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How to Deal with the IRS If You Are a Closely-Held Business

If you have ever squared off with a Revenue Officer or Revenue Agent, you know how difficult it can be to resolve your tax issues.  Often our actions bring out the worst in a Revenue Officer or Agent.  Here are just a few points to keep in mind when things get “hot” with the IRS.

 
Keep in Touch with the IRS
If you're behind on taxes and want to stay in business, one crucial thing to remember is to keep in touch with the IRS.  The agency might leave you alone for a while, but you can bank on the IRS coming back around again -- probably at a most inopportune time.  Consequences for ignoring the IRS can be dire -- penalties and interest increase, easily doubling what you owe, and you may even lose your business!  The IRS’ collection power is enormous.  The IRS can seize assets and effectively close down operations.
 
Provide Information to the IRS
For the most part, you should be cooperative and provide financial information to IRS when requested to do so.  You’ll probably want your accounting firm to review it before passing this information along.   However, when you feel the IRS is getting too intrusive, don’t hesitate to push back.  If the IRS wants it bad enough, they’ll issue a summons that will require you to come forth with the information.  At that point, you’ll definitely want to seek tax counsel before complying with the summons.
 
IRS Threats Are Usually Worse Than IRS Actions
Unless the issue relates to large unpaid payroll tax liabilities, the IRS is normally not interested in shutting down a business.  This can be somewhat comforting and allow you to continue working through the tax debt problems with the IRS.
 
Ask for a Payment Plan and/or Discount
In most cases, the IRS will allow taxpayers to enter into a monthly installment plan.  However, remember that penalties and interest will continue to accumulate on the balance, even if you enter into a plan.  With an explanation that fits into the IRS’ definition of reasonable cause, penalties can be reduced or eliminated.  However, accumulated interest and accumulating interest are usually non-negotiable.
 
Offer a Compromise
Requesting an offer-in-compromise is a lengthy, formal process in which the business fills out an IRS form, provides detailed information about its precarious financial situation, and requests that the IRS accept only a portion of what the business owes.  If the IRS believes that it is unlikely to collect more in the future -- so that accepting less now is in its best interest -- it will likely accept your offer in compromise.  Just remember, it has to be in the IRS’s best interest, not yours.
 
"Uncollectible" Status
If your business' financial situation is truly in the tank, you can request "uncollectible" status.  If the IRS agrees, it will leave you alone for a certain period of time.  However, they’ll periodically revisit your situation in the future.   You will still owe the tax and penalties (and interest will accumulate), but the IRS will not engage in collection efforts against you during the time you are in this status.
 
Consider Bankruptcy
Most people don’t care for the ‘B’ word, but you need to be ready to use it if your circumstances warrant it.  Rules are complicated, so engage a bankruptcy attorney long before you declare bankruptcy.
 
Guns and Badges
If you ever get a visit from IRS Special Agents who show you a badge and are carrying guns, politely ask them for their cards and tell them your attorney will get back to them shortly.  Never speak to them, provide them with information or allow them to roam around your business without the advice of legal counsel.  These agents are from the criminal investigation division of the IRS.  Their mission is to put taxpayers in jail.

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.

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