When In Doubt Regarding the IRS, Don’t Sign

I’ve recently had three different clients ask me for a second opinion on an IRS situation because they had doubts about their tax position. Turned out in all cases their doubts were well founded. In two of the cases, the clients signed with the IRS first, then consulted me. In the third, the client consulted first. Check out how much better the third client fared:

Client 1 had been audited by the IRS. The agent proposed a tax increase of several hundred thousand dollars. Under pressure from a tax return preparer he had hired to assist him in the audit, the client signed off on the changes made by the agent. Did he give up his rights completely? No. He could still seek a refund. But he would have to pay the tax first, which he has not been able to do. Until he can, the IRS can exercise its enforcement power to collect the tax, even though a large portion of it likely isn’t owed. Had he not signed off on the audit, he could be fighting the issue in Tax Court, before having to pay the tax. 

Client 2 signed her tax return, as prepared by her return preparer, and filed, even though she was not comfortable with the tax liability reflected. When she mentioned this to me at a meeting on an entirely different matter, I ultimately concluded that she’d failed to claim a substantial loss. She amended her tax return to claim the loss. But amended returns are scrutinized more closely than original returns. Her amended return was audited. Although the IRS allowed the loss, it made unfavorable changes to other items on the return.

Client 3 thought her tax return wasn’t quite correct. Before filing, she asked me to take a look. I found a mistake in the treatment of the foreclosure on her house. The return was corrected, with a substantial tax savings.

The bottom line: If you are in doubt regarding an IRS matter, get your questions answered before you sign.