Have you discovered a tax problem? It pays to be proactive and you will almost always be better off if you work to correct the problem instead of waiting for the IRS or State taxing authorities to come to you.
A case I helped resolve vividly illustrates this principle. The taxpayer, we will call him George, made a good faith mistake while completing his own tax return. Unfortunately, this caused him to under-report his income by over $100,000. Because of the unusual financial issues that he faced that year, he did not recognize the mistake when he signed his return.
The IRS eventually caught the mistake. George readily admitted that he owed the additional taxes, and tried to work out a payment plan that he could afford. After several months of fruitless negotiation with the IRS, he asked me to get involved. By that time, substantial penalties had accrued and were continuing to pile up.
George made the same mistake on his California income tax return, but the California Franchise Tax Board had not yet noticed his oversight. The legal issues on George’s State and Federal returns were almost identical. In both cases, George had valid arguments that his penalties should be removed, “abated” in tax lingo, and that he should be given an affordable payment plan to pay the taxes he owed. I made these arguments to both agencies on George’s behalf.
What actually happened says volumes about the benefits of being proactive. The California Franchise Tax Board abated George’s penalties and accepted a very reasonable payment plan without argument.
However, the IRS was much less cooperative. By the time I got involved, George’s case was firmly ensconced in the bowels of the IRS bureaucracy. Each IRS agent I spoke with said that he or she could not abate George’s penalties or accept a reasonable payment plan, and George’s case was shuffled from department to department with the bureaucratic skill that Governmental institutions are famous for. Finally, approximately one year later, we were able to get most of what we wanted by appealing George’s case to the IRS Appeals office, an independent division of the IRS with the authority to settle tax controversies.
Why did it turn out to be so much less time consuming, stressful, and expensive for George to resolve his California tax issue than his Federal tax issue? In my opinion, timing was everything. George voluntarily reported the problem to the FTB, and came forward with a viable solution before they had to start the enforcement process. Through no fault of his own, he did not do so with the IRS. What makes this especially striking is the fact that the California Franchise Tax Board has a reputation for being much more difficult than the IRS to deal with.
This is just a basic overview and is not legal advice specific to your situation. If you would like to speak with Jonathan about your situation, please email him at firstname.lastname@example.org or call him at 925-217-3255.