Taking the Stress Out of Dealing with the IRS

Our tax system is, at its core, a voluntary system. Since World War II we have had mandatory payroll withholding and quarterly estimated tax payments for the self-employed but it must be remembered this is not the payment of taxes. It is only a down payment on what we voluntarily self-assess ourselves when we file a tax return. We all know that some people voluntarily self-assess themselves large credits at the expense of the other taxpayers.

A voluntary tax system is dependent on the credibility of the agency that is collecting the self-assessed taxes and making sure that the self-assessments are correct. In the 60s the IRS was held up as a model government agency, a place you wanted to work. The credibility of the IRS has sunk to new lows due to the latest scandal to rock the Obama administration.

Today morale in the IRS is very low. Some of the reasons are that the IRS is under-staffed, under-funded and watching the revolving door as senior, experienced, people retire. The agency is grossly underfunded to handle its current workload, let alone the addition of the astounding amount of additional requirements imposed on it by Obamacare.

This hasn’t been a great week for the IRS — what with reports IRS functionaries targeted conservative groups that had applied for tax-exempt status with extra scrutiny.  It’s a scandal the likes of which the IRS hasn’t seen in decades, and it has shed light on an agency that wasn’t in great shape to begin with.

To even pretend that there was nothing political about what happened at the IRS is, at best, disingenuous. Short of directly asking federal agencies to investigate these groups, the President and Vice President demonizing anyone who spoke against them by making comments, such as “All around this country there are groups with harmless-sounding names like Americans for Prosperity, who are running millions of dollars of ads against Democratic candidates . . . And they don’t have to say who exactly the Americans for Prosperity are”. Especially as top congressional Democrats were putting in their own versions of phone calls, sending letters to the IRS that accused it of having “failed to address” the “problem” of groups that were “improperly engaged” in campaigns. Because guess who controls that “independent” agency’s budget?

The IRS is easy to demonize, but it doesn’t exist in a vacuum. It got its heading from a president, and his party, who did in fact send it orders—openly, for the world to see. The way to limit Romney money was to intimidate donors from giving. Donate, and the president would at best tie you to Big Oil or Wall Street, at worst put your name in bold, and flag you as “less than reputable” to everyone who worked for him: the IRS, the SEC, the Justice Department. The president didn’t need a telephone; he had a megaphone.

In his Tuesday press grilling no question agitated White House Press Secretary Jay Carney more than the one that got to the heart of the matter: Given the president’s “animosity” toward Citizens United, might he have “appreciated or wanted the IRS to be looking and scrutinizing those . . .” Mr. Carney cut off the reporter with “That’s a preposterous assertion.” Ah, if only that were true. Why would the IRS look into the very groups that the President has spent years claiming were shady, undemocratic, even law breaking?

Did you Get a Letter from the IRS

Have you visited your doctor for your annual physical? Have you seen your dentist once or twice in the past year? Your financial health is as important as your physical health. To stay healthy, you must monitor your health and be aware of any changes. Your financial health needs to be monitored in the same way. Even though you see your licensed tax professional once a year, you may need to have another meeting or checkup during the off-season. Your tax professional can keep you on the right track, but only if he or she knows what’s going on. Many times, there is little that can be done come tax time to fix an unpleasant tax situation that occurred earlier in the year. Here are some examples of situations that warrant an off-season visit or communication with your tax professional.

Events such as marriage, divorce or remarriage result in a change in marital status, but can also result in a change in tax status. The exemptions claimed on your W-4 may need to be adjusted to prevent an unexpected tax bill. If you are going through a divorce, discussing the ramifications of dependents, alimony, childcare or division of property before signing anything is extremely helpful. Divorce decrees often contain wording that has a different tax result than what was intended. Call on your tax professional for a review.

A change in family size with the birth or adoption of a child can affect your tax return. And, as children get older, you may lose certain credits.

A career change might affect your tax situation. If you have pension opportunities that you are not sure about or excludable benefits such as cafeteria plans and dependent care benefits to choose from, your tax professional can help you evaluate your options. A career change might also increase income, shifting you into a higher tax bracket or changing the work-related deductions available, making a change in withholding a possibility.

If you find yourself in financial trouble, bankruptcy may be the option you choose. If so, there are tax implications you should be aware of and options that may be available, so contact your tax professional. Time is of the essence if you are in a bankruptcy situation.

Did your company present you with an early retirement proposal or are you considering an early retirement? This event definitely changes your life and your tax situation! It’s better to discuss the options before you act rather than face a large tax bill because you didn’t. Know the tax implications of your decision: check with your tax professional to make sure you are not triggering an early withdrawal penalty or causing Social Security to be taxable.

While you probably use care in choosing a doctor, do you apply the same care in choosing a tax professional? The person doing your taxes should be registered with IRS, have passed testing on taxation, and be required to complete continuing education to keep up with the ever-changing tax code. Enrolled agents meet these criteria.

Last, but not least, if you receive a letter from the IRS, call your enrolled agent! Do not ignore it or toss it in a drawer hoping it will disappear. Putting off action only creates more letters and possibly, larger penalties.

The key word is communication: keep your tax professional informed of any changes in your life because they may change your tax situation.

By KIMBERLEY A. STRASSEL

Was the White House involved in the IRS’s targeting of conservatives? No investigation needed to answer that one. Of course it was.

President Obama and Co. are in full deniability mode, noting that the IRS is an “independent” agency and that they knew nothing about its abuse. The media and Congress are sleuthing for some hint that Mr. Obama picked up the phone and sicced the tax dogs on his enemies.

People with this credential are licensed by the IRS and specifically trained in federal tax planning, preparation and representation. Enrolled agents hold the most expansive license IRS grants and must pass a suitability check, as well as a three-part Special Enrollment Examination, a comprehensive exam that covers individual tax, business tax, and representation issues.