Before you sign on the dotted line this tax season, there are many things to consider. Yes, it may be easy to bump up your deductions a couple of dollars here or there, but does it really pay to cheat on your taxes?
Mark Debose of DeBoseRobinson, LLC has witnessed the consequences of these not so wise decisions. Debose states, “While most of our clients trust our positions….. I have had an instance where a past client relied on their own interpretation of the Internal Revenue Code. Luckily, it did not result in a penalty for them but their year-end tax liability certainly felt like one.” Debose also added, if a client decides to follow their own interpretations of the code, his company documents the file and withdraws from the engagement.
So if you decided to do things your way and now you are at a point where the IRS is knocking at your door.…what should you do next?
Pay it Now or Later….
You may get a hefty refund now, but paying this money back at a future date with interest and penalties is simply no fun. The IRS can impose accuracy related penalties for tax returns where there is a substantial understatement or negligence.
Substantial understatement penalties apply to returns where the correct tax has been understated and negligence penalties apply to returns where the individual does not make a reasonable attempt to comply with the rules and regulations. Keep in mind, if the return is deemed fraudulent, hefty penalties may apply and the taxpayer could be the subject of a Criminal Investigation.
If you find yourself in this sticky situation and the IRS has contacted you, seek help! It may be a good idea to hire a CPA, tax attorney or enrolled agent who has experience with representing clients before the IRS. You must first file form 2848, which provides authority for the agent to work on your behalf.
Explore Payment Options
If you have been assessed an additional tax and/or penalties, you have options. If you do not have the ability to pay your taxes in full, consider setting up an installment agreement. An installment agreement allows you to make payments over a period of time, but keep in mind there is a start-up fee and interest still accrues over your payment period.
Looking to pay pennies on the dollars? You often hear this phrase when watching advertisements for companies claiming to fight the IRS on your behalf – but what they really are claiming to do is something you can do for yourself. This process can be achieved through an Offer in Compromise (OIC). An OIC allows an individual to pay a fraction of the total liability by submitting an offer to the IRS. In order to qualify, you must be current with all tax filings and payments. In addition, you are not eligible if you have an open bankruptcy proceeding.
So before you submit your return this tax season, think twice! Remember, Your Choice, Your Future!