How to Dispute IRS Debt

Staff Writer
October 11, 2017
How to Dispute IRS Debt

The Internal Revenue Service is one of the most intimidating organizations on the planet, especially when it claims you owe it money. However, you can take solace in knowing that you have options to dispute IRS debt. With this guide, you’ll learn how to battle the IRS in cases where you’re falsely accused of owing back taxes. Let’s get to work.

Read the IRS Tax Collection Letters

Letters from the IRS are scary even before you open them. You’re not quite sure what to expect, and nine times out of 10, the letter contains something you don’t want to read. However, reading the letters is the first step to dispute IRS debt.

When you open the letter, carefully read through every aspect and take note of which type of letter you receive. The CP notice number on the top-right or bottom-right corner of the page identifies which type of letter you have in your possession. Here are some common CP notice types:

  • CP-14: This notice is the first letter you receive from the IRS if you owe taxes, typically sent four to six weeks after you file your tax return. It shows your balance, tax withholding, estimated tax payments, total payments, credits, and any penalties levied. The letter will also provide a due date for the balance, as well as an IRS phone number for disputes.
  • CP-501: If you don’t pay the balance by the due date, the IRS sends a CP-501 letter, which is a reminder of the balance due.
  • CP-503: When you still don’t pay the balance, the IRS sends you a CP-503, which is a more aggressive reminder of taxes owed.
  • CP-504: The CP-504 is the final warning of a balance due.
  • CP-1058: Also known as a Notice of Intent to Levy and Right to a Hearing, the CP-1058 is the last documentation you’ll receive before the IRS puts a tax levy or garnishment on your wages. However, if you want to dispute IRS tax collections, the CP-1058 gives you 30 days to file an appeal or schedule a hearing. If this period lapses, you waive your constitutional rights to dispute the taxes.

Hopefully, you never get to the CP-1058 form, but if you do, make sure to respond promptly to avoid paying an unjust bill.

Contacting the IRS

If you received a letter and are trying to dispute IRS debt, the first step is to contact the IRS directly. This is important for two reasons:

  1. You don’t waive your right to a hearing or tax settlement.
  2. You can find various organizations or tax professionals to help you solve the problem.

The IRS has plenty of contact numbers depending on your situation, but individuals should call 1-800-829-1040 to resolve any issues they may have.

To dispute IRS debt collections, the IRS generally recommends that you contact a tax professional instead of handling the case on your own. However, contacting the Taxpayer Advocate Service or a Local Taxpayer Clinic is another option. Both of these organizations can help you settle IRS disputes. The Taxpayer Advocate Service is a division within the IRS that ensures that you’re treated fairly during a tax dispute, while a Local Taxpayer Clinic makes sure that you’re represented if you don’t have the financial resources to dispute the IRS.

Knowing Your Rights

The Taxpayer Bill of Rights is the most powerful document you can read when you’re trying to dispute IRS debt. It outlines 10 rights that you have as a taxpayer, which are highly beneficial:

  1. The Right to Information: This ensures that you receive the correct correspondence in a timely fashion, as well as IRS decisions on appeals and disputes.
  2. The Right to Quality Service: This states that you have the right to receive prompt, courteous, and professional assistance from the IRS regarding all matters, and that any conversations or letters are worded in a way that’s easy to understand.
  3. The Right to Pay the Correct Amount: You have the right to pay only the amount due, including taxes and penalties, but nothing more.
  4. The Right to Challenge the IRS’s Findings: This gives you the right to object to IRS findings and provide documentation that forms a factual basis for a tax dispute. This also ensures that the IRS gives you a written response if it objects to your documentation or finding.
  5. The Right to Appeal an IRS Decision: This entitles you to a fair and impartial hearing regarding IRS findings, as well as the right to take the case to court. During an appeal, this right ensures that you receive a letter notifying you of the IRS’s decision on your appeal.
  6. The Right to Finality: This states that you have the right to know how long you have to make an appeal, the maximum amount of time the IRS has to make an audit, and the right to know when the IRS finishes an audit.
  7. The Right to Privacy: This ensures that you have the right to privacy in any IRS inquiry, including protection against illegal search and seizure.
  8. The Right to Confidentiality: This states that any information you provide will not be disclosed by the IRS. It also says that you have the right to legal action against any parties that divulge your tax information.
  9. The Right to Retain Representation: This states that you have the right to legal representation in all IRS proceedings. If you cannot afford representation, an attorney will be appointed to represent you.
  10. The Right to a Fair and Just Tax System: This states that you have the right to expect the IRS to consider any and all facts during a ruling, appeal, or dispute.

Armed with the Taxpayer Bill of Rights, you can formulate a plan to dispute IRS debt, know what you’re entitled to, and know what to expect during an IRS appeal.

Requesting an IRS Appeal

If you find a tax collection or dispute unjust or unfair, you can request an appeal in writing with the IRS Office of Appeals. The reason for the appeal must be entirely based on the scope of tax laws and cannot be filed for reasons such as discrimination. When requesting an appeal, you must include the following:

  • Name, address, and daytime telephone number
  • A statement that shows your desire to appeal any IRS findings
  • A copy of the original letter that shows your balance due
  • The tax period or year in question
  • A list of each item that you want to appeal
  • The reason(s) you disagree with each listed item
  • Facts that assert your position on each listed item
  • The law or other authority that supports your claim on each listed item
  • A penalty of perjury statement that reads “Under the penalties of perjury, I declare that the facts stated in this protest and any accompanying documents are true, correct, and complete to the best of my knowledge and belief.”
  • Your signature under the penalty of perjury statement
  • If you have a representative prepare these documents, you must still sign a declaration for the penalty of perjury.

Once you have documented this information, send it to the address listed on the Right to Appeals letter you received with your correspondence from the IRS. Do not mail this information directly to the Office of Appeals. This can cause delays in the appeal process that may put you even further behind in terms of amending the situation or coming to a settlement.

When the balance due and additional penalty totals under $25,000, you can submit a Small Case Request. To submit this request, file a Form 12203, which you can get online or by calling 1-800-829-3676.

Who Can Represent You

If you’re not tax-savvy, you can elect to have a person represent you to dispute IRS debt and help with the appeals process. Representation rights fall under two categories: limited representation and unlimited representation.

Limited representation rights allow a tax professional to represent you, but only if they are the person(s) who prepared and filed a tax return on your behalf. In addition, these individuals cannot represent you during an appeal, even if they prepared your tax return. However, they can represent you in any other matters, provided that they speak to an IRS customer service representative or IRS agent.

Unlimited representation rights give a person the right to represent you in any matter regarding the IRS. Most often, these individuals are attorneys, certified public accountants (CPAs), or enrolled agents. If you’re in doubt as to whether someone qualifies as an enrolled agent, you can verify their status. To check their enrollment status, send an email to epp@irs.com and include the following:

  • First and last name of the agent in question
  • Complete address of the business or individual
  • An enrolled agent number (if available)

If you’re at high risk for an audit or IRS dispute, such as a small business owner, you may especially want to verify a person’s status before hiring them to do any work.

Tax Dispute Resolution and Payment Options

IRS tax dispute resolution can result in no payments, but often, you may still owe a smaller balance on your tax bill. Fortunately, you have several payment options, depending on your needs and financial ability to pay. In addition, you can make some alterations to help avoid a messy tax dispute in the future.

  • Pay as much as you can: In this instance, you can pay the remaining balance of the bill or a smaller portion. If you can’t pay the entire amount, pay as much as you can to reduce the amount of penalties and interest.
  • Apply for monthly payment installments: When you owe less than $50,000, you’re eligible to apply for a monthly payment plan with the IRS. Also known as the Online Payment Agreement, this plan deducts money directly from your savings or checking account and is cheaper than other options.
  • Apply for an Offer in Compromise: If you owe more than you can pay even after an appeal, it’s worth the effort to look into an Offer in Compromise. Many times, the IRS will settle your debt for less than you owe.

For future reference, you may want to adjust your withholding or estimated tax on your Form W-4 or Form 1040-ES. This might mean you pay more, but you may avoid a tax dispute.

Tips for Choosing a Tax Preparer

One of the best ways to avoid an IRS audit is by choosing a reputable tax preparer. Make certain that the individual has a license or other credentials that signify that they know the law and how to properly file taxes. Not only will this contribute to a correct tax return, but it may also help you avoid the lengthy process of a dispute, appeal, or court case.

Dispute IRS Debt

If you need to dispute IRS debt, knowledge is power. However, that’s not always enough, especially if you’re going it alone. That’s where we come in. At Solvable, we have the tools you need to reduce stress and amend the situation. Read more on our website or call 855-324-1775 today for a free consultation.

*Image via Flickr by 401(K) 2013

 

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