Winning the IRS Game

Tips to help you come out ahead -- or at least keep your shirt -- in an encounter with the IRS.

If you file and pay your taxes on time and never get an IRS notice, then you are already winning the IRS game and probably don't need to read this article -- at least not yet.

The rest of us who encounter the IRS up close and personal still have a chance to win, or at least to not lose disastrously. This means keeping your income and assets away from the IRS and staying out of jail. And this is one game where, despite your first grade teacher's lesson "it's not whether you win or lose it's how you play the game," you darn well want to win.

Let's call the IRS team the "Goliaths" and your team the "Goodguys." On paper, the Goliaths look unbeatable, but on the playing field it comes down to the strengths and weaknesses of the individual players. Here's an analysis of the teams and players.

Goliaths

Goliaths have experience. You are a rookie, so even the weakest IRS team member is ahead of you. But he or she probably can't make it a runaway -- remember, the IRS has a high rate of employee turnover. Score seven for the Goliaths in the first quarter, 7-0.

Goodguys

Goodguys have motivation and the advantage here every time. Coaches say that motivation is the key to winning. The Goliath player gets the same pay, win or lose, while the Goodguys are playing to keep their money. Score seven for the Goodguys in the second quarter. It's tied at the half, 7-7.

The game will be decided in the second half. You have to be prepared to go the distance. Know what you are doing and show strength and perseverance to the IRS. Don't beat yourself. Remember the words of Pogo, the comic strip philosopher: "We have met the enemy and he is us."

A Costly Victory -- The Wrong Way to Play

One way to lose is to play the IRS without bothering to learn the rules of the game, preparing or devising a game plan. You'll lose if you ignore IRS contacts or respond incorrectly, miss deadlines or lie to IRS employees. Charlie is a prime example.

Charlie had been having IRS problems for five years when he called a tax pro, Sheila. He had lost an IRS audit, an appeal and then in Tax Court. When the tax bills came he threw them away. Charlie believed he was right and he was sticking to his principles.

An IRS collector repeatedly warned Charlie that his mutual fund investment account would be seized to pay the tax bill. Sheila asked when the seizure was to take place. "Tomorrow," Charlie replied. She agreed to try to help Charlie but made no promises -- the game was just about over and he was behind by several touchdowns.

Sheila called the IRS and got a postponement of the seizure for 30 days to give Charlie a chance to get a home equity loan to pay the taxes. He tried, but the bank didn't approve the loan. Sheila then tried an IRS offer in compromise -- that is, a discounted settlement. After eight long months, the IRS accepted $15,000 as a settlement on Charlie's $20,000 tax bill.

The sad part is that if Charlie had sought tax advice at the beginning of the game, he would have been out of pocket only $7,000. By stubbornly refusing to meet the problem he almost lost his investments. And, he cost himself $15,000 in taxes, penalties, interest, and another $2,500 in tax pro fees. Charlie needed to know the rules and needed a plan before playing the IRS game.

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