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Stop the Interest Clock in Tax Problem Dispute

As a tax attorney and CPA in Atlanta, Georgia for nearly 30 years, my focus has always been to prevent IRS penalties for our clients at all costs. Errors that result in fines and penalties are not, in my estimation, a good way to spend hard earned dollars, but mistakes by taxpayers and by IRS, a very large government institution, are frequently made. When mistakes become the case, trying to resolve the tax bill while the interest clock is ticking can, even for this Atlanta tax attorney, be challenging because no one wants or should pay more than they have to.

A recent Forbes article written by Robert Wood, When Fighting IRS Should You Stop to Pay Interest speaks to this dilemma and has most of us in the industry agreeing; there is no right answer and each case is different. When you find the IRS has made a mistake you can dispute it, but then you need to decide whether to pay or not to pay the IRS all that is due to stop the interest from accruing until your tax problems are resolved.

As an Atlanta CPA and tax attorney for IRS representation, I highly recommend that if you find yourself in this situation, you consult with tax experts who can guide you through the tangle of IRS rules and regulations and let you know your options, especially in cases where there are compound interest and penalties. Facing the IRS alone without proper tax representation might unnecessarily expose yourself to their wrath that could possibly leave your money on their table.

There are two schools of thought to the IRS interest payment issue:
1. Don't pay until your case is resolved. This approach is confident and if you can prove to the IRS there are no taxes due, there is no reason to pay any penalties. If there is a strong case for this action, it could work. However if you are wrong you will pay taxes, penalties and interest that compounds daily and runs at the short-term federal rate of 3% or
2. Pay all taxes including accrued interest and any penalties to stop the interest clock while disputing your case and if you win, your money is refunded.

If you decide to pay all taxes, interest and penalties while in dispute, your CPA or tax attorney will insist you clearly deem this a DEPOSIT and send this designation of funds information (in writing) to the Department of Treasury to be deposited into your account. Otherwise, the IRS believes you are making a payment. Key point: It is important when sending anything to the IRS regarding tax problems or issues that you provide very specific details and information and be sure to make copies for follow up correspondence.

In our Atlanta tax attorney and CPA for IRS representation firm, we advise our clients that the funds in their account to stop the interest can be retrieved should they need to use them. However, in doing so, we warn that requests to withdraw funds can be met with resistance should the IRS believe they would not be able to collect should you lose the dispute.

Some tax disputes are worth fighting the IRS for, some are not. With a qualified CPA or tax attorney on your side to discuss the best financial options available and their dealing directly with the IRS on your behalf, will help ensure your IRS tax problems are put squarely behind you.

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