AAA Accounting & Business Services

First thing, do not panic. Most examinations are routine and result because your tax return did not quite match the "norm" for someone in your line of work and reporting approximately the same amount of income. It does not mean that there is anything wrong, but from the IRS perspective, the probability of you having made a mistake is worthy of checking out.

The general rule is that you never - repeat, never - want to ignore this notice! Unless you are aware of a significant error or omission on your return, the best advice is to cooperate with the IRS as much as possible. If you make the auditor or agent's task difficult because of your lack of cooperation, the employee will be far less agreeable to giving you the benefit of a doubt when deciding on what evidence or oral testimony to accept that you offer in support of questioned items.

If you are aware of a significant error or omission on your return, seek professional advice immediately! How you respond can dramatically affect the outcome of your audit. In very limited circumstances, you may even need to retain a tax attorney immediately if your error or omission could possibly be viewed as fraudulent with possible criminal prosecution.

There are four types of audits - correspondence; office audit; Small Case/Self-employed (SBSE); and Large and Mid-sized business (LMSB).

• Correspondence audits are letters sent to you from an IRS Campus (Service Center) location and will identify specific issues for which the IRS is asking to be verified.
• Office Audits are face-to-face with a Tax Compliance Officer (formerly, Office Auditor) and take place in an IRS facility. The Office Auditor will sometimes let you know what areas are being looked at, but not always.
• SBSE Audits are conducted by Revenue Agents and can take place in either the taxpayer's location or an IRS office. These are face-to-face examinations. The Revenue Agents who conduct these audits may or may not tell you up front all of the areas they are investigating. They'll ask questions, request documentation and try to see if you've made an error - such as not reporting all of your income, or being unable to substantiate (provide evidence) your deductions.
• LMSB Audits are face-to-face examinations that usually involve a team of general Revenue Agents and specialist Revenue Agents who are experts in employment tax and computer sciences, for instance.

Generally speaking, you should not attempt to handle your own audit. A seasoned representative will know how to respond to questions asked by the agent or auditor in a manner as not to suggest other areas where further examination is warranted. Also, agents are usually pretty sharp. They may be asking you questions on one item hoping you will trip up and provide a basis for raising further issues.

Liens are different that from levies. A lien is a legal instrument that is used as security for the tax debt. On the other hand, a levy is a legal action of taking your property to satisfy the tax debt.

A tax lien is a negative record on your credit report which usually significantly lowers your credit rating. This often makes it difficult for a taxpayer to obtain financing on an automobile or a home, get a credit card, or sign a lease. Tax liens are public records that indicate that you owe the IRS (or state agency) money. Tax liens are filed with the Clerk in the county where you live or where your business operates. Once a Federal or State tax lien is filed against your property, it will affect your ability to sell or transfer the property because of the cloud on its title. You need to act NOW!

Liens establish the priority of the IRS and State against other creditors and attach to all your assets as payment for your tax debt.

A Notice of Federal Tax Lien may be filed after:

• The IRS has assessed the liability;
• The IRS has sent you a Notice for Demand of Payment (a bill that tells you how much taxes you owe; and
• You neglect or refuse to fully pay the tax debt within 10 days after the IRS notifies you.

The IRS will issue a Release of the Notice of Federal Tax Lien:

• Within 30 days after you satisfy the taxes due (including interest and other additions) by paying the debt or by having it adjusted;
• Or immediately upon payment with cash or the equivalent of cash, or
• Within 30 days after the IRS accepts a ban, guaranteeing payment of the debt, or
• A mortgage is given to the IRS against property that is worth twice the amount of your tax liability, or
• Usually 10 years after a tax is assessed, a lien releases automatically, if the IRS has not filed the Notice of Federal Tax Lien again.

You may appeal the filing of a lien. You may also ask the responsible IRS Collection manager to review your case. In addition, you may request a Collection Due Process hearing with the IRS' Office of Appeals by filing a request for a formal Appeals hearing. You must file your Appeals request by the date shown on your notice. It's also important to attack tax liens that are invalid. A tax lien could be invalid if a lien is on property which is not owned by the debtor, a lien was filed during the automatic stay, a lien was recorded in the wrong county, or was for discharged taxes now being asserted on future-acquired assets.