Options to Solve a Tax Problem

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You have several options if you’re having a problem with the IRS. These include:

  • Agree with the IRS
  • Disagree with the IRS
  • Find new deductions and credits
  • Request penalty relief
  • File an amended return

Keep reading to learn more.

Agree With the IRS

If you’ve received a notice or letter from the IRS, it may have a proposed adjustment to your tax return and/or an amount of interest, taxes, and penalties the IRS is requesting that you pay. If you agree that the IRS is correct or the adjustment is so small it isn’t worth fighting, you can simply follow the instructions to pay to resolve the matter.

For example, you might have forgotten to include a 1099 and know you do owe additional tax. Or, you might decide a proposed $50 adjustment isn’t worth fighting even if you aren’t sure if the IRS is right.

If you agree but can’t pay, don’t worry. See how to pay for your payment options.

Advantages of Agreeing with the IRS

  • Resolve your tax problem without further back and forth with the IRS.
  • Avoid having to pay an Enrolled Agent or other tax professional to represent you.

Disadvantages of Agreeing with the IRS

  • You may end up paying money you didn’t actually owe.
  • It may increase your chances of being audited on the same issue in the future.
  • You may lose eligibility for or have difficulty obtaining tax relief that requires a clean tax record such as penalty relief or an installment agreement.

Can You Handle This on Your Own?

If you agree with the IRS, it’s as simple as checking a box, signing a form, and writing a check. The real question is whether you should agree with the IRS in the first place. If the dollar amount in question is high, the tax issue is complex, or you’re worried about future consequences, you should schedule a consultation with a tax professional.

Disagree With the IRS

If the IRS tells you that you owe additional taxes, penalties, and interest, you have the right to tell them no. Of course, you’ll need to tell them exactly why they’re wrong.

When the IRS assesses additional tax, it gives you two options. You can either agree and pay, or you can disagree and explain why. You may need to provide additional documents supporting your position or cite the portion of the tax code you’re relying on.

Advantages of Disagreeing with the IRS

  • Avoid paying the IRS money you don’t owe.
  • Decrease the chances of being audited on the same issue in the future.
  • Keep a clean tax record in case you need tax relief in the future.

Disadvantages of Disagreeing with the IRS

  • Spending time and money fighting them.
  • There’s no guarantee you will win, and in most cases, there’s no negotiating. (But the IRS wants to get things right, so if you can convince them to agree, they won’t keep fighting.)

Can You Handle This on Your Own?

You can respond to the IRS on your own, but you may not want to. The resolution can range from sending them a single misplaced form to sending boxes of documents along with a complex argument based on tax law. You may also not be sure if and where you can disagree in the first place. Except for the most basic errors involving very small dollar amounts, you’ll probably at least want to schedule an initial consultation with a tax professional.

Find New Deductions and Credits

Even if the IRS tells you your tax return was wrong and you agree that it’s wrong, you may not have to pay the full amount that they requested. In some cases, you may even be able to get a refund.

If you made a mistake on your income, there’s also a chance you made a mistake on your deductions and credits. For example, you might have forgotten to report the 1099 income from your side job but also didn’t include the business expenses. When you get a letter asking for tax on that income, you can say “hang on, I did have that income, but not all of it because I also had these deductions.”

Advantages of Finding New Deductions and Credits

  • Offset the additional amount the IRS says you owe.
  • If the deduction or credit is greater than the additional tax, you may even get a refund instead of owing more money.

Disadvantages of Finding New Deductions and Credits

  • The IRS may take a closer look than normal if they’re already looking at your tax return. (But this shouldn’t be a problem for legitimate deductions and credits you kept proof of.)
  • You may need to file an amended return.

Can You Handle This on Your Own?

Anyone can claim their own deductions or credits, but if you didn’t get it right the first time, what makes you sure this time? Plus, if you’re claiming additional deductions and credits when you’re already dealing with the IRS, you probably have a tax problem that’s complex enough to where it makes sense to bring in a tax pro to help you.

Request Penalty Relief

IRS penalty relief may be available in certain situations. These include if this is the first time you’ve been assessed a penalty or if you have reasonable cause such as a natural disaster or accountant error.

File an Amended Return

An amended return replaces your original tax return. Most IRS notices and letters don’t ask for an amended return. You only need to provide more information about certain items, and the IRS will recalculate your return. However, if you have multiple errors on your return or need to change things the IRS hasn’t brought up, an amended return may be your best course of action.

Need personal help? Click here for additional free resources or to find an accountant, attorney, or other professional near youRemember: This blog post and the comments provide generalized information that may be out of date or inaccurate for your situation. Always schedule a personal consultation with an appropriate licensed professional in your area before taking action. For full terms of use, click here.

Have general questions about this post or want to learn more about a related topic? Please leave a comment at the bottom of the page. Comments are public, and I can’t provide individual advice, but it helps me make the posts more useful for the future. Please do not post personal information. If you need personal assistance, please contact the relevant government agency or hire an appropriate professional near you.

2 Comments on "Options to Solve a Tax Problem"

  1. RECIEVED A LETTER CP503 FOR TAXES OWED FOR THE YEAR 2019, BUT THIS WAS PAID ON JUNE 29TH 2020, DIRECT PAYMENT WITH CONFIRMATION [Personal information removed. Please don’t post personal information on public internet blogs or you will get your identity stolen.]

    • You can 1) go to the IRS website and check your account to see if the payment was posted and if your current balance is correct, and/or 2) call the IRS and ask them to check your payment.

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