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Wilmington NC CPA gives advice on Back Taxes | how to work with a tax accountant

Back tax clients often call a CPA only after some contact from the IRS or NC. For example, the IRS sends you a Notice stating they’ve prepared a “substitute return” for you, and, by the way, send us a check for taxes, penalties and interest now. In this post I’ll review the way a back tax CPA approaches these cases, and pass along some observations that might help.

Don’t Panic

If you have unfiled back tax returns, the initial IRS demand is probably high. Why? Their “substitute return” only uses information the IRS collected on you or your business. Most of that information relates to income. When your CPA prepares a correct return, there’s almost always legitimate deductions and/or tax credits you can claim. For example, say you had a rental property. The IRS only has Rent information (income), reported to them via a Form 1099-MISC, but not the cost of insurance, repairs, depreciation etc. Sometimes it turns out that you actually have a refund due!

Steps a Back Tax CPA might take

Remember, this is just general advice. You can’t rely on it for specifics.

  • Find out what the immediate problems is. For example, NC states they’ll garnish your wages as payment for taxes from a previous year.
  • Your CPA examines the NC or IRS tax notice. Sometimes the terminology and format is confusing to logical folks (wink).
  • Your CPA examines the documents underlying the NC or IRS demand. These first few steps establish what issues exist and the NC/IRS perspective on them.
  • At some point, your back tax CPA needs a Letter of Engagement. This is sort of like a Consent Form in medicine. 
  • Your CPA will listen to your side of the story.
  • Your CPA runs interference for you with NC and the IRS. You don’t have to deal with them directly.
  • Usually we ask for more time from the tax agencies. Generally they’re happy to do so, at least at first.
  • Your CPA will pull your IRS and NC transcripts. These show what the agencies have on file for you, by tax year.

“The IRS assumes they’re correct. But they don’t have all the information, especially on your legitimate deductions. The actual amount due is almost always lower than the initial demand.”  
– Gary Bode, Wilmington NC CPA and tax accountant

  • Your back tax CPA will ask for documentation from you. Like mileage for your business. 
  • Your CPA determines your tax position and counsels on your alternatives. Often that involves preparing the back tax returns. And of course ascertaining how we can get the tax lien or tax levies lifted if they exist.
  • We look for potential red flags within each tax return. And compare the tax returns to each other. Like the IRS does.
  • Sometimes you won’t owe anything. Yes that does happen.
  • If you do owe, your back tax CPA looks at your options. Will the IRS take less than what you owe as full payment? If so, we explore an Offer in Compromise, the infamous pennies on the dollar technique made famous by late night TV ads. Both the IRS and NC offer Installment Agreements, where you make monthly payments.
  • Your CPA organizes documentation in case the Agencies want it.
  • Finally your CPA is on call in the event of subsequent issues.

What to Expect

It takes lots of time for the tax agencies to process back tax returns. Because of their overlapping systems, annoying and contradictive correspondence sometime occurs. Remember, back tax forms may receive more scrutiny than if you filed on time. So I’d expect t the IRS and/or NC verify some aspects. For example, they might require documentation on your charitable contributions for a particular tax year.


  • Try to relax. I think folks who don’t file generally stress too much once they do file.
  • Not every back tax case requires a CPA. But at least do your homework.
  • Don’t irritate the IRS or NC and make matters worse.
  • Don’t inadvertently hang yourself by being too eager to offer information.
  • Don’t procrastinate. Eventually both Agencies lose patience.
  • If you work with a CPA, try to provide what is needed in a reasonable amount of time.
  • Consider an Offer in Compromise if you owe taxes. The IRS just relaxed the qualifications.
  • The IRS discourages Installment Agreements even though they often have to accept them per their own regulations. Here I suggest you pay as little down, and take the longest amount of time to pay, as  possible. Why? You have to make those monthly payments, even if you paid more up front. I’d save money externally to make a lump sum payoff as soon as possible.
  • Both the IRS and NC have local Wilmington offices off Randall Parkway. Generally nice folks to deal with.
  • If you send the IRS any documentation, call to ensure they received it.
  • File on time next year. You lose refunds after three years.

I’m a Wilmington NC CPA with a virtual office to provide added convenience for clients. If you don’t already have a local CPA consider calling (910) 399-2705 for a free phone consult.


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