Your Rights as a Taxpayer

You are not required to meet personally with agents from the IRS except in the unusual circumstance that they issue a summons compelling you to appear at a future date. Most people should be represented by a trained Enrolled Agent, CPA or attorney.

Once you sign a power of attorney, the IRS is forbidden from contacting you. If you do receive a telephone call or a visit at your home or office, refer the agent to your representative. DO NOT ANSWER QUESTIONS OR LET ANYONE INTO YOUR HOME.

Always open any correspondence from the tax authorities immediately - there might be a check inside! Discuss all correspondence with your tax advisor. The letter might be something which you could handle on your own.

For example, the letter may concern a "math error" and the balance due or refund may have been recalculated. Perhaps you neglected to include a Social Security number or the number you provided was incorrect. Or the letter may request documentation for deductions or for the Earned Income Credit. If you agree with the correction, no new information or documentation is required. If you disagree, you can probably resolve the issue by sending in appropriate documentation.

The tax authorities compare the forms that they receive from your employer, bank, broker and mortgage company with the information on your tax return. When the numbers do not match, the computer recalculates your return and adjusts your tax liability. When the computer discovers an item you forgot about, it is usually best to agree to the revised tax liability. When the computer is wrong, you or your representative will need to explain this to the authorities.

Sometimes the letter is the beginning of an audit. You are entitled to representation and would be wise to give your tax advisor a call before attempting the audit on your own. If you discover that you are in over your head, STOP THE AUDIT IMMEDIATELY AND SEEK REPRESENTATION.

Always respond within the time indicated, even if you feel a twinge of guilt about some of the information on your return. Procrastination makes matters worse.

If you fail to respond, the IRS will send you a certified letter ordering you to pay the tax. This Statutory Notice of Deficiency is less threatening than it appears but resolving issues at this stage takes more time and may require a Tax Court petition. All this will increase your costs.

Your file will be referred to the Collections personnel if you do not respond to the certified letter. If you still do not respond, your bank accounts will be impounded and your wages attached. If the process has gone this far and you do not owe or cannot pay the tax, obtain a referral to an Enrolled Agent or other tax professional who is experienced in Collections work.

For additional information, see IRS Publication 1 "Your Rights as a Taxpayer" on the IRS web site. Note that this and related publications are a bit out of date because of the strengthened Taxpayer rights brought about by the IRS Restructuring and Reform Act of 1998.

Among other things, this legislation extends attorney client confidentiality to Enrolled Agents and CPAs. We do not understand, as yet, the full implications of this new privilege. The privilege does not apply to state tax agencies nor in criminal investigations and it does not apply to the information used in preparing your tax returns and may not apply to financial statements submitted during an audit or in support of an installment agreement or offer in compromise.

This summary is of a general nature only and may not apply to your situation. Missteps when dealing with the tax agencies can trigger substantial penalties and even jail time. If in doubt, seek competent advice. Posted July 28, 1998.