De­bunk­ing five IRS and tax fil­ing myths

The Oklahoman (Sunday) - - NEWS - BY KYLIE KALLSEN BrandIn­sight Con­trib­u­tor

Deal­ing with the In­ter­nal Rev­enue Ser­vice can be com­plex, con­fus­ing and down­right scary. Mis­in­for­ma­tion runs ram­pant, mak­ing it hard to dis­cern be­tween IRS fact and fic­tion.

Thank­fully, a tax ex­pert can re­veal how you can file com­pli­cated taxes suc­cess­fully and how you should re­spond to fur­ther IRS in­ter­ac­tions. Ok­la­homa City tax at­tor­ney Travis Watkins, win­ner of the Ok­la­homans’ Read­ers’ Choice Award for Best Tax­a­tion At­tor­ney, broke down some of the most per­va­sive tax myths for our read­ers.

Myth: Fil­ing taxes is vol­un­tary, not re­quired

“The U.S. tax­a­tion sys­tem is ‘vol­un­tary’, but that doesn’t mean that fil­ing is op­tional,” Watkins said.

Vol­un­tary in a taxsense means that you are re­spon­si­ble for fil­ing the cor­rect amount of your own taxes each year. You are vol­un­teer­ing your tax in­for­ma­tion to the IRS. Once the IRS re­ceives your in­for­ma­tion, they may re­view how much you owe. Re­fus­ing to vol­un­teer your in­for­ma­tion can lead to a world of com­pli­cated pa­per­work, le­gal reper­cus­sions, and ex­tra costs, he said.

Myth: You can go to jail for un­paid taxes

Un­paid taxes can cause you a lot of headaches, but can it land you in jail? This myth is only true in cer­tain sit­u­a­tions, Watkins said. If you for­got to file one tax re­turn, the IRS is not likely to turn you over for crim­i­nal pros­e­cu­tion.

“The IRS does not put peo­ple into jail for pay­ing their taxes late or neg­li­gently for­get­ting to file their re­turns. The only time peo­ple may face a jail sen­tence is if they com­mit fraud (tax eva­sion, for in­stance) or will­fully fail­ing to file,” Watkins said.

Al­though be­ing a lit­tle late on fil­ing a tax re­turn is not a crim­i­nal is­sue, there are po­ten­tial penal­ties, in­ter­est and late fees for un­filed re­turns and late tax pay­ments, he added.

“If you owe over $50,000, the IRS can re­quest the State Depart­ment to take away your pass­port un­til mat­ters are set­tled,” Watkins ex­plained. “Save your­self from worry and have a tax pro­fes­sional file taxes be­fore due dates pass. Don’t be part of the masses who fi­nan­cially im­prison them­selves with the IRS.”

Myth: The IRS can only go back three years

Typ­i­cally dur­ing an au­dit, the IRS re­views re­turns three years old or less, but if they sus­pect you of un­der­stat­ing your in­come by 20 per­cent or more, they will go back fur­ther.

“For in­stance, if your busi­ness earned $100,000 and you only re­ported $80,000, you didn’t re­port 20 per­cent of your in­come, and as a re­sult, the IRS may look back at up to last six years of your past in­come tax re­turns. This is why we coun­sel tax­pay­ers to keep tax doc­u­ments for at least that long.” Watkins added.

In cases where fraud is sus­pected, the IRS will go even fur­ther back in years to re­view re­turns. This time limit is placed only on tax re­turns that have been filed. If an au­dit con­cerns un­filed re­turns, the IRS will go back as far as nec­es­sary to fig­ure out what is owed.

Myth: Ok­la­homa Homestead Ex­emp­tion law pro­tects from IRS

One of the most com­mon myths is that the IRS can­not take your home be­cause of the Ok­la­homa Homestead Ex­emp­tion law. Ok­la­homa’s Homestead Ex­emp­tion Act pro­tects your home and up to one acre of real prop­erty (160 acres in ru­ral Ok­la­homa) from cred­i­tors. How­ever, Fed­eral tax laws pre­empt (con­trol) state law and al­low the IRS to take res­i­dences. “They some­times seize homes, if there is enough equity to do so; how­ever, that process is long and tax­pay­ers have time to make ar­range­ments to pay or set­tle the debt be­fore this ex­treme mea­sure oc­curs,” said Watkins. “So, hire a lo­cal tax lawyer early in that process to as­sist.”

Myth: If you owe the IRS money, the only op­tion is a pay­ment plan

You have op­tions when deal­ing with tax debt. Pay­ment plans can be set in place, but there are also penalty for­give­ness pro­grams avail­able that can help re­duce or elim­i­nate penal­ties and in­ter­est. In cases where spouses have been duped into tax debt by their part­ners, a spe­cial spousal re­lief pro­gram is avail­able, Watkins said.

You could also qual­ify for an Of­fer In Com­pro­mise. Of­fers In Com­pro­mise are agree­ments that let you pay off tax debt for less than you owe by mak­ing pay­ments on a re­duced bal­ance or set­tling for a re­duced lump sum. You may also be able to qual­ify for a cur­rently not col­lectable sta­tus. This sta­tus al­lows the IRS to put your ac­count on hold and al­lows you to hold off mak­ing pay­ments for a set time, gen­er­ally 2 years.

Many peo­ple do not know which pro­grams are avail­able to them when han­dling the IRS on their own and can eas­ily land them­selves in more trou­ble. Al­ways re­view your spe­cific case with a tax at­tor­ney to know your full list of op­tions. There are a num­ber of op­tions that Watkins Tax might be able to do to stop the IRS from tak­ing money from your bank or pay­check.

“If you’re deal­ing with the IRS, a tax at­tor­ney can help you avoid the myths, nav­i­gate the process and ne­go­ti­ate the best deal pos­si­ble. These pro­fes­sion­als un­der­stand how to work with the IRS in ways that truly ben­e­fit their clients,” Watkins said.

A tax at­tor­ney has years of IRS ex­pe­ri­ence and can help man­age im­me­di­ate threats to your liveli­hood like seizures by help­ing you un­der­stand your rights with the IRS, said John Rawl of Tulsa, one of Watkins’ clients.

“We had ma­jor tax is­sues and they made it so easy and re­ally af­ford­able,” Rawl said.

For more in­for­ma­tion, con­tact Travis Watkins at 1-800-721-7054 or visit Trav­

This ar­ti­cle is spon­sored by Travis W. Watkins Tax Res­o­lu­tion and Ac­count­ing Firm.

If you owe over $50,000, the IRS can re­quest the State Depart­ment to take away your pass­port un­til mat­ters are set­tled. Save your­self from worry and have a tax pro­fes­sional file taxes be­fore due dates pass. Don’t be part of the masses who fi­nan­cially im­prison them­selves with the IRS.” Ok­la­homa City tax at­tor­ney Travis Watkins

Travis Watkins, Ok­la­homa City tax at­tor­ney

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