Trucking & Taxes – July 2022

The IRS is the collection and enforcement arm of the U.S. Treasury Department. Their power over taxpayers is immense, and every taxpayer fears getting IRS letters in the mail.

Rightly so! Most IRS letters bear bad news. Sometimes it informs you that your return is being audited, you owe the IRS money, or you have unfiled returns.

The biggest issue for the 2021 tax returns has been the advance child tax credit and/or the recovery rebate credit. Many taxpayers do not open the IRS letters to find out they received the credits, and many never remember that they received the money. They may never recall that the money was directly deposited into their bank accounts.

What do you do if you get an IRS letter?

1. Open and read it. It sounds basic, but many will never do so.
2. Talk with your tax professional to help interpret the IRS letter.
3. If it is determined the IRS is correct, pay the balance or set up a payment plan.

But what if you owe the IRS a lot of money? These letters get serious. They start with a balance due notice for each year and then become increasingly threatening.

The second notice of the balance due provides instructions on paying the balance due. The IRS letter CP-501 notice also informs the taxpayer that if the amount is not paid in full, the IRS can issue a notice of federal tax lien. Interest will continue to increase, and penalties may apply.

If you do not respond to the CP-501 notice, the IRS will issue a CP-503 statement. The CP-503 is another reminder notice of the balance due and that the taxpayer has not paid the tax or has not responded to the IRS.

If the balance still has not been paid or if no payment arrangements have been made, the IRS will issue a CP-504 via certified mail.

This notice is absolutely more aggressive than the prior notices, and it means your debt is in collections. If the IRS does not receive the amount due within 30 days from the date of this notice, the IRS can levy your state tax refund. The IRS also may serve a disqualified employment tax levy or a federal contractor levy.

If there’s still no response, the IRS will issue an LT-11 notice of intent to levy and right to a hearing via certified mail. At this point, the IRS is ready to levy your wages, contractor pay and/or bank accounts to collect the unpaid tax and can also file a federal tax lien if they have not done so already.

After this letter, the IRS can and probably will levy your assets until the matter is resolved.

If you receive Social Security benefits, the IRS will issue a CP-91, which notifies you that the IRS intends to levy 15% of your Social Security benefits to pay for the unpaid taxes.

We never recommend taking on the IRS alone.

Always seek professional advice and help when dealing with the IRS unless you can fully pay your debt. The best way to stay out of trouble is to use an enrolled agent and an expert in trucking for your taxes.

Also, make sure you are making estimated taxes as required and always file on time even if you cannot afford the taxes due.

The dreaded ‘We are auditing you’ letter

None of these letters are good when you are about to go through an audit. The IRS has a couple of ways it performs audits.

Comparison audit

It could be as simple as leaving off a W-2 or interest or even a 1099R. If that is the case, verify that the IRS is correct by redoing your return or talking with your tax professional. If the IRS is correct, sign the return and pay if any amount is due. If the IRS is wrong, submit an amended return showing the right amount of tax and the amount due or owed to you with the necessary support.

Correspondence audit

This gets a little more complicated, and you should consult a tax professional. However, if you are going it alone against the IRS, read the letter carefully. The IRS letter will tell you what you need to submit for proof of expenses or support for cost and deductions or even revenue.

The IRS is looking for every way to deny you rightful deductions.

A denied deduction could be because a mileage log was done incorrectly or a lack of a receipt. I suggest hiring a professional who deals with the IRS in an audit.

Full-blown IRS audit

This is when an IRS agent looks at your income tax return and questions items listed on your return. These full IRS audits focus on taxpayers with higher incomes and small businesses.

Several instances can trigger an audit. Some items that tend to earn extra scrutiny over an income tax return are small businesses that claim deductions for travel, entertainment expenses, home office expenses and other deductions. For individual taxpayers, the IRS also tends to look at income tax returns with a high amount of deductions for charitable donations.

The IRS can audit income trucking and tax returns filed within the past three years.

The IRS could look back up to seven years in most instances if they chose to do so. They also may look back even further if they find a substantial error or fraud.

I recommend that you read IRS Publication 3948-A. This will tell you exactly what to expect with an audit and how you will need to respond to the questions by mail. The publication can be a wealth of knowledge to help you navigate the audit process if you choose to go at it alone.

Proceed with caution

The wise path is to hire a professional immediately. Do not wait until it is too late to get help. Many think they have things under control until the IRS sends the determination letter and gives them 90 days to take them to tax court. At that point, it is too late, and now you have the expense of tax court, not to mention the trouble of fighting the IRS in court and even span many years of tax returns.

The IRS will request all bank statements – business and personal. They will ask for proof of expenses.

The professional you hire will go to bat showing the correct revenue and go through your account to show from where the other money came. The cost of using a tax professional is well worth the potential cost of losing an audit.

Audit triggers

• You earn a lot or even very little income
• You overlook income (underreported)
• You spent or deposited a lot of cash
• You’re self-employed
• Your business is home-based
• You claimed the earned income tax credit
• You reported all round numbers – zeroes or fives on every line.

As we tell everyone, you are great at trucking and we are great at trucker taxes and representation. Always hire a professional to do the work to keep or get you out of trouble, especially when you are dealing with the IRS and tax problems. The right enrolled agent or tax attorney on your side makes a difference in representation. LL

This article has been presented by TruckerTaxTools.com, a division of Taxation Solutions Inc. – Tax Relief. Barry G. Fowler, EA, president of Taxation Solutions, has been providing IRS tax debt resolution and bookkeeping services to the trucking industry for more than 21 years. If you would like a free consultation, contact them at 877-966-2477. Their website is TruckerTaxTools.com. This article does not give and is not intended to give specific accounting and/or tax advice as everyone’s tax situation is different. Please consult with an expert at TruckerTaxTools.com, the leader in trucker taxes.