Myth Number One - THE IRS KNOWS THE TAX LAW
Not all IRS agents are well versed in tax law and some agents are totally ignorant of certain statutes. If you are an unlucky soul being audited by a misinformed IRS agent you could wind up paying boatloads of money just because an IRS agent decided you should.
A couple of years ago, I received a phone call from a distressed business owner. He was being audited and pushed around by the IRS agent auditing him. It looked like he was going to have to pay a tremendous amount of unexpected tax fees. I agreed to help him out and attended the IRS audit as his new CPA. I listened to the IRS agent challenge my client’s tax return and I realized the agent was altering the tax law.
We got into a heated argument as the IRS agent could not see his mistake. The IRS agent wasn’t being malicious, he flat out didn’t know the tax law and was operating off incorrect information which he was using to attack my client. I demanded the IRS agent get me a copy of the Treasury Regulations. I found the exact line of tax law that applied to my client's situation and read it to the IRS agent.
The IRS agent didn’t know what to do. I told him to go check with another agent to see if I was right if he wanted to. He took the Treasury Regulations I had just read him and left the room to consult another agent. He was gone for 30 min. When he returned, he apologized to my client for his mistake. My client was given a no-change audit (an audit in which you have substantiated all of the items being reviewed and results in no changes) and didn’t have to pay any additional fees.
If my client didn’t call me for help, he could have potentially had to pay the IRS tens of thousands of dollars all because a random agent didn’t know the tax law. After dealing with the IRS for over 20 years, I can tell you the IRS doesn’t always know the tax law.
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Myth Number Two - THE IRS IS A HEARTLESS ORGANIZATION
A lot of people see the IRS as a sort of evil demon out to get everyone. This isn’t true. The IRS is composed of humans beings like any other group. There have been countless instances where I have successfully gotten the IRS to grant my clients pardons or various other things not strictly in accordance with the way tax law is written.
I was representing a client in an “Offer in Compromise” (an IRS program which allows individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt) and I knew that the client situation was clearly not acceptable the way the tax law was written. I had a dead-bang loser case. There was no way I was going to get him off the hook and he was going to have to pay a lot of money.
So I took a different approach. Instead of magnifying the tax law, I made the case about my client as a person and his life situation. I presented a very “humanists story” and got the IRS to look at my client as an individual who was just trying to do good, ethical business and had gotten into a jam. We won our position! The IRS agent’s decision was not based on tax law but on understanding the taxpayer as a human being.
The IRS, like all groups, is made up of human beings and they have emotional responses just like everyone else which play into their decision-making process.
Myth Number Three - YOU CAN RELY ON THE IRS FOR TAX ADVICE
You can’t rely on the IRS for tax advice. Amazingly, their agents, websites, and resources are not the authority on tax law. IRS agent’s opinions on Tax Law bears no weight whatsoever! None, nada, zilch.
Call the IRS or use IRS websites for tax advice and the courts will laugh at you. You might as well solicit opinions from friends at cocktail parties. What the IRS says might be interesting, but the courts don’t care.
The best place for tax advice is from a qualified CPA. CPA’s are much more versed in the intricacies of tax law and are specialists in all manner of tax issues.
Myth Number Four - THE IRS EXPECTS WEALTHY TAXPAYERS TO PAY SOMETHING JUST BECAUSE THEY ARE WEALTHY.
Many IRS agents think wealthy taxpayers should have to pay something just because they are wealthy. But, this opinion comes from individuals not the tax law and it isn't shared by all IRS agents just like it isn’t shared by all people.
That doesn’t mean I haven’t run into this before. I dealt with an agent the other day who said to me, “Your client should pay something and it is not fair that they are not paying something!” There was no legal reason why my client had to pay anything. I didn’t know what this agent wanted me to do. I wasn’t about to find a way to adjust my client's tax return to make him pay something.
The IRS agent’s viewpoint wasn’t based on any legal precedent and according to the tax law, my client didn’t have to pay anything. No matter how firmly this agent believed my client should pay, there was nothing he could do to enforce this. There is nothing in the tax code that says wealthy taxpayers have to pay solely because they are wealthy.
Myth Number Five - THE IRS IS A FRIEND OF THE TAXPAYER WHILE AUDITING THEM.
This couldn’t be further from the truth. The IRS is absolutely NOT your friend in an audit.
Many agents will do everything they can to put the taxpayer in the worst possible position in order to get more taxes. Their tactics can be very unpleasant and often difficult to counter if you aren’t experienced in dealing with them.
I walked into an audit one time and the agent started out by saying, “I know your client doesn’t have all the documentation needed, so let’s not bother looking at what you brought, save some time and start negotiating a settlement.” Fortunately for my client, we did have proper documentation much to the agent's dismay.
There are numerous ways to negotiate and get the IRS to back down, but they all start with the assumption that the IRS is not your friend.