When Richard Hatch bared it all on "Survivor," he took home a million bucks. But when he was less revealing about his windfall with the Internal Revenue Service, he wound up facing possible prison time as a tax evader.
Steve Kassel, a former IRS revenue officer who now represents taxpayers in trouble as president and founder of eTaxes.com, sees such blatant blunders on a daily basis.
"What the hell was he thinking?" Kassel asks. "How did he think he was going to get away with not disclosing income that the whole world knew about? Even if you can't pay, disclose it and you'll have a relatively simple problem. To not disclose it just defies all logic. Everybody knows you made it. It's reported to the IRS."
Getting nailed for back taxes is tough enough. But many taxpayers make a bad situation even worse by fumbling one of life's most delicate situations: a tax tango with the IRS.
Tax troubles come in many forms. We read about the high-profile cases involving celebrities such as Willie Nelson, John Travolta and the hapless Hatch, but busy professionals such as doctors and lawyers often run afoul by losing track of their books. The self-employed also are easy targets, as are those thousands of Americans who get caught up in tax scams every year.
"The IRS is never on your side"
James Rome of Travelers Tax Group says the blunders people make when flagged by the IRS tend to cost them dearly in time and money."First and foremost, the IRS is never, never on your side," says Rome. "Here's just one example: The IRS will tell a taxpayer to go ahead and file an offer in compromise. The taxpayer thinks great, I can negotiate a settlement myself. Well, one of the reasons they do that is so you will divulge all of your financial information. It essentially gives them a road map to all of your assets."
The fact is, the offer in compromise, a negotiated cents-on-the-dollar settlement of a tax debt that has long been considered the errant taxpayer's ace in the hole, is fast disappearing, in part because of a flood of what the IRS considers "nonprocessible" offers submitted by unsavory "offer mills" that promise relief but deliver bupkis.
"The acceptance rate is down to approximately 15 percent. It has gotten much, much more difficult," says Kassel. "There is no doubt whatsoever that [IRS] Commissioner Mark Everson has zero interest in the offer program; his desire, without any doubt, is to kill it. Our numbers used to be extremely high, but today, the same offer that would have been accepted three or four years ago is being denied, for a whole host of reasons. Even if you hire a professional, chances are today that it's going to be rejected."
OK, now you know about the perils of handling an offer in compromise. Make sure you also avoid these 10 other costly mistakes that taxpayers make when nailed by the IRS
10 costly mistakes to avoid
1. Fail to hire an attorney: An experienced tax attorney has ready access to the IRS guidelines used in negotiating a settlement. Hiring an experienced tax team is viewed very favorably as a sign of good faith and resolve by the IRS.
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2. Fail to hire effective counsel: As comfortable as you may be with your family lawyer or accountant, they probably don't have the qualifications and experience to negotiate effectively on your behalf before the collection arm of the IRS. Tip: Look for the designation "EA," which stands for Enrolled Agent. Kassel is one, and he and his peers have earned the privilege of representing clients before the IRS by either passing a written test or, in Kassel's case, having worked for the agency for more than five years.