Hi, I'm Bob Brooks and you are watching prudent money on the program. Today I have IRS expert Dan Pilla with me to talk about insider secrets to the IRS. Now, this is information that the IRS is just not going to tell you. Dan is the author of 14 books in the IRS and considered one of the foremost experts in the country on dealing with the IRS and we're fortunate enough to have him as a contributor on the prudent money radio show, and the prudent money channel. Hey, Dan, welcome to prudent money. Hey, thanks for having me, Bob.

You know, the information that you provide is so incredibly important because I want to stress something. The problem is not with the IRS. The problem is with the lack of information that taxpayers have in dealing with the IRS. Well, there's no question as a big part of the problem about the vast majority of taxpayers have no idea what their rights are, in fact, National Taxpayer Advocate released a study in 2014 I think it was that they they interviewed about thousand different tax payers. Ask questions of those taxpayers about what they understood their rights to be. Almost 50% of the people interviewed by didn't realize they had any rights at all when dealing with the IRS.

And so this is a big problem, no question about it. Now, it's not just the taxpayers problem, because the IRS knows that people don't know what their rights are. And so consequently, the IRS takes advantage of that. And of course, that's why we're doing these shows. That's why we're doing these teaching videos that you and I have been doing radio shows for over a decade, I think. And wait, wait, now, you're older than that.

I don't think it's two decades. But I think one of the best pieces of advice you've given through the years as never call the IRS if you want to communicate, communicate in writing talk about that. Well, particularly Bob, it's particularly important when you get certain notices from the IRS not to bother to call them. First of all, it's difficult to get through to the Internal Revenue Service. Their you know, their wait times on their 800 numbers are getting longer every year. It seems like then assuming you do get through to talk to somebody you You have to, you have to wonder whether they know what they're talking about right is questionable.

And so the best approach is to deal with the IRS in writing. And it's important to understand why fundamentally why we need to do that. And it's because this reason, you got the burden of proof when you're dealing with the IRS, the IRS never has to prove that you made a mistake. When you're dealing with the agency, you have to prove that you did it right. And so this has to be done in writing. And so phone calls generally don't don't cut it when you're providing information and documents and so forth to support your position.

So I strongly recommend you do that in writing. You know, Dan, I was talking to somebody the other day and they were trying to get ahold of the IRS. And they literally took the phone off the hook, left it on speaker for half a day and finally gave up I mean, it's it's gotten pretty out of control. Yeah, it has the last five or six years Bobby IRS has spent more and more of its of its budget of its appropriation on enforcement actions, and less than less on taxpayer service, which is absolutely the wrong way the agency should be going. The tax laws are getting more and more complicated. We've got a tax code now, Bob, that consists of about 4 million words.

There were thousands of tax law changes. So far during this century, the first 15 years of this century, the IRS has averaged about 500 tax law changes per year, every single year, year in and year out. People need to be educated about what this tax law is and the IRS is not spending nearly enough time or energy or money doing that. Instead, they're more interested in grinding people into power when they don't do it right. That helping them to do it right. You know, another little sticker the IRS and you have talked about this on the radio show quite a bit, is that when they do send out a letter saying that you owe money, it's actually wrong.

Yeah, Bob about half the time that's true. Bob in the IRS sends out these so called correction notices. Dear taxpayer, we looked at your tax return for the year such and such We found a mistake, but don't worry, we fixed it, you know, now you owe us 1200 $50, we send a check, those notices are wrong about half the time. And this is a critical area where you do not want to call the IRS because the law very clearly states that you've got 60 days from the date of such a letter, I call them a correction. Notice that's a mathematical change. Notice that any kind of notice that that says you made a mistake and we fixed it, you've got 60 days from the date of that letter to respond in writing.

And by telling the IRS that you disagree with their adjustment, and asking them to abate the tax liability. What that means very simply, is to cancel it out. Now, when you respond in 60 days, the IRS has an affirmative duty to cancel that tax as though it never existed. And if they believe that you owe the money, they've got to go to the next step, which is to issue what's called a notice of deficiency, which gives you an opportunity to appeal before you have to part with any of your money, but if you don't respond in writing initially within that 60 day window You lose your right to that notice of deficiency, which is your appeal rights? Well, unfortunately, there are many taxpayers who are behind on the payment of their taxes. The advice you give on this one really does catch people off guard because of the order in which you tell them to make payments.

That Do you get current or pay off what you wish to do first? Well listen, anytime you're dealing with a back tax liability, it's vitally important to stay current. And what I mean by that is file the current IRS tax return and pay taxes for the current year. Let me illustrate what I'm talking about here. April 15, is coming up here in about a month and a half or so well, more like two months, coming up quickly. In any event, if you've got delinquent tax liabilities for any number of back tax years, often, people will make the mistake of not filing the current year's tax return which would be 2015 or not paying the current year's taxes.

And what happens is their revenue is used to pay the back taxes either through installment agreements or in some other way. That's a critical mistake. pill First rule of tax debt management is this. If you've got money to pay the back taxes or money to pay the current taxes, but not both, never pay the back taxes, you've got to get current first. Now, let me let me be clear about this. The current year's tax return is 2015.

That's the return that's due April 15, here in two months, but we are now in tax year 2016. So you can't be using 2016 revenue to pay delinquent taxes. You got to make sure that you're paying your 2016 taxes through wage withholding if you're an employee or estimated payments, if you're self employed. That's what I mean by getting current. When you get yourself current. Then we can negotiate with the IRS on the back tax liabilities, they'll play ball with you in that situation.

But if you're not current Bob, there's nothing you're going to be able to do about the back tax stuff. The IRS is going to enforce collection so you have to get current. You know, Dan, there are a ton of IRS based commercials being played right now. Claiming They can wipe out IRS debt and make the problems just go away. Well, word of caution would you give when it comes to these commercials? Well listen, anytime somebody promises you that they could they can without even looking at your case that they can settle for 10 cents on the dollar or whatever is either ignorant or they're lying to you.

Now, the fact of the matter is, Bob, there are negotiations that are available with the IRS. I do it all the time. My book, how to get tax amnesty is what started this whole process. That book was initially released in 1995. So it's been out there for a long time. It's gone through nine revisions, I just have finished now rewriting it again.

And so it's going to be rereleased here again in its newest form. And so the fact is that these negotiations are available and it is possible to negotiate for five or 10 cents on the dollar. What is not possible is for somebody to promise you this over the phone without looking at your at your situation, because we've got to evaluate all the facts and circumstances of your case. What got you in trouble to begin with how many tax years you owe for How much you owe the IRS. that's critically important. Of course, your ability to pay is a factor.

If you owe the IRS $50,000 Bob and you got $100,000 of equity in property someplace, your capacity to settle through it through what they call an offering compromise is going to be limited. And so you've got to be very careful about somebody asking you for a lot of money over the phone that doesn't know anything about your case. That doesn't know anything about your background that is dangerous. Well, Dan, in those commercials, they they make the IRS look pretty scary, claiming that they could take your business, take your house and then the list goes on. separate out what is truth from what is just scare tactics when it comes to what the IRS can really do. Well, the fact of the matter is, Bob, the IRS has a lot of collection.

The IRS has more power to enforce collection than any other creditor you can name. It's the most powerful police force in the country for sure. Maybe the most powerful police force on the planet. I don't know about that. But certainly the most powerful police force in the country. They can levy paychecks they can levy bank accounts.

You They can seize your retirement fund. A lot of people don't think the IRS can take your entire retirement fund. That's not true. They can take your they can take your your automobile, they cannot seize your home through the administrative process. That means the IRS can't show up on your door one day and just issue a levy. Notice that now they have taken your home, but they can use the judicial process to do in other words, they can sue you in federal court to get your home.

So they have a lot of collection power. But here's what is important to understand. And I talked about this in my book, how to get tax amnesty, the IRS cannot enforce levy or collection action that is causing the hardship. The definition of hardship under the tax law is very simple. If the IRS puts you into a position where you cannot pay your necessary living expenses, then that is the definition of hardship and they cannot proceed with collection. in that circumstance.

I show you step by step how to release levies that are causing a hardship. So yes, the IRS has power, but that power is not unlimited. And if you understand what your rights are and what the limitations Are you can stop them from enforcing any kind of hardship against. Well, then of course, if you make even the smallest of mistakes with the IRS, the penalties and interest start immediately, and really do add up over time. Now people are caught off guard when you tell them the secret that they can actually get the penalties removed. Talk about the steps they can take to get those penalties removed.

Yeah, there's no question about it. This is a very, very critical right and it's not a particularly complicated Scituate complicated process. And and, and the law is not particularly complicated that drives this, you know, you set it exactly correctly, the IRS will will, will assess penalties and interest in any delinquency situation, regardless of whether you've deliberately cheated on your taxes, which frankly, most people don't do. Or you made an honest mistake, which is the situation with the vast majority of people that owe money to the IRS. They owe money not because they deliberately or intentionally set out to cheat the IRS life threw them a curveball somehow they got behind through no fault of their own. You know, maybe there was an economic problem and business failure.

Maybe was a failed marriage, maybe there was an illness or injury, maybe there's a catastrophic, catastrophic illness or injury, maybe there was a natural disaster, fire, flood, hurricane, any of these kinds of situations can put people into a position where they got to make a choice between paying their taxes and feeding their families. And in that situation, I can tell you the penalties do not apply. penalties are intended to be assessed against people who deliberately disregard the rules and regulations. And the vast majority of American taxpayers do not do that. And so when we're talking about penalties, what we're talking about is presenting to the IRS a picture of this good faith or reasonable cause action that put you behind. In other words, you're demonstrating to the IRS in writing that you did not deliberately disregard the rules and regulations that there were factors beyond your control that put you in a position where you couldn't file or pay.

You have to express those those factors very clearly provide documentation to the extent possible I'm working with a lady right now that had a serious medical problems with result of a rollover injury with an automobile. I'm just now going through the medical records, we got about 60 or 70 pages of medical records that clearly illustrate what hurt you know, number one that there was a car crash. And secondly, what the problems were that grew out of that car crash, we're going to present this to the IRS, we're going to get penalties cancelled. When the IRS cancels penalties, they cancel the interest on the penalties that reduces the debt remarkably, in many cases, puts you in a position where you can solve the problem very easily. You know, Dan, one of the great things about having you on the radio show is that you talk about upcoming trends.

A few years ago, you warned how out of control the IRS was about to get by using debt collectors. How has that program you how's it stood up? And how are they increasing the number of debt collectors there's a couple of things that have happened with that Bob that the private debts collectors have come and gone. What I mean by that is the IRS use them for a while and then they stopped using them and now they're now in there. Now. They are in the process of reading that up again, to see if they can't get that get that going that way The process of the IRS using private debt collectors, frankly, was not that effective.

And it was not that effective. You know, this is from the standpoint of collecting revenue now. And the reason is because, you know, people who were inclined to pay the bill would work with the IRS and get on some installment agreement and start paying the tax Anyway, you know, those people were not turned over to the debt collectors, the ones that were turned over to the debt collectors were the cases that had been sitting on the shelf for years and years in a status that the IRS calls uncollectible status. I talked about this in my tax amnesty book as well. If you are either unemployed or underemployed, and you don't have enough money to even pay an installment payment to the IRS and the billing from liability. They will close the door on your case, they'll push the whole button on your file and just put the thing on the shelf.

Well, those were the cases that the IRS was handing over to the debt collectors. Well, those people couldn't pay anyway, Bob, so they're, they you know, they're not gonna pay the IRS, you're certainly not going to pay a debt collector. And so for that reason, the program was was really just not all That effective now how it's going to change when it when it becomes resurrected here that that remains to be seen. Well, let's talk a little bit about some of the collection practices when when does the IRS use a levy versus using a lien and talk about the difference between the two? Yeah, that's a good question. Everybody asks about the difference between a lien 11.

Frankly, most people confuse a lien and a levy. A levy is the process the IRS uses to help itself to your income and your assets, Bob. So for example, if you've got money in the bank, the IRS issues a levy against the bank account. The levy scoops up the money that's in the bank account, they take possession of your assets. Same with a paycheck. If the IRS issues a levy against your employer that levy intercepts your payroll check and your money now goes to the IRS instead of you.

There's certain exemptions and limitations, but you know, for simplifying the explanation here, the IRS ends up with your money through the levy process. a lien process doesn't do that. When the IRS files a tax lien. What they're doing is they're they're filing This lien with the county recorders office. And they're putting the public on notice, Bob, that the IRS claims an interest in your assets and your property. So the lien doesn't transfer the title of the asset to the IRS.

It simply puts the public on notice that the IRS claims interest. And if we're talking about real estate, for example, a closing company is not going to close real estate sale without satisfying that lien. So for example, if you owe the IRS $20,000, and you've got 50 or $60,000 equity in your house, and you sell it 20,000 of that equity is going to be scooped up at the sale to satisfy the lien. So that's the fundamental difference between the two. You know, Dan wage guard garnishment, where the IRS takes your say your salary can be an awful thing. What is the secret to stopping that?

Well, the secret to stopping stopping it, as I alluded to earlier, Bob is is is the hardship issue, but let's do this. Let's prevent the wage levy from ever taking effect in the first place. Obviously prevention is better than cure right every single time So here's what people need to understand this is another one of the critical rights that people don't know they have a right that I talked about in my book how to get tax amnesty, and that is this before the IRS can touch a nickels worth of your assets whether it's a paycheck bank account, automobile retirement fund, I don't care what it is. Before they can touch a nickels worth your asset they have to mail a letter called a final notice, notice of intent to levy and notice of your right to a hearing. The IRS uses a couple versions of that letter.

The common letter that comes from the service center is called an lt 11. And you'll notice the letter number in the upper right corner of the notice it's called an lt 11. That's a final Notice of Intent to levy. The other notice that the IRS issues that is the final notice version that is often issued by local IRS personnel as opposed to the service center is called a letter 1058 letter 1058. And that's identified in the lower right margin of the letter. When you get one of those letters Bob that's going to come certified mail.

So don't ignore your certified letters from the IRS as the REITs are time sensitive. When you get that final notice letter, whether it's a 1058, or an LTL letter, it very plainly says across the front of the letter, final Notice of Intent to levy and notice of your right to a hearing. If you respond within 30 days of the date of that letter by asking for what's called a collection, due process hearing, the IRS cannot touch a nickels worth of your assets before you have the right to that hearing. And here's what's important. When you file that request, your case gets taken out of the hands of the collection function. And it goes into the hands of the appeals office and the written job description to the appeals offices to negotiate settlements with taxpayers.

Now in the context of this collection, due process case, when you file that request, the IRS has got to entertain what are called collection alternatives. And what I mean by that is the IRS wants all of them when they issue that notice they want all the money if you want 20 grand or 200 grand, it doesn't matter. They want the money now. However, you have have the right to present collection alternatives. Look, IRS, I don't have 20,000 or 200,000. There's some alternative I need to enforcement action because enforcement will cause a hardship.

Maybe the alternative is I have underemployed and unemployed or underemployed and maybe the alternative is that I am unemployed or underemployed and I need uncollectible status, and the IRS can push the hold button and not enforce collection. Maybe you don't own that much money 10 or $15,000, not that much, quote unquote. And you can pay through an installment agreement. That's a collection alternative. Maybe you got no hope of paying them at all about because your income and your assets are such that there's that you're never going to pay the IRS. In that situation.

You can present what's called an offer offering compromise where where let's say you owe the IRS this 200,000 I talked about, would you go and say look, IRS, I can pay you 8000 or 10 or 12. You know, we regularly settle these cases for just a few cents on the dollar depending on the situation. So that's a collection alternative as well. I talked about penalty abatement a minute ago. That's a collection alterus so there's any number of strategies that you can present to the to the appeals office that will prevent the case from going to enforcement, where now you're at risk for levies or seizures. But all of this is dependent on you timely exercising your right to appeal that collection notice.

You know, Dan, I think that most people are aware that you can get on a payment plan with the IRS if you owe them if you have money, yet, they probably don't know how the process work. Take us through the process and how to get that implemented. Well, yeah, people are aware that getting an installment agreement, Bob, but what happens is typically if you just show up at the IRS door, either with a phone call or with a letter and say, I want an installment agreement, what they typically do is try to squeeze you for as much money as they possibly can. You know, they're trying to get the money. You take all 4 million words in the Internal Revenue Code, you can boil them down to just three words, get the money, so that's what they want to do. So when you're negotiating for an installment rate, you got to understand that that the installment agreement is supposed to be based on your ability to pay.

Alright and ability pays determined by your monthly gross income, minus all of your necessary living expenses, including and this is important current taxes. When you call the IRS on the phone and you say I need an installment agreement, they're just going to try to squeeze as much as they can out of you without regard to your obligation to pay current taxes. I see this over and over and over again. And what happens, Bob is when you're using current tax revenue, to pay the backpacks liability, for every one step forward, and in resolving your liability, you end up going two steps backwards. All right, and that's because of the interest in penalties that accumulate on the old debt. And that's because you're not paying the current taxes.

So here we are in 2016. If you call the IRS and say I want an installment agreement, and they set you up with some arbitrary number, you are probably not going to pay your be able to pay your 2016 taxes because your your installment agreement amount is so high, so you got to factor your your budget properly. You Got to include current tax liabilities and you got to push the IRS on the issue. Now, here's another important right the taxpayers have that people don't know about. And that is if you can't come to favorable terms with the IRS and negotiating installment agreement, you have a right to appeal their decision. So if they deny or reject an installment agreement, you've got 30 days from the date of the letter communicating that decision to file an appeal.

Where does that take your case back to the appeals office, where you have the right to present alternatives to the appeals office? And again, their written job description, Bob is negotiate a settlement with a tax payer. You know, Dan, if you're behind and struggling with the IRS, there's that tendency to kind of ignore the problem and just pretend it's not there. However you say that is the worst thing that you can do. What steps do you take if you're really behind struggling? Well, that's the single worst thing you can do Bob immediate when you ignore letters.

In order to get I'll tell you, I can't tell you how many times I've had people come into my office here and they bring in a bag or a box full of envelopes from the IRS. Some of them aren't even open. In many cases, they haven't gotten their certified mail people are afraid of the agency. And people believe that, you know, all I have to do is ignore the IRS. And if I ignore them long enough, they'll just go away. Well, it doesn't work that way.

You just make matters worse, when you ignore the IRS and don't open your letters A minute ago, I told you that the final notice letter had a 30 day deadline. Bob, if you missed the 30 day deadline, you're not entitled to a collection due process hearing, you're not entitled to to use these strategies that I was just talking about to their optimum to their optimum capacity. Now there are other rights that you have. But your your best alternative is the collection due process channel. And that means you gotta react within 30 days of the date of the final notice letter. You don't know what that date is.

If you ignore your letter, you don't even know you got a letter if you're not opening the mail. So you've got to you've got to pay attention to your communications with the IRS. Look at this is counterintuitive. You don't have to I've had people that have moved many times, and now they think to themselves, well, I'm not getting any mail from the IRS. So maybe the bill is gone, and maybe the debts gone away. Now, the IRS just hasn't found you yet.

But but all they have to do is send their communications to the last known address. In most cases, the taxpayers last known addresses the address on his most recently filed tax return. Well, Bob, if you haven't filed tax returns for the last four or five years, and you've moved during that period of time, guess what? All of your notices and all of your legal right communication notices are going to go to some old address and because you didn't communicate with the IRS to tell them what a new address was, you have lost your rights. So this is counterintuitive, but you got to tell the IRS what your current address is. There's a form that they have to do that with its form 8822 822 to change of address form.

You submit that to the service center where you file your tax returns, that notifies the IRS of your current address. And as I said, it's counterintuitive because people think Well, you know, if the IRS can't find me, then nothing can go wrong. Well, that's not true. Everything can go wrong. Because at some point, if you're on a wage job somewhere that's going to be reported to the IRS through your social security number, your employer is going to issue w two forms. If you're an independent contractor, the people that are pay, you're going to issue 1089.

The IRS will catch up with you at some point, and now you've lost your rights. So you've got you've got to be able to monitor your communication. Well, Dan, great information. I really do appreciate you taking the time to come on the prudent money channel. For more information on Dan Pilla, you can go to his website at triple W. Tax Help online.com here's the bottom line. You don't have to be scared of the IRS with the information that Dan shares on these programs and in his books, you can confidently and successfully deal with the IRS.

It's all about information, and those who are successful long term are the ones who are investing and learning with a proven money channel. I am Bob Brooks keep the faith and greatness today.