Kelly Tate is the owner of Kelly Tate CPA in Las Vegas. His business offers tax preparation, consulting, bookkeeping among other specialized services. Tate has been practicing since 1998 and has a Bachelors’ Degree in Finance and Accounting. Along with his wealth of experience in public accounting he has served as Vice President and Chief Financial Officer for a large $30M – $40M business in Las Vegas. As a CPA, former CFO and current business owner he understands the challenges that business owners face each and every day. He is there to help guide them along with making sure they comply with each tax agency necessary.
What can someone expect when they get a delinquent notice from the IRS?
Tate: It really depends on what the notice is for. It could for delinquent taxes, for non-fling of tax returns or if they made a mistake in a tax return they did and now the IRS is pointing out the mistake. If it is a mistake on a return, those can be handled in a day or so assuming you have the correct documentation. If it’s something where somebody has not filed for several years it could be a marathon or lengthy process to try to remedy the situation.
What is the first course of action someone should take after receiving a notice?
Tate: Sometimes people will get a notice because they left something off their tax return and the IRS is making a change based off misreporting. A lot of the time you can take a look at the notice and see what you forgot to include on your return, send them a check and move on assuming they are correct.
When it’s an issue that you took a position on a return or did something on a return that you believe is correct then the biggest mistake people make is that they try to handle that one themselves. They shouldn’t, they should get representation to figure out what’s the best course of action to reverse what the IRS has done on the return.
Would you consider that the biggest mistake people make when receiving a delinquent notice?
Tate: Absolutely. Even if it just a change on a return I still always recommended people come into the office and show somebody who really knows taxes and can really speak that language. That way we can figure out if it’s an easy remedy or something they really need help on. It’s absolutely the number one mistake that people try to represent themselves.
How flexible is the IRS on these issues? Is there room for negotiation?
Tate: There’s really three methods to pay and the most advantageous method is a fairly rigid process. You can pay the tax owed, get an installment plan with the IRS or apply for an offer in compromise. The offer-in-compromise would be the most advantageous method, but the criteria to qualify are fairly rigid. Regardless, the debt needs to be settled quickly because the IRS is going to charge interest and penalties until the end. There’s several different penalties they can charge between late filing and late payment. If they have an error that amounts to more than twenty five percent of your taxable income they can charge you an extra penalty for that.
So there’s various penalties and interest they are going to charge you. Most of those things are statutory and are not going to be removed. Every now and then there are exceptions to that rule where you can get a penalty removed, but interest stays with the debt the entire time.
If you pay the delinquent taxes there are three options. Number one is that you can pay the taxes in full if you have the money to do it. Number two is that you can set up a payment plan. The payment plan is a pretty easy process depending on the tax that you owe. You can usually call the IRS and arrange for a payment plan over the phone or you can send in a form. I usually don’t send in a form because that takes a little bit longer for the IRS to process. It could be a two or three month process and in the meantime you are still accumulating interest and penalties.
The third option is an offer and compromise. Sometimes taxpayers get into a situation where it is so much in interest and penalties that they just can’t pay it. So you have the option of trying to do an offer and compromise paying a percentage of what you owe to settle the entire bill. That process is much more difficult, much lengthy and more “iffy” as to whether you’ll get it. The statistics are that around twenty to twenty five percent of the people who submit an offer actually get awarded the offer.
Is it really possible to negotiate on your own or do you need representation?
Tate: For an offer compromise I think that anyone who does it on their own is crazy. It’s a process, it’s a marathon not a sprint. It’s a lengthy process and you want to have a professional who has done offers before, knows how they work and knows what the IRS is looking for.
I have people that come into my office all the time and want an offer and I turn them away because I know right away they are not going to get it. If you are a taxpayer doing this on your own and you submit an offer and I can tell you right away you’re never going to be awarded it you could be six or eight months down the road before you find out you’re not going to get the offer. In the meantime your penalties and interest have gone through the roof.
Is there a certain criteria the IRS uses to impose penalties and liens or is it a judgment call on their part?
Tate: I always find this interesting and the answer is that it is very difficult to tell. There are certain things they just don’t share with us. They know if we know then we can manipulate the system. It’s an interesting thing about levies and liens. You don’t really know whether they are going to do it although they always send warning notices.
The one thing that I have learned over the years is that as long as you are in communication with them they typically don’t. I tell taxpayers all the time, especially taxpayers that are delinquent from five, six or seven year’s back we have to communicate. We have to let them know we are working on it. We have to let them know something is coming. We have to let them know that we intend to make this right. If we do that they typically leave the taxpayer alone.
I have a taxpayer right now where the process has gone on for ten months. We used to get levy and liens notices and they have yet to do anything. I’m confident this is because we fully communicate.
What do you feel is the biggest misconception people have about handling their delinquent taxes?
Tate: I think the biggest misconception is that the problem will go away and nothing could be farther from the truth. Or if they ignore it it’s going to go away. The problem just exacerbates itself. Penalties and interest can easily double your tax bill. Ignoring it is just the wrong solution.
Go to somebody who speaks the same language as the IRS, understands the process and understands how they work. You may not always get the exact result you would like but you will get a better result than doing it on your own. The IRS is always going to calculate the worst case scenario, that’s the way they do things. Why not have somebody else calculate the best case scenario? In my opinion, most laypeople cannot do that on their own and they can’t do it through Turbo Tax or H&R Block. Seeking professional representation will almost always produce a better outcome.
Kelly Tate can be reached in his Las Vegas office at 702-754-1932. His business website is: http://www.kellytatecpa.com.