Ep. 14 | Love Letters from Darth Vader? (Handling IRS Notices)
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Speaker 2:Welcome everybody back to the teaching tax flow podcast, episode fourteen, one four. We are here. We have arrived. Great topic for this one. So if y'all ready for this, feel like it's that old
Speaker 3:I'm ready. Ready for this.
Speaker 2:Like, you know, jock jams jock jams song. So the title of this is responding to a love letter from Darth Vader. Now who in the world is Darth Vader? Chris, who's Darth Vader? Tell us tell us who this creepy
Speaker 3:That was my lightsaber. Darth Vader, the dark side, the IRS.
Speaker 2:Ah, okay. Alright. So the IRS. So these these folks are out here writing love letters? Is that what it say?
Speaker 2:I love you, Chris. Pay me. Pay me now.
Speaker 3:Well, that's our preferred method of correspondence, and we are my name is Chris Picuro, by the way. Sometimes we forget to introduce ourselves.
Speaker 2:Look at we get so excited about this.
Speaker 3:If you're listening to this podcast 14, you should've listened to the first thirteen.
Speaker 2:Right. So so they know who they are.
Speaker 3:Yeah. But, you know, once they see who our guest is, they're probably just gonna tune to this one.
Speaker 2:Right. So I guess we should shut up. So Darth Vader, we Yeah. We like them. We love them.
Speaker 2:We hate them. They hate us. They love us. It it's a it's a thing. Right?
Speaker 2:So what does this all mean? Handling IRS notices and audits. Well, so so, Chris, I know we got a great guess for this. Probably one of the best ones we pulled from your Rolodex because you I'm sure you've had a Rolodex.
Speaker 3:I'm so are you saying I'm old enough to have a Rolodex? No. I do, though.
Speaker 4:I did.
Speaker 3:I used to have
Speaker 2:one. Yes. Let let's let's let's unveil this. Who who's our guest?
Speaker 3:I am really happy, to announce our guest. He is an amazing tax professional. He's been on USA Today, The Wall Street Journal, ABC, CBS This Morning, Forbes, Fox, NBC News, The Street, CBS.
Speaker 2:Time magazine, I think, was in there too.
Speaker 3:Mhmm. But guess what? This is probably his crowning achievement of his career to be on the Teaching Tax Flow podcast. But welcome, Andrew Pulos, to our podcast. How are you, buddy?
Speaker 4:Good. Good, man. How are you guys doing today?
Speaker 2:We had too much fun.
Speaker 3:We are fabulous. And Andrew and I go back quite a few years. We've served on the Intuit tax council together, became fast friends, and we quite often bounce things off each other as practitioners. We go to the same barber, and, he's just a great guy, and welcome to welcome to the podcast. Thank you so much, for helping us out, and Andrew has well, could you tell us a little bit about your expertise when dealing with with with the dark side?
Speaker 4:Oh, man. Chris, I appreciate you guys having me on today. Obviously, this is an exciting episode for me as probably is for you, simply because of what we deal with in our profession. You know, most people sort of look at us as what, the old phrase used to be, Chris, bean counters, you know, counting numbers, crunch numbers. Man, those days are all far gone.
Speaker 4:Right? We, get inundated with clients, taxpayers who have no get notices these days. The floodgates will open up even more under the, inflation reduction act bill that as we've heard. So as the IRS beefs up, you know, that means that we've got to beef up to be able to help taxpayers in America across the country. But yeah.
Speaker 4:I mean, a little bit about, you know, what I do is probably similar to what you do. We obviously do accounting, tax work, tax planning, but, of course, the tax resolution, tax representation is just crucial element of our, business because taxpayers need help out there and don't know how to navigate the dark side.
Speaker 3:Absolutely. Andrew and his firm are amazing at the tax preparation, tax planning, but that IRS collection representation, IRS auto representation, not lights out. Best I've ever dealt with, and, I've dealt with at least two people. No. I'm just kidding.
Speaker 3:Several people. You mentioned the inflation, reduction act, and there's a lot of concern out there with the IRS at least being allocated the resources to hire several people. And then wherever they're gonna find these people from, I'd like to know. But, anyway, what are some of the you know, obviously, people are concerned about that. People maybe put a little too much weight into what they hear on the news or on the radio other than this podcast.
Speaker 3:This is a very important podcast. And we yeah. Exactly. So, how do you think that's gonna affect how the IRS operates and, moving forward? And and also I wanted to touch on the different types of common notices that the IRS sends to sends to a taxpayer because they all have different number codes as well.
Speaker 4:Absolutely. Yeah. Chris, one of the things that obviously we're concerned we're all concerned and that and everyone's concerned is what, the propaganda that people have been hearing, you know, through media, social media, TV, online, whatever the case, wherever you get your your news and views from. Obviously, you've heard about the Inflation Reduction Act bill in Congress, beefing up, giving a tremendous budget to, the IRS. So a few things that we need to pass out here.
Speaker 4:There's just so much misinformation and disinformation out there these days, obviously, with politics. Unfortunately, that kid transcends into other areas, which is you know IRS and what we deal with. First and foremost the budget the $80,000,000,000 that's over ten year period. Okay. So it's not that the IRS is getting $80,000,000,000 next year to steamroll taxpayers across the country.
Speaker 4:So first and foremost, it's over, a ten year period. Now with that said, if you do the math, that's still almost twice the budget, the annual budget that they have right now, which is about 13,000,000,000 give or take 13,000,000,000 a year. So if you do eight an additional eight that takes them to about 21,000,000,000 give or take, that's a lot of firepower, a lot of, you know, ammunition that Congress has given, the IRS. They are gonna hire roughly 87,000. It's not 87,000 IRS armed agents and all this nonsense that's been going out there.
Speaker 4:Right? So only CI, criminal special agents, criminal investigators carry badges and guns. Revenue agents, revenue officers, regular IRS personnel don't carry guns. So let's just put all that nonsense to the side. Aside from that, look, at the end of the day, you give any agency, you give us 10 times our budget, we're gonna be, you know, sort of, have ammunition and and be deadly in a sense.
Speaker 4:Right? I don't mean deadly as they're gonna kill people, but they're gonna have firepower to be able to, pursue and taxpayers, those who haven't filed, those who owe. And that's what the whole strategy is here for the government. Right? We have a huge tax gap of, you know, probably at this point, trillions of dollars.
Speaker 4:And somehow they gotta close the intact gap instead of letting it grow bigger. And so what that means is notices are gonna, you know, hit the floodgates. I mean, inevitably, starting probably sooner than later. We're gonna start seeing taxpayers get notices that they've never seen before, they've never had to deal with before. It's gonna be in large quantities and people have to be prepared.
Speaker 4:You know, The US specifically about some some of the notice, the CP 2,000. You and I both know that's the most common one. Right? Mhmm. As a taxpayer, if you get a CP 2,000 notice, the worst thing you can do is not open the damn envelope.
Speaker 2:Mhmm.
Speaker 4:I mean, you know, we we see it all the time. People reach out to us like, Andrew, you know, I got this notice. Well, what does the notice say? Well, I you know, I'm scared to open up the envelope. What are you talking about?
Speaker 4:You're scared to open up envelope? I mean, it's like, come on. Open up open up the envelope and, you know, and tell me what it says or they'll they'll send me a copy or something. Right? But, you know, and I say that because, you know, it's shocking how many people truly just you know, they get that envelope in the mailbox, and, man, they're scared to open up the damn envelope.
Speaker 4:Open it up, and be proactive versus being reactive. So you because typically, you're only gonna have thirty days to take action. And so if you just pick up the envelope, you know, on your way in from work, you know, in your mailbox and you put it on a kitchen counter and you leave it there because you're scared or because you forget and thirty days go by, you may have just been very, you know, caused a very detrimental situation to yourself potentially on the type of notice. Okay? So you've got the CP 2,000 notice.
Speaker 4:That's typically and most commonly where the issues begin. So you got it the IRS basically send you a love letter and saying, hey. You know what? Chris, we don't agree with your tax return or what you filed, and we're proposing these changes. And you've got thirty days to agree or disagree.
Speaker 4:If you don't reply, guess what? You know? Darth Vader's gonna say, you know what? We assume that you agree with us, so so the next notice is gonna come after that telling you how much you owe them.
Speaker 3:Right. So not all IRS agents are stormtroopers. They don't all have weapons. And and that CP 2,000, it's gotten you know, I as as a CPA and and some of us out there in the in the community, wouldn't mind having a few more people at IRS to help us resolve tax issues. I would say the vast, vast majority of of taxpayers are trying to do the right thing.
Speaker 3:A lot of those CP 2,000, which is your most common notice, over the last couple years have been derived from these, you know, they're really nuisance issues such as the the economic impact payments, the advanced child tax credit payments, those a lot a lot of those, payments that went out to people, to taxpayers. Taxpayers were required to self report what they received and what they didn't receive, and there's a lot of times they just say small discrepancy between what the IRS has on their their transcripts and what, what was reported on a tax return.
Speaker 2:And and, Chris, to that point too. So really, what what I'm hearing here and just to kinda step back a little bit is you can always be overly prepared a little bit. Right? So as long as as long as you have all your ducks in a row for lack of better terms, if you do get one of these notices and you know who to contact, you know what to do, what not to do, should say, you should be in a pretty good position. Correct?
Speaker 2:Is that a good good assumption?
Speaker 3:Exactly. So one of the what we talked about handling IRS notices and examinations, the first step is sounds like what Andrew's advising is don't ignore it. It's not gonna go away by itself, the the the notice. And and the notice doesn't necessarily mean that you're gonna owe money. It it's it's just identifying that there's some type of discrepancy, typically.
Speaker 4:Yeah. I mean, and that's, you know, you're spot on, Chris. It's you know, there's something there that the IRS disagrees or has a discrepancy with what's been filed in the tax return. And so, you know, the first and foremost is that you have to take action. And that action could be you open it up, you review what, you know, what the IRS has.
Speaker 4:Maybe you're skilled enough as a taxpayer to be able to decipher everything and handle it on your own. Right? It could be something very simple. Maybe you don't wanna handle on your own and you go hire a, you know, tax professional to represent you. But at the end of the day, taking action is the top priority when you receive any type of notice.
Speaker 4:I mean, we're look. It's we haven't even hit 87,000 new IRS personnel. I'm gonna call it personnel, not agents because, again, with misinformation out there, they're the 87,000 that they hire are not gonna be all revenue agents or revenue officers. Officers. It's it's The it's government wide, right?
Speaker 4:So agency wide is what I was trying to say so agency wide so it can be people in the in the mail room It could be revenue officers revenue agents, you know, just all sorts, and and they need help everywhere. I mean, it's the the budgets and the, efficiency of the IRS. Obviously, we've seen it over the last probably decade that, you know, plus that we've been around dealing with tax resolution. And it's just gone, you know, just down down the toilet in a sense right. It's just
Speaker 3:it's you
Speaker 4:know I hate to be like that, but it's really which creates problems for taxpayers and for us as tax professionals trying to represent taxpayers because we can't get any assistance. We can't do anything so it's sending off a reply to the IRS CP 2,000, for example, and then wait in six months to get a reply. And then you get a reply. And it's the same CP 2,000 notice you got before, so now you're replying the second time. And then, you know, the taxpayer's sitting here patiently trying to wait to resolve the issue.
Speaker 4:So it's just like, you know, it's it's a mess. So part of them ramping up with some more personnel is sort of a good thing. But, you know, we just wanna make sure that we don't have a situation where we start having abuse of power and abuse of authority by IRS personnel. That's always a concern.
Speaker 3:So you get the love letter from Darth Vader. First step is you're gonna open it up. The second step, what would you advise someone do as far as do you try to resolve it on your own? Do you hire a tax professional? Do you you know, I know there's there's processes for having someone represent you or being a third party designee, but I would say so don't ignore step one.
Speaker 3:What would you think is the best step two or step three would be for someone that that did receive that love letter from Darth Vader?
Speaker 4:Yeah. Look. I think it really relatively speaking deter depends on, you know, how you got your tax return file. Right? If you went online to say TurboTax or Tax Act or somewhere and filed your own tax return self prepared return, then you're sort of in limbo because you need some assistance and you really don't have anyone that you work with for tax preparation.
Speaker 4:So you gotta go find someone if you had a tax professional tax preparer regulated or unregulated, meaning licensed or unlicensed, perhaps that more help you prepare that return and file it for you. Maybe you go back to them as you're you know as you're starting point and say, hey, I got this notice. Can you help me and they might be able to assist and say, yes, this is an easy fix or they'll say, hey, you know what I don't do tax representation tax resolution. You probably need someone, you know, in this area to handle this scope of work. But, you know, you've gotta figure out first and foremost what the letter is all about.
Speaker 4:And it just again, it could be just a simple fix. Right? Hey. The IRS says you that we paid you, you know, 1,400 for the stimulus and you put on your accidentally that you got 1,200. So you have a $200 discrepancy.
Speaker 4:You review your bank statement. You figure out that you got 1,400 indeed. So you owe the government the $200 that they were claiming. Right? Or it could be a notice that they say, hey.
Speaker 4:You forgot to report, you know, you know, 10 stock trades that equate to a hundred dollars profit or you don't report your crypto that they're tracing, or something. And now you've got just a bigger issue that's gonna gonna take someone licensed, competent, you know, and experience to be able to help
Speaker 3:you. Exactly. And we always say, and this is this is true in many industries, just because you get paid to do something doesn't make you a pro. And that's where, you you need to if if you're working with an accountant that you don't have the confidence or doesn't offer the representation service, someone like Andrew and his firm would be the person to talk to, about a about an IRS letter or or now and, obviously, you know, some letters are a little more serious than others. The c p 2,000 is pretty much that baseline.
Speaker 3:Other than the letter that you get when the IRS says, hey. We need extra sixty days to look at this for the third time. That's probably the most innocent letter. But other than that letter, a note a a notification of examination. At that point, I would imagine you'd advise to definitely talk to someone with very good representation experience.
Speaker 4:Yeah. Most definitely. You know, you and I, obviously, we've we we do, you know, work on a professional level and and as friends, but you you know, I mean, we've bounced ideas off on representing taxpayers. Right? Because while we all both do representation, you know there's a different level of what we've dealt with in the past or different experiences and sometimes share those war stories helps us figure out our strategy, for example, right so but yeah you you get into an exam.
Speaker 4:You know it's for example, I've got one right now with client pretty much that's under examination and we've gotta, you know, deal with it and and battle for our client. You know, and a lot of exams, up until now have been coming out of AUR. So they're, correspondence exams. Meaning, you're gonna get a letter in the mail, and uncle Sam's gonna be like, hey. You know, we there's discrepancy here.
Speaker 4:You're under examination. Yada yada yada. Give us, you know, this is what we're proposing disallowing or changing. And then you gotta figure out how to navigate and fight that battle because that's gonna be by mail. The old traditional, like, in person or with an IRS agent, they still exist, but they're far and few between now.
Speaker 4:Maybe they'll ramp up with those in the future. But overall, for example, we've got one right now where it's face to face. I've been dealing with the auditor, you know, trying to figure out, you know, where we're gonna meet and what she wants to review and how this might go a lot of the strategy you know people just think that you know, it's just that it's hey like okay. I'm just gonna call the IRS up and no. It doesn't work like that right a lot of it when you're under exam strategy trying to figure out how to navigate, how to best save yourself, you know, how do you save yourself from Darth Vader, your soul from Darth Vader if you've done something incorrect or if you've done something worse yet something bad, you know, that you knew is not correct.
Speaker 4:Right?
Speaker 3:So Mhmm.
Speaker 4:Gotta be able to deal with someone's skill.
Speaker 3:And and that's, you know, a point that we touched on a little bit is making sure that you're working with I make a joke about not everyone that gets paid as a pro, but making sure you're working with someone that's authorized to represent you in front of the IRS because someone like Andrew in his firm, they're gonna make sure that they give the IRS exactly what they're requesting, but sometimes you don't need to give them more than you you should not give them more than they're requesting. And that's some something I've seen out there that that you could you can open up additional years of examination. You could open up additional items. Because in my experience, usually, the examiner is looking for something. If they stumble across something else, they have to pursue through that.
Speaker 3:But if they don't stumble across anything, you you wanna keep that examination as focused as possible.
Speaker 4:Hey. Listen. Let me tell you. The first thing I always do, when an exam comes to the door or a client, taxpayer who retains my firm, retains me to represent for an exam, is I try to do some research to figure out, you know, who I'm up against. Right?
Speaker 4:Because, essentially, that's what it is. It's a strategy. Am I dealing with a twenty year, thirty year IRS veteran agent, or am I dealing with, under a rookie who just got higher under, you know, taxes, the Inflation Reduction Act Bill. Right? So if I'm dealing with sort of, you know, more of a rookie, and this is not in any derogatory manner, but, you know, if I'm dealing with someone who's newer and I've got, you know, twenty seven years experience, twenty eight years, I'm feeling comfortable, but I can navigate.
Speaker 4:It's not about being deceptive or or deceiving the government because that's not what it's about when we represent taxpayers that come to us with problems. It's about navigating the process and knowing how to steer. So if I know that a taxpayer has three problems, a, b, c, that I've identified, And I know that the government based on what they're asking is looking at possibly, you know, issue number b versus a or c. I'm gonna try to steer them to b and minimize due damage control from not from the from the agent not being able to figure out that there's possibly other matters other issues there that they can pick apart. Right?
Speaker 4:And that's why I say all about strategy. It's not, you know and some people will read into this like, oh, you're you know, it's about, you know, deceiving. No. We provide what we're asked for. You don't provide more than you ask for.
Speaker 4:If they detect something else, you know, a deficiency or something there and ask about it. Yeah, you have to disclose and you have to work through those challenges. You know and Chris with that said and and I think you know we've kinda had these discussions before is, not all, you know, not all exams, not all audits are gonna end up favorable for the taxpayer. So as a taxpayer, you've gotta hire someone that can navigate you through the exam, but you also gotta have that person and hopefully, it's the same person who can help you navigate through perhaps the next layer, after the exam is closed if you close as an unagreed upon exam where you take it to appeals. You know, we've had we've had like that where we've been able to, you know, fight the battle for the taxpayer for literally about two and a half years.
Speaker 4:Go into exam. We create the strategy, how to do damage control for the things that they've done perhaps, and then close out of there, as an unagreed upon case strategically. Right? We disagree, and we force the agent to close the case. The agent's happy to close the case.
Speaker 4:You know, he or she has some huge, you know, adjustment, you know, on their books, on their report. They're looking stellar to their boss because guess what? They've generated a 2 or $300,000, you know, audit change, and the taxpayers coming out of exam on two or three hundred thousand bucks. It's significant. Right?
Speaker 4:That's astronomical. Most people would have a heart attack. But the strategy is to be able to go to appeals because you know that you're gonna probably be able to present, you know, evidence and documentation to reduce that 2 or $300 down to a more, you know, meaningful level that's comfortable for the taxpayer. It's all about strategy.
Speaker 3:And, like, my Star Wars nerds will understand. That's why r two d two's had the plans of the death star, and and, Darth Vader is trying to get them in episode four. So, but well, I would say, you know, for the people in the teaching tax flow ecosystem, you're gonna wanna learn more from Andrew. You're gonna wanna visit his website. He's had a lot of amazing content, dives into the appeals process, maybe abatement strategy, statute of limitations, and different resources that the IRS has.
Speaker 3:Unfortunately, we're we're at our our time constraint here. I'm sure Andrew's gonna come back on, in the future, but definitely check out Andrew. We're gonna have a link to his website and all the social media in the show notes. I I enjoy the, all all the content and and,
Speaker 2:The wealth of information, we should say. So and it's funny. Talking to talking to the two of you, I'm I'm sitting here thinking like, wow. This is a lot of brain power and no hair.
Speaker 3:Yes. You ball guys.
Speaker 4:Yeah. You
Speaker 3:know what I mean?
Speaker 4:That might be the key reason why we have so much brain power is because we have no hair.
Speaker 2:Hair. Yes. There's nothing to hold it in. Right? So it just keeps spewing out.
Speaker 2:It's it's it's a it's a never ending blow.
Speaker 3:Hey. You're not. They
Speaker 4:Have you ever seen the two of us having drinks discussing the tax resolution stuff in cases that we've worked on?
Speaker 2:Oh, man.
Speaker 4:You should come for drinks one time with us. You you're probably like, guys, I'm out of here, man.
Speaker 2:This is I'll be like, I'll I'll see y'all later.
Speaker 3:Maybe we'll we'll we'll do an episode in the future with more story. You know, we could do a virtual happy hour war stories
Speaker 4:There you go.
Speaker 3:From the from the dark side.
Speaker 2:As wild as this sounds, so so, obviously, you know, the the IRS agency as a as a whole, so staffing up. I'm going to make another assumption that these new staff members will not be texting you, calling you, asking you to give you their or give them your Social Security number over the phone and pay $30,000 to get your grandma out of jail.
Speaker 4:No. No. Or or send them a send them a $600, you know, Walmart card so you don't get a, a, an arrest warrant. Right? You know, look.
Speaker 4:We've it's shocking, and I know you guys were running out of time. But just very quickly, this is John, as you mentioned, that it is shocking how many people out there across the country, you know, actually fall for that stuff or you or or worse yet, that I get calls for people telling me that they got, you know, the IRS calling IRS agent and they're gonna issue an arrest warrant. This and that. The IRS doesn't pick up the phone call. Heck, we can't even get through to them.
Speaker 4:So they're certainly Right. So so so yeah. Man, if you get anything like that, 99.999% of the time, those are all scams that are trying to do phishing, what we call phishing, reel you in, get your information. As soon as they get your information, they can hack. They can do all sorts of things, identity theft, which is another issue, Chris, that probably you wanna deal with on a different right?
Speaker 4:Which is ultra important. But, yeah, don't give your information out to anyone. When in doubt, call your tax professional if you have one and run anything by them before you start giving out any information to anyone.
Speaker 3:Well, Andrew Pulos, thank you so much. We will definitely I know we're gonna have a lot of people interested in speaking with you and your firm, and and definitely, make sure that you align yourself with the right people in your board of directors. We talk about that a lot, and tax representation and preparation and planning is a very important part of that. So I appreciate it, buddy. Hey, Chris.
Speaker 4:Thank you. On?
Speaker 2:Absolutely. Well, thank you, gentlemen, and thank you everybody for tuning in to teaching tax flow, the podcast, episode 14 here. Again, as we always say, we have great content coming up. If you haven't had an opportunity to go back and listen to some of the previous episodes that we've released, they all tie in. It's it's kinda funny.
Speaker 2:It's almost like we had a strategy or we had a plan in place for ourselves. Right?
Speaker 3:Once in a while. Yeah. We kinda we kinda gets a nut.
Speaker 4:Put the put the
Speaker 2:put the plan to work. So thank you everybody, and we will see you next week as always.
