IRS Form 656-B: Instructions for Requesting an Offer in Compromise

When you cannot pay your taxes owed in full, but you do have some resources from which to make payments toward your taxes owed, you may choose to apply to the IRS for an Offer in Compromise (OIC).

You can also apply for an Offer in Compromise if paying your entire tax amount owed would cause you economic hardship, would be unfair or inequitable, or because you have insufficient assets and income to pay the full amount of the taxes owed.

An Offer in Compromise allows you to settle your taxes owed with the IRS for an amount that is less than the full amount that you owe.

Basic Guidelines for Requesting an OIC

To request an Offer in Compromise from the IRS, you must fill out and submit IRS Form 656-B. It is highly recommended you work with a tax professional as the process is not easy.  The IRS OIC booklet includes Form 656, Form 433-A (OIC) which is for individuals, and Form 433-B (OIC) which is for businesses. This is when your offer is based on doubt as to collectibility or effective tax administration.

To complete your application on the former basis, you must pay a $186 non-refundable application fee as well as a payment toward your taxes. The amount of your initial payment may vary. You have the option of paying either:

• 20% of the initial offer amount with your application, with the offer amount to be paid in full once the IRS accepts your offer, or
• initial monthly payment, which you continue to pay each month while the IRS considers your application, as well as after the IRS accepts your offer. Generally, the payment period is from 6 to 24 months or when the CSEDs expire, whichever comes first.

However, if you meet the Low-Income Certification guidelines of the IRS, you will not need to pay the $186 application fee or make an initial monthly payment until the IRS accepts your offer. After the IRS accepts your offer, you must then begin making payments toward your compromised taxes.

Completing Form 656

In order to complete Form 656, you will need to gather certain information about the taxes, interest, and penalties that you owe, as well as the tax years or periods for which you owe those taxes.

Section 1: Your Contact Information

This section of Form 656 asks for basic contact information for you, your spouse and/or your business, including names, addresses, social security numbers, and employer identification numbers.

Section 2: Tax Periods

Choose the type of tax, tax return(s), and tax period(s) that you are including in your application for an Offer in Compromise. If you need more room than provided on the form, you can attach an additional page or pages, which you should title “Attachment to Form 656 dated ____________.”

Section 3: Reason for Offer

Select one of the following two options as the reason for your Offer in Compromise:

• Doubt as to Collectibility (insufficient assets and income to pay)
• Exceptional Circumstances (paying taxes owed would cause economic hardship or would be unfair and inequitable)

If you choose the “Exceptional Circumstances” option, you must include a written statement explaining your exceptional circumstances to the IRS. You also should attach any documentation of your circumstances. For instance, if you have a serious illness that impairs your ability to work and causes you extensive medical expenses, you could attach medical reports and bills in order to help prove that you have a serious illness.

Section 4: Low Income Certification (Individuals Only)

Only individuals, not businesses, can complete this section of Form 656. You must evaluate your family size, geographical location, and your applicable monthly gross household income in order to determine whether you qualify for low-income certification.

If you qualify for low-income certification according to the IRS guidelines, then you will not have to pay the Offer in Compromise application fee, and you may not have to make a payment toward your taxes while the IRS is in the process of considering your application.

Section 5: Payment Terms

In this section, you first must provide the IRS with the amount of your total offer of payment toward our taxes owed. You then have two different payments options from which to choose:

• Payment Option 1 – Payment of offer in five or fewer monthly payments
  • You must include a check for 20% of your offer amount, unless you are an individual and eligible for low-income certification.
  • You also must fill in the dates and amounts of your future payments.
• Payment Option 2 – Payment of offer in more than five monthly payments
  • You must include a check for the amount of one monthly payment, unless you are an individual and eligible for low-income certification.
  • You also must fill in the amount of your monthly payment, the day of the month on which you will make your payment, and the total number of months that you will make payments in order to pay off your order amount.
  • You must continue to make the monthly payments while the IRS is considering your application for an Offer in Compromise.

Section 6: Designation of Down Payment and Deposit (Optional)

This section of Form 656 is optional for you to complete. If you wish, you can have the payment included with your application applied to a specific tax amount from a specific tax year. You can also pay more than your required initial payment, and have that amount designated as a deposit on your Offer in Compromise.

Section 7: Source of Funds

In this section, you must describe the source of the funds that you will use to make payments toward your taxes owed, whether it is money that you have borrowed from family or friends, a bank loan, or the proceeds from selling your property.

Section 8: Offer Terms

There is no information for you to provide in this section of Form 656. Rather, this section sets forth all of the terms and conditions of making an Offer in Compromise. More specifically, this section details all of your rights and responsibilities with respect to making an Offer in Compromise and the consequences of failing to meet the requirements of an Offer in Compromise.

Section 9: Signatures

In this section, you must sign and date Form 656 under oath. If you are filing an Offer in Compromise jointly with your spouse, he or she must also sign and date the form.

Section 10: Paid Preparer Use Only

This section is to be completed only if you are using a paid preparer for your Offer in Compromise application.

Section 11: Third Party Designee

In this section, you can authorize the IRS to discuss your Offer in Compromise application with another person whom you designate.

Submitting Form 656 to the IRS

Once you have completed Form 656, you must submit it to the IRS with the rest of your application packet, including Form 433-A or Form 433-B, your application fee, and your initial payment fee. The IRS then will consider your Offer in Compromise application and determine whether you are entitled to pay your offer amount rather than the full amount of your taxes.

Getting Help with IRS Form 656

Completing and getting form 656 accepted is not an easy task for someone without experience. It is suggested to consult with an OIC tax professional when doing this type of filing to increase your chances. A tax professional can also analyze your situation and make a determination if you are a good candidate for an offer in compromise. If you are, they can help with the filing.

If you aren't, they can suggest other alternatives such as applying for separation of liability if your ex-spouse was responsible for the issue. Here at TaxCure, we have a unique ranking algorithm that allows you to find the top professionals based upon specific problems and solutions you are looking for. To see the top-rated tax professionals that can help with an offer in compromise, visit this link here for top-rated IRS offer in compromise experts, or start your search below.

IRS CP501: Reminder of Balance Due – What Happens Next

IRS Notice CP501 is a demand for payment – the IRS wants you to set up payments on your unpaid taxes. If you ignore this notice, the IRS will add more interest and penalties to your account. The agency will also seize future tax refunds from the IRS or the state. However, at this point, you still have some time – the agency must send you additional notices before seizing assets or garnishing wages. 

To get help with your unpaid taxes, use TaxCure to find a local tax professional. Or, keep reading to learn more about this notice.

Key takeaways

• CP501 – You have unpaid taxes; make arrangements with the IRS.
• When it comes – This is typically the second collection notice. 
• What to expect – More interest and penalties, risk of wage garnishment or asset seizure after additional notices.
• How to respond – Contact the IRS to set up payments or apply for a settlement.
• What if you disagree – Contact the IRS ASAP if you disagree with the balance due or other details on the notice.

To get a sense of what the CP501 looks like, take a look at . Then, keep reading to see what you should do with this notice.

What Is IRS Notice CP501? 

CP501 is a demand for payment. It's usually the second notice taxpayers receive when they owe money to the IRS. The notice states how much you owe, including penalties and interest. It outlines how to respond in different scenarios and explains what happens if you ignore the letter. It also tells you how to contact the IRS. Here's a sample CP501 notice.

What Should You Do If You Receive CP501?

The main options are to pay in full, contact the IRS for payment arrangements, or dispute the notice.  You can also ignore this notice if you've already paid in full or in certain other situations. Here are more details on each of those options:

Pay in full

If you can afford to pay the entire balance, merely detach the payment stub, write a check or money order to the United States Treasury, and mail the payment to the address on the notice. Make sure to put your Social Security number, the tax year, and the tax form you filed on the check. You can also pay online. The new notices for CP501, which started going out in November 2023, now have a QR code that you can scan and make a payment right from your phone.

Make payment arrangements or apply for relief

If you can’t pay the balance in full, contact the IRS immediately to discuss other options. Here are the main payment and relief options:

• IRS Installment Agreement: An installment agreement lets you pay off your taxes in manageable monthly payments. There are a few different types of installment agreements, but if you owe under $50,000, you can generally set up payments online.
• IRS Hardship: If you can prove that paying the tax would cause financial hardship, the IRS will put a temporary stop to all collection activity. This agreement is called an IRS hardship, uncollectible, currently not collectible (CNC), or status 53. Mostly, you have to show the IRS that you can’t afford to cover the tax owed and your essential living expenses.
• Offer in Compromise: With an offer in compromise, you settle the taxes owed for less than the total balance. You have to meet strict income and asset requirements to qualify for this arrangement. Consider working with a professional, as most offer-in-compromise applications are rejected by the IRS.

In addition to the ideas above, you should request penalty abatement. The IRS often waives penalties if taxpayers have a history of compliance or if they had reasonable cause for paying the tax late.

Dispute the tax due or other errors

If you disagree with the tax due, the penalties assessed, or any other information on the notice, contact the IRS directly at the number provided on the form. When you speak to an IRS agent, they will let you know your options. Contact a tax resolution specialist to help you if you want assistance in dealing with the IRS – an experienced tax pro is critical if you want to dispute the amount owed.

Ignore the notice

If you receive a CP501 notice and any of the following are true, you can disregard it:

• You have paid your balance in full in the last 21 days.
• You are already making payments on that tax amount through an installment agreement.
• You're on currently not collectible (CNC) status, and the IRS has suspended collections against you.
• You are in the midst of filing bankruptcy, and a stay has been issued to your creditors.

However, to be on the safe side, you should check your IRS account and make sure that the IRS received your payment, your installment agreement or CNC status is still active, or that the IRS has been notified about your bankruptcy case.

What If You Ignore Notice CP501?

If you ignore this notice because you've already paid in full or already set up payments, nothing will happen. Again, however, in those situations, you may want to contact the IRS to make sure they got your payment. If you ignore this notice and you haven't made arrangements for your tax debt, here's what can happen:

• Additional collection notices – The IRS will typically send the CP503 notice about six weeks later. If you ignore that notice, the agency will continue the collection process as follows.
• Refund offset – If you file a federal or state tax return showing a refund, the IRS can seize the refund. The agency may send a CP504 about the refund offset, but the agency doesn't need to give you advance warning.
• Loss of passport – The IRS can take your passport if you have a seriously delinquent tax debt – $65,000 or over as of 2025. Typically, the agency sends CP504B about this.
• Tax levies – The IRS can eventually freeze your bank account, garnish your wages, or seize physical assets if you don't pay your taxes, but they must first send you a Final Notice of Intent to Levy.

When you don't pay taxes, the IRS can issue tax liens that attach to all of your assets, and the agency can go after assets more easily and more extremely than almost any other creditors. Additionally, interest and penalties will continue to accrue on your account.

 If you try to sell or transfer assets, the lien will appear on the title search and complicate the asset transfer. Generally, you will not be able to get the proceeds from any asset sales – instead, the proceeds will be sent to the IRS before the title can transfer.

When Is the Due Date for Notice CP501?

Generally, payment is due within 21 days of the notice issue date, but if your balance is over $100,000, it is due within ten days. The due date is near the bottom of the first page on the detachable payment stub.

What Are the Penalties for Ignoring Notice CP501?

If you don’t pay, the IRS will continue to assess interest and the failure to pay penalty on your account. The penalty is 1/2% of your total balance every month, up to a total of 25% of the balance. For instance, if you owe $10,000, the monthly penalty is $50, and the IRS can add penalties worth up to $2,500. Interest accrues on top of these penalties. Eventually, your failure-to-pay penalty can increase to 1% of your balance per month. For instance, if you owe $10,000, your monthly penalty rises to $100. 

How to Get Help With Unpaid Taxes

To get help, reach out to a tax professional on our site who has IRS experience. You can find them here. 

CP 88 Notice: Delinquent Return Refund Hold – Meaning & Actions Needed

As a general rule, individuals who fail to file their tax returns as required often find themselves in hot water with the IRS. Although the negative consequences of not handling your taxes properly may not be felt immediately, sooner or later, the IRS will catch up with individuals who have failed to file tax returns in the past. Whether your failure to file was intentional or you inadvertently made mistakes when filing past returns, the IRS has the right to hold future refunds until issues from the past are resolved.

How do you know if there are issues with your refund?

If you have filed your tax return and are expecting a refund, you may be surprised when you do not receive it. Some taxpayers are aware of situations that may result in the garnishment of tax refunds, such as prior tax bills that are still owed or past child support issues. If you are unaware of any such issues, you might not understand why you are not receiving your refund as anticipated.

What is a CP-88 Notice?

When the IRS holds a tax refund, they do not do so without notifying the intended recipient of their actions. If your refund is being held by the IRS as a result of past filing issues, you will receive Notice CP-88 from the IRS.

What does this letter mean?

Basically, anyone receiving a CP-88 Notice from the IRS is being notified that the IRS has processed your tax return and your refund is being held due to your failure to file the taxes for the previous tax year.

What steps need to be taken next?

Once you have received the CP-88 Notice, you will have to gather past documents that are missing and file any past due tax returns. If you have filed all past returns, you may be wondering why you have received this notice. In this situation the IRS may not have received all the documents making your previous returns unable to be processed. In any event, you will have to contact the IRS to determine what information is missing if you want to receive your refund. Understand that once your past returns are processed, any tax liabilities owed may be deducted from your return.

Is there a time frame in which to respond?

The notice you received may not provide a deadline for response. This is because there is no set time frame in which you are required to reply, however the longer it takes to resolve the issue, the longer it will take to receive your refund. In addition, any tax liabilities that may be owed will continue to accrue interest and penalties until resolved. For these reasons, it is in your best interest to respond as soon as possible to find out what you have to do to square up with the IRS.

Where do I find contact information?

All contact information regarding this notice will be printed at the top of the letter. Using the contact information provided, call the IRS as soon as possible to learn what steps must be taken to resolve this issue. If you have already addressed these issues in the past, you may have to explain this to the IRS representative who might refer you to the Office of Taxpayer Advocate for further arbitration.

You can find a list of qualified licensed tax professionals who can resolve your tax problems here or can start a new search by visiting our homepage. 

CP503: IRS Second Notice of Balance Due – Meaning & Actions Needed

IRS Notice CP503 is a demand for payment of back taxes. You should take this notice seriously – reach out to set up payments as soon as possible. But you don't need to panic yet – the IRS will typically send one or two more notices before resorting to garnishing wages or seizing assets. Here is an example of a CP503.

If you owe tax to the IRS, the CP503 is usually the third notice an individual receives. If your business entity owes taxes, the IRS will send this letter as the second notice of four. The letter lets you know the tax balance owed. It also outlines payment options and warns of actions the IRS may take if you do not pay. Ideally, you should pay off your balance as soon as possible or make payment arrangements to stop collection activity and minimize penalties and interest on your account. Read on to learn more about how to respond to this notice and what to expect if you ignore it.

Key takeaways

• CP503 – Second or third demand for payment due; make payment arrangements ASAP.
• When it comes – Usually comes four to six weeks after CP501.
• What to expect – If you don't respond, the IRS will send one more notice before garnishing wages or seizing assets. 
• How to respond – Contact the IRS to set up payments or apply for a settlement based on income and assets.
• What if you disagree – Hire a tax pro or contact the IRS if you disagree with the balance due or other details on the notice.

What To Do If You Can Pay

If you can afford to pay your taxes in full, send a check to the address on the CP503 notice. Make sure to include the payment stub from the letter and note your identifying details (social security number, tax year, and tax form submitted) on the check. Alternatively, you can make a payment online. Setting up an automatic withdrawal or electronic check from your bank account is usually free, but there is a fee if you want to pay with a credit or debit card.

What To Do If You Can’t Pay

If you can’t afford to pay the whole balance by the due date on the notice, contact the IRS directly or get help from a tax professional. The main options include:

• Making monthly payments through an installment agreement,
• Having the balance reduced with an offer in compromise, or
• Stopping collection activity by securing hardship status (aka currently not collectible status).

Depending on your situation, you may also be able to get penalties waived. To get the best deal possible, you should work with a tax professional. They know how to negotiate with the IRS to get you the payment plan or relief option that’s best for your situation.

What If You Don’t Agree With Notice CP503

Contact the IRS at the phone number listed on the notice if you think it’s been sent in error. Usually, by the time you get this notice, you should have received numerous other warning letters from the IRS. In most cases, if there was an error with an amount due or other details, taxpayers notice that before receiving this particular notice. If the IRS notice is incorrect and you have already made a payment, make sure to contact the IRS as quickly as possible. It is essential to ensure the IRS credits your payment to the right account.

What Happens If You Don’t Pay

You should never ignore a notice from the IRS. If you don’t pay the balance by the due date, the IRS will add more interest and penalties to your account. Additionally, if you ignore Notice CP503, the IRS may issue a Federal Tax Lien in your name. Essentially, a tax lien is a formal announcement to your creditors that the IRS has a right to stake a claim to your assets. Note, however, that the IRS doesn't need to send advance warning about tax liens, so a lien may have already been issued at this point.

The agency may also start looking for assets to levy (take). Typically, you will receive another formal notice of intent to levy before the IRS begins to levy your asset. However, to protect your assets, you should try to make arrangements before that happens. Although the exact timeline varies, the IRS takes similar steps in most collection cases – here's what to expect if you ignore Notice CP503:

• Notice CP504 – Another demand for payment and a warning about asset seizure.
• Loss of tax refund – The CP504 explains that the IRS will seize your state tax refund, and that can happen before or after you receive the notice.
• Passport seizure – If you owe over $65,000 as of 2025, the IRS may seize your passport and send you Notice CP508C.
• Final Notice of Intent to Levy – This is the most serious collection notice. There are a few different versions, including the LT1058 and CP90. If you ignore these notices, the IRS can seize your assets in 30 days and even sooner in certain cases of unpaid employment taxes or if you receive payments for being a federal contractor.
• Wage garnishment – This can happen 30 days after the IRS sends a final intent to levy notice. The IRS contacts your employer and directs them to send a portion of your paycheck to the IRS to cover your back taxes. 
• Asset seizure – If you don't pay your taxes, the IRS can seize bank accounts, investment accounts, certain retirement accounts, and physical assets, including your home or car in some rare cases. 

Ideally, you should respond when you receive the CP503, but if you ignore the notice, you will typically receive two more notices before the IRS can move forward with seizing your assets. In other words, you should take the CP503 notice seriously, but you don't need to panic – you have two or possibly even three months before things get dire. If you wait until you receive a Final Notice of Intent to Levy, you can request a Collection Due Process hearing, which allows you to set up payments, and you can also dispute the tax balance due but only if you haven't had a chance to do so earlier. However, if you don't make payment arrangements and the IRS garnishes your wages or seizes your assets, it's very hard to reverse those actions.

FAQs About CP503

What is the due date for Notice CP503?

The due date is noted on the bottom right of the first page of the notice – it's usually on a detachable payment stub. Payment is due 21 days after the notice was generated or 10 days if you owe over $100,000.

Where should I mail the payment for CP503?

The mailing address is on the payment stub on the notice. Otherwise, pay online at EFTPS.gov using your tax ID number and bank account details or pay through your IRS online account.

What if I already paid in full?

If you paid in full sometime in the last 21 days, this notice was probably generated before the IRS received your payment. In this situation, the IRS says to ignore the notice. But for your own peace of mind, you may want to check online to make sure your payment has been received and properly credited, or you may want to call the IRS. A tax pro can also check your payment history online if you authorize them to do so.

What if I already set up installment payments?

On Notice CP503, the IRS states to disregard the notice if you are already making installment payments. However, to be on the safe side, you should double-check that you're making payments – check your bank statement to see if a payment was withdrawn the previous month, or look at your IRS online account to make sure your installment agreement is still active. 

What if I'm on currently non non-collectible status?

The IRS says to ignore this notice if you're on CNC status. However, if you get a Final Intent to Levy Notice (CP90 or LT1058), you should contact the IRS to make sure your CNC status is still active. 

What Is Notice CP503H?

Similar to the traditional CP503, Notice CP503H also lets you know that you owe taxes to the IRS. But this notice is focused on your shared responsibility payment (SRP) account. The SRP is the amount you owe if you don’t have minimum health insurance coverage for yourself or your dependents. The SRP doesn't apply to tax years after 2018, but you may receive this notice for tax years 2018 or earlier.

You can make a payment in full by writing a check and returning the pay stub at the bottom of the form. You can also contact the IRS to set up a payment plan. If you don’t make full payment by the due date, the IRS may add interest to your balance. Under federal law, the IRS cannot issue a lien for this part of your tax liability. The IRS also cannot levy your assets for SRP. However, the IRS may keep federal, state, or local tax refunds and apply those amounts to your SRP tax bill.

How to Get Help If You Receive Notice CP503 or CP503H

To get help if you receive Notice CP503, use our site and reach out to a licensed tax professional who has experience resolving IRS issues. They will start with a free consultation. Then, they will advise you of the best steps to take in your situation. Additionally, they can help you set up a payment plan, review your eligibility for a settlement, or make other arrangements with the IRS and state taxation authorities.

Certified Public Accountant: What a CPA is & How They Help With Taxes

Each year millions of taxpayers find themselves asking whether or not they need the help of a tax professional. When the answer is yes, it becomes important to understand who is the best person to handle different types of tax issues. The answer is not the same for everyone and each individual must carefully consider their own personal tax situation as well as the type of person best trained to handle those situations. Here we look more closely at Certified Public Accountants (CPAs) and the type of tax situations best handled by this tax professional.

What is a CPA?

In the world of tax professionals, certain individuals are permitted to perform specific tasks based on their experience and training. An accountant is an individual trained in maintaining and auditing reports for a business. Accountants prepare financial reports and provide much-needed documentation regarding a business's financial background. While not all accountants can be a CPA, all CPAs are considered accountants.

In order to be titled a CPA, an individual must take and pass tests administered by the American Institute of Certified Public Accountants. Depending on the state in which a CPA wishes to conduct business, there may be additional state exams that must be passed in order to work in that state as a CPA. Accountants who have not received the additional training required to be a CPA may not be permitted to handle some of the tasks a CPA is authorized to perform. As a CPA, an individual can perform all accounting tasks in addition to the preparation and filing of tax returns for individuals, businesses, and corporations.

How can a CPA help you?

As a licensed professional, a CPA must take continuing education courses to equal 120 hours every three years to maintain their license. This ensures each licensed CPA is receiving the training and education necessary to remain abreast of changes in the industry. For this reason, a CPA is best qualified to handle tax issues for both businesses and individuals. The following are some of the tax issues for which a CPA can provide assistance.

• Provide advice in the handling of income tax and estate tax in the case of divorce or separation.
• Determine the tax consequences resulting from certain investment opportunities.
• Help individuals improve tax management and save money.
• Advice business owners of tax consequences associated with most business decisions.
• Design and manage the compensation and retirement plans of a business, with the proper attention to tax liabilities and savings.
• Represent a business or individual in relation to IRS issues.  This may involve preparing documents or presenting oral and written arguments to appeal an IRS decision.
• For most of the tax services listed here, many CPAs have experience performing

Any person or business can benefit greatly by seeking the counsel of a CPA with regard to most tax issues. As highly trained professionals, these individuals have a greater understanding of the complex tax codes that govern how much we pay in or receive back from the IRS. Additionally, CPAs, like all tax professionals who represent clients in front of the IRS, must follow the guidelines laid out in Circular 230, and they may also have to follow even more stringent ethical guidelines created by their state licensing boards. This US Treasury doc outlines ethical considerations for tax pros, and it's important to note that many big tax relief firms get around these guidelines by having unlicensed salespeople communicate with clients, instead of tax pros.

Can CPAs represent you in Tax Court?

Most CPAs cannot represent clients in Tax Court. However, if a CPA passes the US Tax Court Bar Exam, they become a US Tax Court Practioner, and then, they can represent you in Tax Court but not criminal courts. 

Other Types of Tax Professionals

While CPAs are generally the most common type of tax professional, there are other professionals that can help with various tax problems. Below are the details on other types of tax professionals.

• Tax Attorney – A tax attorney offers other benefits that other professionals do not offer. They can help with a variety of tax problems and one thing they offer that others don't is that they have an attorney-client privilege. 
• Enrolled Agent – An enrolled is a licensed tax professional who can represent taxpayers in matters relating to the IRS tax laws. Unlike an attorney or CPA, they obtain their authority from the federal government rather than state governments. 
• Certified Tax Representation Consultant – CPAs, tax attorneys, and EAs can all earn this certification. To become a CTRC, tax pros must take five tests on tax resolution topics including audits, offers in compromise, innocent spouse relief, IRS collection processes, and payroll tax issues.
• Certified Tax Resolution Specialist – These are specialized licensed tax professionals that are certified by the American Society of Tax Problem Solvers. This certification can be obtained by enrolled agents, CPAs, and tax attorneys who meet educational and experience requirements after passing an exam. 
• Former IRS Agents – People who worked for the IRS for at least five years as an officer or agent can become enrolled agents. They may also pursue additional education and testing to become CPAs or tax attorneys. Former IRS employees can help you deal with tax problems, and they often have unique insights due to their professional experience. 

What is the Difference Between CPAs and Tax Preparers?

Certified public accountants (CPAs) and tax preparers are both responsible for preparing tax returns, but there are some key differences between the two professions. CPAs are licensed by the state in which they work and are held to a high standard of ethics. They are also required to complete continuing education courses to maintain their certification. Tax preparers, on the other hand, are not necessarily licensed or certified and may not have to meet the same requirements.

What Is the Difference Between a CPA and an EA?

Both CPAs and enrolled agents can represent you in front of the IRS or your state revenue agency. Both have extensive knowledge of the tax code. However, a CPA can also deal with business accounting, audits, financial planning, and a broader range of issues. If you're trying to choose between a CPA and an enrolled agent, you should look for someone who has experience with your tax problem and/or the tax agency you're dealing with. 

What Are the Differences Between CPAs, Tax Attorneys, and Enrolled Agents?

As explained above, CPAs complete rigorous degree work, pass a state licensure test, and complete continuing education every year. They can focus on a broad range of accounting specialties, and they don't necessarily do tax resolution work. Tax attorneys are attorneys focused on the tax realm. They could have used their legal degrees to pursue another aspect of the legal field, but they have chosen to focus on tax resolution. Enrolled agents earn their credentials directly from the IRS, and they always focus on tax prep or tax resolution work. 

If you want someone to represent you in front of the IRS, any of these tax pros can do the job, but you need to make sure they have experience. Armed with the right experience, any of these pros can help you deal with unpaid taxes, tax audits, IRS collection actions, and appeals. To ensure you make the best choice between a CPA, EA, or tax attorney, talk with them about your problem and ask about their history of helping clients with similar concerns. 

If you are looking for a CPA who can help with IRS taxes, you can visit this link here and then filter further by tax type, tax problem, and more. Otherwise, if you do not have an IRS problem, start your search below with the specific tax agency you have a problem with and filter later by selecting CPA only using the filters. Our network is made up of top tax professionals from around the country and our algorithm ranks them based upon their top skills that you can filter by, which ensures you can find the best professional for your unique situation.

You can also see user reviews on TaxCure. It's always a good idea to look at reviews before hiring a tax professional, but when doing so, make sure you understand how to evaluate the reviews as effectively as possible.

IRS Power of Attorney: Tax Form 2848 Filing Instructions & Details

If you are dealing with Federal tax matters, you may decide to represent yourself or have another person do it for you. To have another person act on your behalf, you must choose someone who is authorized to practice before the IRS. You can name an individual or individuals to work on your behalf through IRS form 2848, Power of Attorney and Declaration of Representative.

Why You Would Use an IRS Power of Attorney

For the most part, taxpayers need an IRS Power of Attorney under two circumstances:

1. If you want someone else to represent you during a meeting with the IRS and handle the tax situation on your behalf
2. If you want someone else to prepare a written response to the IRS, or fill out documents on your behalf

You do not need an IRS Power of Attorney if you have someone else filing an annual income tax return for you, but any of the more complex situations with the IRS will require it – like owing back taxes.

Who Can Represent You Legally?

You can’t just appoint your mom for representing you in federal tax matters in front of the IRS (unless your mom also happens to be one of the following qualified individuals):

• CPAs
• Attorneys
• Lawyers
• Student Attorney
• Student CPA
• Enrolled agents
• Enrolled actuaries
• Enrolled retirement plan agents

How to Authorize an IRS Power of Attorney

When you decide to authorize someone else to act on your behalf before the IRS, you will need to follow proper procedures. You need to fill out IRS Form 2848 to allow another qualified individual to represent you and to receive your confidential tax information. You can fax or mail the form to the IRS, or your authorized individual can file the form electronically with the IRS for you.

Starting in July 2021, the IRS launched a Tax Pro Account on IRS.gov which allows tax professionals to initiate third-party authorization requests. If a tax professional initiates a POA, they can use a checkbox as an electronic signature. The POA request automatically transfers to the individual taxpayer's Online Account. Taxpayer then from the "Authorization" tab can electronically sign and approve the request. Upon approval, the authorization is automatically submitted to the CAF. However, taxpayers must register for secure access or have been already registered. 

How an IRS Power of Attorney Works For You

Once a qualified individual has been authorized by the IRS to represent you, they will be in contact with the IRS on any tax-related matters you have. If the authorized individual doesn’t respond to the IRS promptly, the IRS will contact you directly for resolution. An IRS Power of Attorney can handle the following situations for you:

• Receive and respond to any confidential IRS tax information sent to you
• Represent you in legal matters with the IRS and tax situations you have
• Set up a tax settlement or payment agreement for you to pay back taxes to the IRS
• Sign personal tax return documents for you
• Receive money issued to you from the IRS for tax refunds (but cannot cash or otherwise use the money)
• Execute closing agreements

What If You Just Want to Share Tax Info?

If you just want to authorize someone to access your tax details, you don't need to grant them Power of Attorney privileges. Instead, you can use Form 8821 (Tax Information Authorization) to give them permission to obtain information from the IRS. For instance, you may use this form to authorize a tax pro, a creditor, or multiple other types of entities to receive tax information about you. 

If you are having tax problems and need to authorize an IRS Power of Attorney for tax representation, reach out to a licensed tax professional with experience in resolving IRS tax problems.

Tax Relief Attorney

If you’re facing serious tax issues, choosing the right professional matters. Tax relief attorneys can provide legal protection and negotiate with the IRS. They help resolve back taxes faster and more effectively than other tax professionals.

Owe the IRS, are under audit, or need help with penalties? An experienced IRS tax attorney can guide you toward the best solution.
 

Why Do You Need a Tax Attorney?

A tax attorney is not just a tax expert. They’re a licensed lawyer who understands tax law and can represent you in legal matters. They can:

• Communicate directly with the IRS or state tax agencies
• Handle tax liens, levies, and wage garnishments
• Reduce penalties and settle tax debts
• Represent you in tax court if needed

You can start your search here of top-rated local tax attorneys that help with tax problems. We have created a system to show taxpayers the best attorneys to help with their unique tax problems. You can easily filter by your problem or desired solution and for the specific tax agencies involved.

What Do Tax Attorneys Do?

A tax lawyer helps you resolve tax problems with the IRS and various state tax agencies. They apply tax law to protect your rights and minimize what you owe. They can also represent you in court.

What Are the Qualifications of a Tax Attorney?

To become a licensed tax relief attorney, professionals must:

• Earn a Juris Doctor (J.D.) from an accredited law school
• Pass the state bar exam
• Often pursue advanced training, like an LL.M. in Taxation
• Stay compliant with ethical standards and continuing education
• These credentials ensure they’re equipped to handle everything from audits to litigation

Do Tax Attorneys Specialize?

Tax attorneys know the federal tax code thoroughly and understand state tax laws in detail. Most of them who specialize in tax law deal with the following:

• Audit representation
• Delinquent tax returns
• Unfiled tax returns
• Installment agreements
• Offers in compromise
• Penalty relief
• Tax levy release
• Tax lien release
• Wage garnishment removal

Choose a tax attorney with experience in your issue and the solution you’re seeking. If you have both state and federal tax issues, make sure the tax lawyer is experienced with the tax agencies in your state.

How Can a Tax Attorney Help You?

An IRS tax lawyer can help you with the following:

• Researching your case
• Communicating with the IRS
• Negotiating tax settlements
• Representing you in court
• Saving you money

Most tax lawyers start with a free consultation where you can assess if they are a good match for your needs. You will tell them about your tax problems, and they will outline how their services can help you.

Benefits of a Tax Relief Attorney

The main benefit of working with any tax pro is that they help you negotiate with the IRS. When you choose a tax attorney, in particular, you also reap the following benefits:

1. Tax Attorney-Client Privilege

This privilege encourages open, honest conversations, which leads to better advice and stronger legal representation. Other tax professionals, like accountants or enrolled agents, don’t offer this level of protection. For sensitive tax issues or aggressive strategies, a tax relief attorney offers an added layer of security.

2. Well-Rounded Advice

A tax relief attorney can offer solutions that other tax professionals can't. For example, only attorneys can give legal advice about bankruptcy or represent you in court. Their legal training allows them to look at your entire situation and recommend the best strategy. If your case involves serious legal risks or multiple tax issues, a tax debt attorney is often the best choice.

3. Representation

A tax attorney can represent you in all dealings with the IRS. This includes everything from responding to notices to appearing in tax court. With power of attorney, they take over communications and negotiate directly with the IRS.

4. Tax Negotiation

A tax relief attorney understands how to negotiate complex tax matters, including reducing penalties, settling debt, and stopping aggressive IRS actions. Their legal training and experience with tax law help them push for better outcomes than most other professionals.

Tax attorneys must follow strict ethical rules under IRS Circular 230 and their state bar. These rules protect you by holding attorneys to high standards. Unlike salespeople at tax relief firms, attorneys can’t use pressure tactics or give false promises. They risk losing their license if they break these rules.

 

Situations and Problems a Tax Relief Attorney Can Help With

If you’re facing legal tax issues, tax crimes, IRS collection actions, a tax relief attorney can help you. You may want to reach out to a tax attorney If you are dealing with any of the following tax situations or problems.

Tax attorneys can help with many other issues. Don't see your tax concern on this list? Then, contact one directly to talk about your situation. TaxCure offers a curated list of tax attorneys so you can find someone experienced with your tax issue.

Tax Court

If you are heading to tax court, it is always smart to have one on your side. A tax lawyer will be able to represent you in court and will likely know the best approach for handling your situation.

Tax Evasion

Tax evasion can lead to severe penalties, including fines or prison. A tax debt attorney can help reduce those risks and may even remove penalties if there's a valid reason for non-compliance.

Tax Fraud

If you have committed tax fraud, you need legal protection. This includes actions like false deductions, fake credits, or hiding income. A tax attorney gives you attorney-client privilege. They help manage the risks and guide you through the legal process.

Willful failure to file taxes

Title 26 USC Section 7203 of the Internal Revenue Code states that not filing taxes or providing required information can lead to up to one year in prison, fines, and other penalties. If you're facing charges under this section, you need a tax attorney to protect your rights.

Obstruction of Internal Revenue Law Administration

Under Section 7212 of Title 26 USC, taxpayers who make threats or impede the administration of internal revenue laws can face up to three years in prison and monetary penalties.

Under criminal investigation by the IRS

Being investigated by the criminal investigation division of the IRS should never be taken lightly. Agents receive training from the IRS and FBI and may carry firearms. You might not know you’re under investigation until they file charges. If you suspect trouble due to past tax mistakes, contact a tax relief attorney immediately.

Worried about IRS criminal investigation

You often won’t know about an IRS investigation until they file charges. If you made past tax mistakes, speak with a tax attorney before the IRS acts. Depending on the situation, they may be able to help you apply for amnesty or reduce your risk of criminal exposure.

Criminal tax defense

Tax fraud allegations and criminal tax charges can have extremely serious consequences. If you have been accused of a tax crime, you should not deal with the situation on your own. A tax attorney can help to defend you or your business.

Failure to disclose offshore accounts

Failing to report and pay taxes on foreign assets can lead to criminal charges and civil penalties. The Offshore Voluntary Disclosure Program (OVCP) allows you to come forward without facing penalties. It’s only available if the IRS hasn’t started an investigation. Over 100 countries now sharing financial data with the U.S.; the IRS is more likely to identify noncompliant taxpayers.

Other Problems and Issues a Tax Attorney Can Help With

FBAR and FATCA Offshore Disclosure Compliance Issues

If you have not filed a Report of Foreign Bank And Financial Accounts (FBAR), you may not have Foreign Account Tax Compliance Act (FATCA) compliance. If you don’t comply with FBAR and FATCA rules, you risk severe penalties. This often happens when offshore facilitators fail to explain reporting duties. A tax attorney can help you fix disclosure issues and avoid further legal trouble.

Unfiled Tax Returns

Unfiled tax returns can be a serious issue, especially if there is a large sum of unpaid taxes that go along with them. If the filing of your tax returns does not have legal or complex issues, it may be a better option to use a CPA or an enrolled agent to help (for the purpose of saving money).

Tax Penalties

Tax penalties can make up a large part of what you owe the IRS. A qualified tax attorney can often reduce them by showing the IRS you had a valid reason for falling behind. If you can’t pay the full amount, they can help you find the best way to get back into compliance.

Tax Liens

A tax lien is the government's claim on your property. It gives the IRS priority over other creditors and limits your ability to borrow. It can lead to a tax levy, which lets the IRS seize your assets.

Tax Levy

The IRS can legally seize wages, bank accounts, real estate, cars, boats, 401K’s, and more. Act quickly to limit the financial impact. A tax attorney can likely stop the levy and prevent significant financial damage.

Can a Tax Attorney Help with Back Taxes?

A tax attorney assesses your situation from every angle possible to ensure you will get the best financial outcome, whether it is IRS recommended or not.

Tax Audits

Audits are stressful. You must give the IRS access to your records without violating your rights.

Business Tax Controversy

Businesses have federal, state, and local tax compliance requirements. One issue can threaten your business and potentially close your doors.

Individual Tax Controversy

A tax attorney can help with audits, unfiled returns, undisclosed foreign assets, back taxes, or countless other individual tax controversies.

Accountant Liability

Sometimes, CPAs or accountants need legal help. A tax attorney can represent accountants for liability cases or with other legal issues.

Probate and Trust Tax Issues

Setting up and administering a trust or dealing with probate issues requires knowledge of tax laws. A tax lawyer can help with fiduciary duties, liability concerns, beneficiary disputes, creditors' claims, and other issues related to taxes, trusts, and probate.

Estate and Trust Tax Planning

A tax attorney or an estate attorney with tax knowledge keeps up with changing laws.

Federal employees and contractor tax issues

If you're a federal employee or a federal contractor who is facing termination due to unpaid taxes, you may need to contact a tax attorney. They can help you negotiate an arrangement for your unpaid taxes, and they can ensure your rights are protected.

Tax Solutions a Tax Attorney Can Help With

The right resolution option depends on your tax issue and your personal situation. A tax attorney can help find the right solution for your needs. Here are some of the resolution methods they use:

These are just some of the resolution options offered by tax attorneys. When you work with a tax attorney, they find the best resolution for your unique situation.

Offer in Compromise Tax Settlements

An offer in compromise lets you settle your tax debt for less than you owe. The IRS approves it when they believe they won’t collect more through forced collection. A tax attorney can help you prove this and handle the complex filing process.

IRS Payment Plans

The IRS offers various forms of payment plans. A tax attorney can review your finances and choose the best payment plan. They also calculate the monthly amount and handle all required filings.

Penalty Abatement

You can reduce or remove IRS penalties through penalty abatement. If you had a valid reason for falling out of compliance, a tax attorney can help you show the IRS you acted in good faith and qualify for relief.

Innocent Spouse Relief

This protects one spouse from joint liability when the IRS deems it unfair to hold both responsible.

IRS Bankruptcy

At times, bankruptcy can help resolve IRS tax debt. While most tax pros avoid this option, a tax attorney or bankruptcy attorney can evaluate if you qualify. Discharging tax debt through bankruptcy is complex and depends on specific financial and legal factors.

IRS Wage Garnishment and Levy Release

If the IRS has garnished your wages or seized your bank funds, you may struggle to cover basic needs. A tax debt attorney can seek release of the garnishment or levy by proving financial hardship and negotiating better terms.

Release of Federal Tax Lien

A tax lien is the IRS’s legal claim to your property and can block asset sales. A tax relief lawyer may help remove the lien from your assets.

Currently Not Collectible/Hardship Status

If you can’t pay your tax bill, a tax relief lawyer can help you qualify for currently not collectible (CNC) status. This stops IRS collections. In some cases, the statute of limitations may expire before you’re able to pay, and the debt disappears.

Signs You Need to Hire a Tax Attorney

You should strongly consider hiring a tax attorney or other tax resolution professional if any of the following apply to you or your business.

• You owe the IRS $10,000 or more.
• You have two or more years of unfiled tax returns.
• You owe penalties to the IRS.
• The IRS has placed a federal tax lien on your assets.
• The IRS has levied your bank account.
• The IRS is garnishing your wages.
• You want help dealing with the IRS.

The IRS has the legal right to use a broad range of collection tactics, and the agency has a lot of power. To protect yourself and your assets, you may want to work with a tax professional.

Should I Hire a Tax Attorney from My Local Area?

A lot of people struggling with tax issues wonder if working with a tax attorney near them is the right solution. There are pros and cons to choosing a local tax attorney, and you should weigh your options carefully when deciding.

Going with a local tax attorney gives you the following benefits:

• In-person meetings with your tax attorney.
• Easy to drop off documents or IRS notices.

However, restricting your options to tax attorneys near you comes with the following downsides:

• A limited pool of attorneys.
• Risk of not finding someone who specializes in your tax issue.
• Potential of wasting time driving to their office for in-person meetings or to drop off documents.
• Local tax attorneys may not have established relationships with the IRS.

You don’t always need a local lawyer for taxes. You can send documents by email or mail and handle everything through virtual meetings or phone calls. Focus on experience, not location. Use platforms like TaxCure to find the best fit, whether they are nearby or across the country.

Who Are the Best Tax Attorneys?

The best tax attorney for you depends on your specific issue. Look for one with relevant experience and strong negotiation skills. Before making your choice, you may want to read a few reviews, but make sure you know how to interpret the reviews.

At TaxCure, we have a curated list of tax attorneys and other tax professionals from around the country. You can search for them based on their experience with different tax issues and tax resolution methods. Then, you can consult with a variety of attorneys until you find the right fit. Just click a "Find a Tax Pro" button at the very top of our site and then filter by tax attorneys.

Other Types of Tax Professionals

While tax attorneys are excellent professionals to help with tax problems, there are other professionals that can help with various tax problems. Below are the details on other types of tax professionals.

Certified Public Accountant (CPA)

CPAs are certified tax professionals that can help with a variety of tax issues, tax planning, tax filing, and more. When comparing CPAs vs. EAs, you'll find that they both can handle tax-related concerns, but CPAs also have a broader range of potential focus areas.

Enrolled Agent

An enrolled is a licensed tax professional who can represent taxpayers in matters relating to the IRS tax laws. Unlike an attorney or CPA, they obtain their authority from the federal government rather than state governments.

Certified Tax Resolution Specialist

These licensed tax professionals hold certification from the American Society of Tax Problem Solvers. Enrolled agents, CPAs, and tax attorneys earn it by meeting education and experience standards and passing an exam.

Former IRS Agents

If you work for the IRS for at least five years in a role that includes interpreting the tax law, you earn an EA designation. Many former agents are also CPAs and tax attorneys. Hiring a former IRS agent/officer means that you get to work with someone who has deep insights into IRS practices and policies.

Tax Attorney Vs. CPA: Differences Between Tax Pros

When a lot of people start searching for help with back taxes, they wonder if they should hire a CPA or a tax lawyer. Both of these professionals can handle complex tax issues, but in the rare situation that a case goes to court, only a tax attorney or US Tax Court Practitioner (USTCP) can represent you in front of the IRS. A USTCP is an enrolled agent who has passed a special test.

So, what's the difference between a CPA and a tax attorney? The main difference is their training.

CPA Qualifications

These are the qualifications to look for:

• Most CPAs hold a bachelor's degree in accounting.
• Many also earn a master's in accounting or an MBA.
• They must complete one to two years of supervised accounting experience.
• They must pass the CPA exam, which includes four tests.
• The exam, run by the AICPA, focuses 60 to 80 percent on federal taxation.
• CPAs must complete ongoing education to keep their license active.
   

What Do CPAs Do?

Unlike tax lawyers, CPAs are not authorized to practice law, but they can handle the following:

Tax return preparation and filing

A CPA can be an invaluable resource for people and businesses with complex tax situations or taxpayers with high net worth.

Minimizing tax liabilities

CPAs use their in-depth knowledge of the tax code to ensure their clients pay as little tax as legally possible.

Tax planning

CPAs also work with their clients to create tax plans that help them meet their short and long-term personal or business goals.

Back tax resolution

CPAs can help their clients with unfiled returns, back taxes, penalty abatement, and other state and local tax issues.

Pros and Cons of Hiring a CPA

CPAs offer a lot of benefits to their clients. You can experience the following benefits when you hire a CPA:

Help with tax prep

CPAs can prepare and amend tax returns for businesses and individuals.

Reduced tax liabilities

CPAs can help reduce tax liabilities on your current tax return. They can help you identify strategies to reduce your tax bill in the future.

Assistance with back taxes

CPAs can help you explore many resolution options for your back taxes. Like a tax attorney, they can negotiate with the IRS on your behalf.

The only potential drawback of working with a CPA vs a tax attorney is that they can’t represent you in court. If you anticipate going to court, you need a tax attorney.

Pros and Cons of Hiring Tax Attorneys

While deciding between a tax attorney vs a CPA, you should also look at the pros and cons of tax attorneys. The main advantages of working with a tax attorney include the following:

• Experienced in resolving complex tax issues.
• Can save you money on back taxes.
• Ability to help you through an audit.
• Can represent you in front of the IRS.
• Can defend you in court.

However, hiring a tax attorney also comes with a few downsides. Here are the disadvantages of working with one:

No tax prep assistance

Tax attorneys typically don't prepare tax returns. Their law firms often employ IRS Enrolled Agents or CPAs who can help with tax prep if needed.

Higher fees

Because they tend to deal with complex issues, tax attorneys often charge higher fees than CPAs and enrolled agents. However, this may not always be the case. Get quotes from other types of professionals.

Hourly costs

Hourly fees can get expensive. To help you control costs, some tax resolution law firms charge a set price based on what you need.

Tax Attorneys Vs. CPAs Vs. Enrolled Agent

Tax attorneys and CPAs are not the only options when you need tax help. Enrolled agents are licensed tax professionals who focus on IRS issues and representation. They earn their status through testing or by working for the IRS. They offer another strong option alongside tax attorneys and CPAs.

All three of these pros have credentials to represent you for unpaid taxes, IRS collections, audits, and appeals. When deciding between EAs vs CPAs vs tax attorneys, consider experience, how they make you feel, and the value they bring.
 

How Much Do Tax Lawyers Charge?

The cost of hiring an IRS tax attorney can vary significantly. Depending on your situation, fees can range from $500 to $10,000 or more. Below are some of the factors that affect the cost of a tax attorney:

Case type

The type of tax case and the amount of investigation affect the cost. Simple delinquent filing cases usually cost less than complex matters like tax evasion or audit defense. Some tax attorneys don’t work criminal cases, so find one who does.

Type of tax resolution

Tax resolution options require different amounts of paperwork and expertise. For example, setting up an installment agreement is generally easier than applying for an offer in compromise.

Length of your case

The longer your case takes to resolve, the more you should expect to pay. This doesn't apply if your tax relief lawyer agrees to accept a set price based on your tax resolution method.

Fee structure

Some charge a flat fee per case; others charge hourly. Still, others charge separate fees for investigation (discovery), compliance, and resolution.

Support staff

If you have multiple lawyers working on your case, you may face a higher bill. You may lower costs by working with a tax attorney supported by Enrolled Agents, CPAs, or paralegals.

You can also read our complete guide on the costs of hiring a tax attorney.

Do Tax Lawyers Offer Free Consultations?

Most tax attorneys start with a free consultation. In the no-cost consultation, you explain your situation. The tax attorney outlines your options and estimates the timeline.

Free consultations with tax attorneys can take place in person or over the phone. To make the most of this time, you should have details about your tax situation or your latest notice from the IRS.

Sometimes with a free consultation, you will talk with a representative at the attorney’s firm to discuss your case, and you may not talk directly with the attorney.

Are Tax Attorneys Affordable?

Hiring a tax attorney in many cases can be a smart investment, especially when you are facing complex issues with the IRS or state tax authorities. In many cases, their efforts may result in financial savings that exceed their feels, the real value of the tax attorney often goes beyond just the dollars and cents.

Experienced tax attorneys can help protect your rights, reduce stress, and avoid mistakes. Their services cover things like dealing with an audit, negotiating a settlement, or stopping aggressive collection actions. Their expertise can make the difference between a favorable resolution with long term solutions and a prolonged financial or legal burden.

How Can I Find a Pro Bono Tax Attorney?

Low-Income Taxpayer Clinics offer free help to qualifying taxpayers. To be eligible, your income must be under 250% of the poverty line, and your tax issue must involve less than $50,000. Volunteer lawyers for taxes provide this service through a program backed by the Taxpayer Advocate.

Find a Tax Attorney Today

At TaxCure we have made it easy for taxpayers to find top-rated tax resolution attorneys throughout the country. Our network includes many tax professionals. It features tax attorneys who resolve IRS and state tax issues. You can start your search below by selecting the agency/agencies you are having issues with and then

IRS Audit Tips: Advice on How to Beat & Survive a Tax Audit

If you are selected for an audit you have no choice but to follow through with it. Two things you should strive for in the audit are to minimize the financial impact and to prevent the IRS from investigating beyond the initial items selected for audit. There are times when you may get a refund or owe nothing more after the audit, but chances are you will owe money. It is important to know how to go into an audit understanding how to prevent the IRS from looking at additional information and how to keep the financial impact of the audit to a minimum. Below are some IRS audit tips to make it through the audit and come out with the best outcome possible.

What to Know About Tax Auditors

Before going into your audit you need to keep a few things in mind about the auditor/auditors you will encounter. Auditors have a very tough/stressful job because many people are angry and resent the fact that they are being audited and will take it out on them. Try to keep your cool around the auditor and realize that the auditor is just doing their job and they want the audit to flow smoothly and calmly just like you. Another important thing to keep in mind is that auditors are trained to keep their eye out for things that just don’t seem right, which means anything you say or show them in addition to what was asked for, can be used against you. Being polite and friendly can go a long way, but just be aware that the auditor is examining you and your return.

Advice to Follow During a Tax Audit

• Pay attention to deadlines: The initial audit contact letter will have a deadline by which you need to respond. Pay close attention to the deadlines on this letter as well as all other correspondence received during the audit. If you don't respond, the auditor may end up adjusting your return without your input.
• Be as brief as you can: Audits are stressful and when people are nervous, they tend to talk too much. Auditors are trained to listen to everything you say. Saying too much can lead to the auditor looking at other tax years that weren’t covered with the initial audit. When possible, keep your answers to the following: Yes, No, I don’t know, I will have to research that, what exact documents do you need? What is the reason for that? Talking too much is a very common mistake that costs people big money during audits.
• Do not lie or make misleading statements: The IRS may ask questions they already know the answers to in order to see how much they can trust you. It is best to be completely honest, but do not ramble and say anything more than is required.
• Don’t offer other years' tax information: If you show the auditor tax returns from other years and they see something that they don’t agree with, they have the right to make adjustments on that tax year even though it wasn’t covered with the initial audit notice. It is important to only bring in the documents that are stated in the IRS notice in order to limit the scope of the tax audit.
• Have all required support: Going into the audit with all the required documents and having it organized can impress the auditor and make them realize that you are willing to cooperate and make things flow smoothly. If you are missing documents, you are allowed to reconstruct them. The auditor is required to consider the newly created documents if they seem reasonable. Courts have recognized that taxpayers can’t be expected to keep perfect records and sometimes they are willing to accept verbal explanations, but the better your records the smoother your audit will flow. Here's what to do if you're facing an audit without receipts
• Be yourself during an audit: It isn’t only just your tax return under review, you are being reviewed as well by the auditor. The auditor will observe your actions and if something doesn’t seem right it may cause more problems for you. Auditors try to get a sense if you are hiding something, or if your mannerisms are odd when certain items are discussed. Be aware, especially early on in the audit process that the auditor is looking for these types of things, so try to avoid coming off as if you having something to hide.
• Don’t give original documents to an auditor: The IRS is known for losing documents. If the auditor wants a copy of one of your original documents, be sure to make a copy and keep the original yourself. Because the IRS lost one of your documents isn’t an excuse for not having proper support.
• Understand how the IRS feels about substantial compliance: There may be times where you will not be able to come up with all of the required documentation to back up some of your deductions. If you can show the IRS that you have enough proof that you did follow IRS tax laws, but your documentation is lacking, they may allow the deduction to be taken. Files do get lost, few people have perfect records and the IRS does understand this.
• Appeal the audit if you don’t agree: It is your right to appeal an audit examination report. The best way to start is by calling the auditor that you don’t agree with and make your argument. If you are having trouble making your point then you can choose to meet with their manager, appeal with the IRS, or go to tax court.
• Consider hiring a tax professional: A tax professional can represent you before the IRS. A qualified tax professional is well versed in audits and is well aware of IRS tactics. Chances are, a tax professional can help ensure a better outcome of the audit. Moreoever, it is a good idea to leverage one if you thousands of dollars are at stake. 

Tips for Dealing with a Tough Auditor

Sometimes auditors are tough and they think they can walk all over you. Here are some tips on how to deal with an auditor that is not acting appropriately.

• Delay the audit: Auditors do not like delays because many times their performance is based on cases that they close. If they know you are going to delay them they can possibly lighten up a bit to allow the audit to move forward on a better tone. To delay, you can ask for a recess and pick it back up at a later time. If they won’t allow a recess you can then say you want to talk with a tax professional before going any further with the audit. If you talk about wanting a professional, the auditor must legally grant your request (You don’t actually need to get one, but the request will end the audit for the current session).
   
• Request a New Auditor: If you feel like you are being treated unfairly or the auditor is not being respectful to you, request a new one. In order to request a new auditor, you will need to speak with their manager. When speaking with the manager you should tell them that you feel you are not being treated with respect and you would like to work with someone else. Most likely, your request will not be granted, but the fact that you told the manager how you were being treated and that manager likely talked to your auditor, you may see the tone of the audit change.
   
• Stand up to the auditor: If you are sensing that your auditor thinks that you will just accept whatever they find then it is a good idea to start questioning them. If they start getting the feeling that you will question everything they do and they will need to provide an explanation, they may begin to think twice about certain things. It is fine to ask questions during an audit, just try to do it in a polite manner. Be sure to let them know that it isn’t going to be easy for them to get their way on everything.
   
• Consider recording the audit: You are allowed to record your audit with the IRS as long as you let them know in writing ten days before. When the auditor knows all proceedings are being recorded, this can limit abuse and can create a more professional environment.

Audits can almost be seen as a game. There are clear strategies to being successful in audits but there are no clear-cut formulas to getting through them. If you had two identical tax returns with the same backup information, you can have two significantly different outcomes of the audit depending upon how it is played. Keeping in mind these tips can help ensure a better outcome.

If you are looking for a licensed tax professional to help with a tax audit, review this list of tax professionals who have experience resolving IRS audits. Alternatively,  start your own search below and click "audit or examination" under the filter on the search page called "IRS Problem Experience."

Decoding IRS Communications: 

Differentiating Audit Letters, Examination Notices, and Information Requests

The standard way for the IRS to communicate with taxpayers about audits is through various IRS audit letters. The IRS sends an initial contact letter at the beginning of the audit, and then they may send multiple other letters during the audit process. 

Unfortunately, it can be tricky to tell the difference between audit letters and other types of IRS notices. To help you out, this post looks at the types of letters you may receive during an audit. Then, it lists other IRS notices that aren't audits and explains what they mean.

Key takeaways

• The IRS notifies taxpayers about audits through mailed notices. 
• During the course of the audit, the IRS may send multiple notices. 
• Not all IRS notices are audit notices – sometimes, the agency adjusts your return or requests information without requesting an audit.
• Never ignore a letter from the IRS.
• If you need help deciphering an IRS notice, reach out to a tax professional.

IRS Audit Letters – What to Expect

Here are the common IRS audit letters and notifications you may receive during the audit process. They are listed in the order they are likely to arrive during an audit; however, depending on the scope of the audit, you may not receive all of these letters. 

• Notice of Audit and Examination Scheduled – You're going to be audited, and the IRS wants to schedule time to meet or talk with you.
• 566 Initial Contact Letter – The IRS often uses the 566 series of letters to make initial contact with individuals and businesses that have been selected for an audit. Depending on the type of audit and the taxes being audited, the number 566 may be followed by a range of different letters. 
• IRS CP75 Notice: Exam Initial Contact Notice – This notice states that the IRS is auditing your tax return. You will need to provide additional documentation to support credits that were claimed on your return. Generally, this notice is about the Earned Income Credit. The IRS will not release your tax refund until you respond to this letter.
• Notice 2202B – This is another initial audit contact letter. It will outline the return selected for audit, the type of audit, and any next steps you need to know. 
• IRS Form 4564 (IDR): Information Document Request – The IRS wants information to back up the claims you made on your tax return. They may ask for receipts, financial documents, or other details.
• IRS Letter 692: Request for Considering of Additional Findings – This letter is sent along with a report that will give you detailed adjustments made to your tax return. If all looks good and you agree to the adjustments, then you can sign the agreement and return it to the IRS. If you do not agree, you can submit a request to appeal/protest with the office that sent you the letter. You will have to act quickly on this letter if you do not agree because you only have 15 days from the date you received it to request an appeal.
• CP22E: The IRS sends this notice after it makes changes to your tax return during an audit that lead to a balance due. When you receive this notice, you can agree and pay the bill, or you can request an audit reconsideration to present new information to the IRS. 
• IRS Letter 915: Letter to Transmit Examination Report – This letter is to notify you of adjustments in your tax amount. If you agree with the adjustment, then you can sign and return the agreement form. If you don’t agree, you will need to file an appeal/protest within 30 days of the letter being received.
• IRS Letter 950: 30-Day Letter Straight Deficiency or Over Assessment – This letter is sent after IRS field audits. It is used for un-agreed, straight deficiency, straight over-assessments, or a combination of deficiency and over-assessments. This letter will state the findings, and if you agree, then you can sign and return the agreement form to the IRS. If you don’t agree with the findings, you have 30 days to file an appeal/protest.
• IRS Letter 531: Notice of Deficiency – This letter is to notify you that you owe additional tax for the tax year(s) identified in the letter. This letter will explain how to dispute the adjustments if you do not agree. You can either agree and pay or file a petition with the tax court within 90 days from the date you received the notice.|

 

It is important to pay attention to IRS audit letters because an action is typically required on your part. Just remember that if you don’t agree with the IRS's findings, you will always have a chance to dispute them with the IRS, but action must be taken soon, or it will make it much more difficult. There is limited time to appeal audit results – if you miss deadlines, you risk losing your chance to appeal.

If you are unsure of the appropriate actions to take, it is a good idea to consider hiring a tax professional to help you with the audit.

Other IRS Letters: Return Reviews, Adjustments, Etc.

In some cases, the IRS sends letters that may feel like audit notices, but they're really just return review or adjustment letters. For example, this happens if the agency makes changes to your return or selects it for review. These letters notify you about the changes, and they outline how to dispute if you disagree:

• IRS Letter 525: General 30-Day Letter – This letter is to inform you that the IRS has a proposed adjustment to your tax return. This can be from a math error or something else that the IRS is fairly confident you have made a mistake on. If you agree with the proposed change made by the IRS, then you can sign and return the agreement form. If you don’t agree with the adjustment made by the IRS, then you can request an appeal/protest with the IRS office that sent you the letter.
• IRS Letter 3391: 30-Day Nonfiler Letter – The IRS will send this letter if it believes you have a tax liability due from returns that you have not filed. The letter includes a proposed adjustment to your tax liability. If you agree with the adjustment proposed by the IRS, then you can sign and return the agreement to the IRS. If you don’t agree with the adjustments, then you will have 30 days to file for an appeal/protest with the IRS.
• IRS Letter 4464C: Return Review – The IRS is reviewing your tax return. The agency may be looking at your income, credits, or deductions. The IRS will not send out your refund until it completes the review of your tax return. Although this is not an audit, it could lead to an audit.
• IRS CP 2000 Notice: Automatic Adjustment Notice – This is one of the most common automated adjustment notices. This notice will show proposed changes to your tax return. The information the IRS uses when sending these out is when it compares income, payments, credits, and other deductions reported on your tax return with the information provided by third parties. Be careful with this notice because many times they are wrong. If you agree, you can agree and pay the amount owed. If you don’t agree, you can call the IRS or contest it in writing. If you don’t contest within 60 days, then the IRS will make the adjustment final within 60 days.
• 3219-A Notice of Deficiency: The IRS has assessed tax against you based on making adjustments to your tax return. This happens when the agency receives information from third parties that wasn't reported on your return.
• 3219-N Notice of Deficiency: The IRS has generated a substitute for return for a tax year you haven't filed. You have 90 days to respond, or the proposed assessment will move forward. 

 

FAQs about audit letters and IRS Notices

Why did I receive an audit letter?

If you received an audit letter, that's because the IRS has selected your return for an audit. The selection may have been triggered by their matching system (ie, info reported on one form didn't match what was on your tax return) or because your return had certain red flags.

When does the IRS send audit letters?

The agency sends audit letters before initiating an audit. Typically, this happens within three years of you filing the return – the agency only has three years to audit returns. However, if they find signs of fraud or significant income understatement, they may go back further.

What if I ignore an audit letter?

Then, the IRS will move forward with the audit without your input. They may adjust your return in a way that leads to a higher tax liability, and they may add audit penalties as well. 

What's the difference between an audit and an examination?

The terms audit and examination are used interchangeably by the IRS. If you receive a notice about an exam, that means the IRS wants to audit your return.

What's the difference between an audit notice and an information request?

Audit notices let you know that the IRS is starting your audit. You'll also receive one when the audit is concluded. Information requests come during the audit – they ask for more information to back up the details on your tax return. However, in some cases, the IRS sends information requests without starting a full-blown audit. If you're unsure of what a notice means, reach out to a licensed tax professional.

Get Help Responding to IRS Audits and Audit Letters

If you are looking for help with a tax audit, review this list of tax professionals who have experience resolving IRS audits or start a search below and click "audit or examination" using the filters on the search page under "problem experience."

IRS Tax Audit Process: How It Selects Returns & Types of Audits

Tax audits can be conducted by the IRS and by State departments of taxation. The following information is based upon IRS tax audits, just keep in mind that most state audit processes and procedures are fairly similar to the IRS. The purpose of a tax audit is to verify that the tax reported is correct. Most of the time when the IRS selects your return for an audit it is because statistically there is a problem based upon the numbers you provided. Being selected doesn’t always mean there is a problem, sometimes you may actually be due a refund after the audit or the IRS accepts your tax return as is.

Herb Cantor's profile can be found here for help with an IRS Audit
 

How Tax Returns Are Selected for an Audit

The IRS uses many different factors when selecting which returns it is going to audit (Triggering audit flags). The majority of tax audits are determined by computers. The IRS has several different computer systems that do various types of analysis on returns that do statistical analysis to score tax returns based on their likelihood of being correct. The IRS also chooses audits based on other non-computer-related analyses as well, all methods are described below.

1. The Discriminant Function System (DIF): The IRS has a computer program that is called the Discriminant Function System that gives each tax return a score. This score is called the DIF score. The score is a number that statistically determines the likelihood of the tax return being accurate. The higher the number that is assigned to the tax return, the higher the likelihood of that tax return being audited. The IRS does not share the details of how exactly their system works, but it is believed that there are several hundred variables that are weighed out and it is believed that deductions and exemptions carry the biggest weights.
    
2. The Unreported Income Discriminant Function (UIDIF): This is a second computer program that is used by the IRS that looks at different factors than the DIF system. The purpose of this program is to rate the return on its potential to have unreported income. This system scores people based upon expense and income ratio. Mainly what this is trying to determine is if an individual is spending more money than they make and therefore likely has other income that they are not reporting to the IRS. It does happen sometimes that individuals do have low-income years and this triggers an audit for them, but most of the time this can be explained easily to an auditor.
    
3. The Information Returns Processing System (IRP): This is a third computer system used by the IRS that stores massive amounts of data received from third parties that are required to report taxpayer income, such as employers, banks, brokerage firms, social security administration, and other institutions that are required to report information to the IRS on taxpayers. For example, your employer is required to report to the IRS how much they paid their employees throughout the year. The IRS will then run their matching system to make sure the individual taxpayer reported everything that was already provided to the IRS. Using this system the IRS can find individuals that have likely underreported their income and they will follow up with an audit.
    
4. Incriminating Documents Turned Over to IRS: In rare cases tax returns will be selected to be audited based upon information that was obtained by the IRS in the effort to identify participants in tax avoidance transactions. Sometimes the IRS will get the courts to order information from the promoter to be handed over to the IRS. This information can point out individuals that were involved with the promoters' tax avoidance schemes.
    
5. Audits of Related Entities: If the IRS audited another tax return and that return involved transactions with other taxpayers such as investors or business partners and that return had a problem and it is likely that other individuals that are related to that entity/individual then it is a possibility that the IRS will then select those related tax returns to audit.

The IRS audit statistics don't break out which returns are selected for an audit based on these factors. Instead, it simply looks at the number of returns filed, the numbers audit, and changes that were made. The stats also break down audit rates based on income and/or type of return filed.

Are late or amended returns more likely to be audited?

Generally, no, the IRS is not more likely to audit late returns or amended returns than returns filed on time and not amended. If you're behind on back taxes, don't let the fear of being audited scare you away from filing — in most cases, it's better to file than to ignore the situation. If you're worried, contact a tax professional for help. 

Regardless of how the IRS selects your return for an audit, the agency usually only has three years to do so. If you file early, the deadline is three years after the return due date. Otherwise, it's three years after you file. However, if you reported less than 25% of your income, the agency can audit the return for six years. There is no time limit in cases of fraud. This deadline is referred to as the assessment statute expiration date, but sometimes, people call it the audit statute of limitations.

Types of Audits Once Selected

Once the IRS determines that it would like to follow through and get more information about your tax return, they will send a letter stating that your return has been selected for an audit. The IRS sends a few different types of audit letters, with the 566 initial contact letter being one of the most common. Below are the 3 different examination methods used by the IRS.

1. Correspondence Audit: This is the most common type of audit and is done by mail. The IRS will normally request specific documentation to support particular items on the tax return.
    
2. Field Audit: This is when the IRS wants to come to your home, place of business, or your tax professional's office to perform the audit. This is the least common form of audit and is only used if the individual or business being audited earned well over $100K.
    
3. Office Audit: This is when you are required to go to an IRS office to meet with an IRS auditor. The IRS will determine the time and the particular documents that it would like you to bring for support.

You are supposed to keep most tax records for three years and certain records for six years. That's in case you get audited. That way, you'll have the documents you used to prepare the tax return ready to show the auditor. The auditor may send you an information document request (aka Form 4564) to request information during the audit — you may receive multiple requests during the audit, especially for more complex situations. 

What Happens After an Audit

After the audit, you will either be handed or mailed IRS Form 4549, which is the IRS examination report, and will show the proposed changes to tax liability. This form will provide a clear explanation of any adjustments made. The report will either state that you have had no changes or you are due a refund (no action required on your part, you won!) or it will state the changes that have been made and you owe more taxes plus interest and penalties. You have two options once you receive this, you can approve their findings or you can choose to disagree with their findings, each described in more detail below.

• Approve of Audit Findings: If you agree with the proposed changes then you should sign and return a copy of the report with IRS Form 870. IRS Form 870 is the Consent to Proposed Tax Adjustment. Once you sign the form you are agreeing that you have a tax deficiency and the additional tax penalties and interest that are listed on your examination report as well. If you owe more taxes than you can afford to pay in full then you can request to pay through a payment plan. The payment plan you use will be determined by how much money you owe and how much you can afford to pay monthly.
   
• Disapprove of Audit Findings: If you don’t approve of the findings in the examination report then you will have 30 days to do any of the following:
  • Mail-in additional documents you would like them to consider,
  • Request a discussion on the findings with the examiner (you can do this and submit additional information to be considered).
  • Discuss your case with the group manager or senior manager
  • Request an appeal: If you do not agree with the proposed changes and you were not able to clear up the disagreement with the examiner then an appeal could be a good possibility.

You will have 30 days to consider the proposed adjustments after receiving the examination report. If you do not respond within 30 days then the IRS will send a notice that your case is considered not agreed and if you will have only 30 more days to file for an appeal or the IRS findings will become final. 

To find tax professionals that can help with a tax audit, review this list of licensed tax professionals who have experience resolving IRS audits or start a search below and click "audit or examination" using the filter on the search page called "IRS Problem Experience."