughing and having the best time in the world. But every time she opened her mouth, I could hear a cash register go off. Because everything she was saying was working against her. I didn’t hang out until the end when she I’m sure fainted when he gave her the bill. But you just have to be careful. The idea of let me go to the IRS. I’m sure when we straighten this out, they’ll realize this is all a big mistake isn’t really the best plan. When you’re dealing with what could be a lot of money, you have to protect yourself. You have to get help.”
The individual taxpayer going up against the IRS is really not a fair fight.
Klitzner confirmed, “Now, but the good thing is, you have rights. Now the IRS doesn’t tell you all your rights, they kind of slough off your important rights, they say, don’t worry about this letter, we’re going to take care of this, when that is probably a letter that you need to respond to and request a hearing. But taxpayers have rights and if you don’t know the money, you shouldn’t pay it and you won’t pay it. And if you don’t have the money, you’re not going to pay it. Just because the IRS wants X number of dollars, if you don’t have it, we show them that you don’t have it and they will accept that. But most of what I do, there are some things people call me, and my consultations are always free, it’s a small problem. They can make a phone call, they can pay the IRS $100 a month, full paid in a couple of years, the IRS is happy. But most of the time, they need my help. When people call me if I can help them, I say, look, just do this and this. It’s a simple solution. But fortunately for me doing what I do, most of the time, that’s not the case.”
Being audited doesn’t automatically mean someone is guilty.
Klitzner said, “Most of the time when I look at a tax return of someone getting audited, I can tell immediately why. Because what happens is the IRS puts a score on the return based on information they have. The higher the score, the more chance they’re going to get audited. I can usually see what the issues are. Now just because it looks bad, doesn’t mean it is. If we have proof, then certainly you don’t have to pay any tax on it. But if we don’t have proof, if it’s a bad tax preparer, because somebody is trying to save a few dollars, they go to a guy on the street corner, and he does a return and gets them back all this money and everything’s made up, there’s nothing I can do. I had a truck driver, where the preparer took the fuel credit, which my client wasn’t entitled to and he got back $50,000. The IRS comes in and says, not only do we want that back, but you have to pay us penalty and interest in the IRS was correct.”
The audits can take place in a variety of settings.
Klitzner said, “Those office audits are usually smaller off audits with a limited scope. When it’s a revenue agent, they come out to your house, your office. When I represent people, they come to my office, they don’t go to my clients. Those are long audits, those could go on for months and months. they’ll make an appointment to come to my office for two days and then they get back to me with more information they want. So those could go on for a long time. It just depends what they’re looking for. But again, they can say you owe $1 million, but when we prove you don’t, you don’t. If the auditor comes up with something that is wrong, we go to appeals. We usually settle it with appeals. If we can’t we go to tax court, and we resolve it with IRS counsel, because the one thing about the IRS is deep down they don’t want the money if you don’t owe it. It’s just up to us to prove you don’t owe it. You have to line it all up and there can’t be any holes in the argument. There’s some people at the IRS no matter what you give them, they’re like Colombo and everything is something else and in those cases, we usually get the manager involved to shut it down. But it just depends who we’re dealing with. But I’ll tell you this, the majority of the auditors in South Florida and the Keys, just want to get to the right result. We’re very fortunate here, unlike other parts of the country, and when we show them what’s right, we get a result. If I can’t, and I speak to the manager, we get it resolved. If we have to go to mediation, we’ll get it resolved. And we’ll come to the number that’s correct.”
The earlier the process begins, the quicker it can get resolved.
Klitzner said, “We can shut things down a lot quicker the earlier we get the case. If it’s too late, there’s always a solution. But as time goes on, your rights are a little more limited and it’s a little harder to get to the right result. But ultimately, we always do.”
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