Tax Firms

The IRS allows taxpayers to resolve their outstanding tax debt via a payment plan, which they call an “Installment Agreement”. Most of these plans have a set monthly payment, but they can also be adjusted based on your seasonal cash flow, and they also permit tiered agreements that call for occasional increases in the monthly payment amounts.

Some taxpayers may qualify for special installment agreements that require little or no financial documentation, similar to a no-doc or low-doc mortgage.

In rare circumstances, based entirely on your financial situation, you may even qualify for an Installment Agreement in which you never fully pay off the back tax liability, called a “Partial Pay Installment Agreement” (PPIA).

As part of negotiating your installment agreement, a comprehensive financial analysis of your business or personal finances will be required. The kind of information we will need to review, as mentioned above, is very similar to what would be required for a loan application. For businesses, this information includes all of the standard business accounting information, such as:

• balance sheets
• bank statements
• profit and loss statements
• accounts receivable aging reports
• asset lists & depreciation schedules

At first, many clients are apprehensive about providing this detailed financial information to a tax consultant. However, this information is necessary to perform a proper financial analysis and properly negotiate your tax resolution.

If your financial situation is such that you can legitimately only pay a a minimal amount, the IRS will likely grant the Installment Agreement, even if the payments will not fully satisfy the tax debt. For example, if you owe the IRS $60,000, and a payment plan of $200 per month is negotiated, and you have 3 years remaining until the statute of limitations runs out on collection, you will have paid in only $7,200, and then the statute of limitations runs out and you’re off the hook for the remaining balance. This is called a Partial Pay Installment Agreement (PPIA), and is nearly identical to an Offer in Compromise being paid under the Periodic Payment option. It is important to weigh the merits of the PPIA option versus the Offer in Compromise option when considering your tax resolution options. Be sure to ask your tax professional about the pros and cons of each of these options.

There are two special types of Installment Agreements that you may be eligible for based on how much you owe. If you owe less than $50,000 in income taxes (including corporate income tax), then you may be eligible for a Streamline Installment Agreement, which has less stringent qualification requirements. This is similar to a “low doc” mortgage. If you owe less than $10,000 in income taxes (including business), then you may be eligible for a Guaranteed Installment Agreement, which the IRS cannot deny and requires no financial information to be provided. This could be considered parallel to a “no doc” mortgage, and can be simple to obtain. The real beauty of these two plans is that the minimum payment can be as little as $25 per month, as long as it pays off the balance within a prescribed amount of time.

For most tax debtors, the Installment Agreement will be the resolution option you end up with, as most people are simply not eligible for an Offer in Compromise or the Currently Not Collectible status. Understanding the different types of Installment Agreements and the requirements for obtaining one and staying on it are important. Discuss these requirements with your tax professional to make sure you are eligible for the payment plan and are going be be able to make the monthly payments until the tax debt is paid off.

Earlier this week, a reader inquired about whether or not he was required to include his spouse’s income when filing his Offer in Compromise. The reason it was in question is because they maintain completely separate financial lives. They file separate tax returns, have separate bank accounts, and don’t even title anything jointly.

Before you question why somebody would do something like that, there are actually numerous reasons for doing so, especially in regards to various aspects of state law. There are also business and asset protection reasons for keeping things separate. For example, if one spouse owns a business or is involved in a profession or activity with a high degree of litigation, then keeping different financial houses can be a good idea.

Here’s the answer to the question: Believe it or not, even if only one person owes the tax liability, the income (and allowable expenses) of everybody in a household must be taken into consideration in the Offer in Compromise application process. This applies to everybody living in the home — even people just renting a room from you.

Now of course, your representative will work to get the non-responsible party’s income and expenses taken off the reporting requirements. Under the tax code, the only person responsible for an IRS tax debt is the person against whom it is assessed, and nobody else.

If you need help with your Offer in Compromise, search our directory to find a tax firm near you that specializes in IRS Collections representation.

When it comes to resolving your tax debt, you have a number of possible routes you could take. In this article, I’ll go into some of the pros and cons of each option so that you have the information you need to make the best decision for yourself.

Do It Yourself Tax Resolution

Probably the route most people take, doing it yourself seems like the obvious or only choice for most people and small businesses. Simple tax debt problems that only cover a year or two, especially cases where the tax debt is under $10,000 (or under $50,000 if it’s only income taxes) are fairly easy to resolve with only a few phone calls (one phone call, in some cases).

If you can follow written instructions, are good with forms and paperwork, and have your personal financial paperwork in good order, then representing yourself is neither difficult nor time consuming. You need to be able to read and understand IRS notices and publications and forms, and keep good financial records for yourself.

Here’s a quick test: If you file your own tax return every year and have no problem doing so, then you can probably represent yourself if you have an income tax issue. If you struggle with doing your tax return, even if you use step-by-step software, then you might want to consider getting help with the situation, as well as if you have tax debts other than personal income taxes.

Hire a Licensed Tax Professional

If your tax situation is complex, consists of multiple different types of taxes over multiple tax periods, involves any sort of business taxes, or exceeds $50,000, you should definitely consider hiring professional representation.

I want to stress the word licensed. In my article about 5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt I gave some warnings about some companies that only do tax resolution work. You want to make sure that the person doing the actual WORK is licensed. Some of the less reputable companies in this industry have assistants do all the work, and a licensed person is just there to sign the Power of Attorney (POA). Some of these POA signers literally have THOUSANDS of POA’s that they are signed onto at any one time. Don’t for a second think that they even know who you are. Always ask to speak to an actual licensed person before signing up with one of these companies — don’t just talk to a sales person. If the sales rep refuses to let you speak with a licensed person, then run away — very, very quickly!

There are, in general, three kinds of licensed tax professionals that can legally assist you: a CPA, attorney, or Enrolled Agent.

While a license to practice means one thing, obtaining competent representation from a licensed practitioner is another. CPA’s are licensed by the state in which they practice, and most CPA’s are not experienced with tax resolution work. The vast majority of CPA’s do just accounting or just tax preparation. The same thing actually goes for most Enrolled Agents, who are licensed directly by the IRS to represent taxpayers. Less than 2% of all Enrolled Agents have any experience at all doing tax resolution work. Attorneys, while often much more skilled at and experienced in the world of negotiation, usually don’t have much in the way of accounting skills, and may have a hard time with numbers side of your situation.

If you have a tax debt problem, you should only hire a CPA, EA, or tax attorney that is heavily experienced in IRS Collections representation. Most large metropolitan areas of the United States will have several local professionals that specialize just in this type of work, and you can find them by searching our tax firm directory.

As with anything involving your finances, always do your homework on any practitioner or firm before hiring them. Get comparison quotes, and make sure you know what services you are being quoted for so that you can compare apples with apples. Check out BBB reports, and do Google searches using the name of the company combined with phrases such as “scam”, “rip off”, and “complaints”, especially if you are considering hiring one of the large, national tax relief companies. Do this due diligence before signing a contract or paying any money.

When it comes to resolving your tax debt, you have a number of possible routes you could take. In this article, I’ll go into some of the pros and cons of each option so that you have the information you need to make the best decision for yourself.

Do It Yourself Tax Resolution

Probably the route most people take, doing it yourself seems like the obvious or only choice for most people and small businesses. Simple tax debt problems that only cover a year or two, especially cases where the tax debt is under $10,000 (or under $50,000 if it’s only income taxes) are fairly easy to resolve with only a few phone calls (one phone call, in some cases).

If you can follow written instructions, are good with forms and paperwork, and have your personal financial paperwork in good order, then representing yourself is neither difficult nor time consuming. You need to be able to read and understand IRS notices and publications and forms, and keep good financial records for yourself.

Here’s a quick test: If you file your own tax return every year and have no problem doing so, then you can probably represent yourself. If you struggle with doing your tax return, even if you use step-by-step software, then you might want to consider getting help with the situation. If you have tax debts other than personal income tax liabilities, you should also hire a licensed tax professional to represent you.

Hire a Licensed Tax Professional

If your tax situation is complex, consists of multiple different types of taxes over multiple tax periods, involves any sort of business taxes, or exceeds $50,000 in income tax debt, you should seriously consider hiring professional representation.

I want to stress the word licensed. In my article about 5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt I gave some warnings about some companies that only do tax resolution work. You want to make sure that the person doing the actual work is licensed. Some of the less reputable companies in this industry have assistants do all the work, and a licensed person is just there to sign the Power of Attorney (POA). Some of these POA signers have literally thousands of POA’s that they are signed onto at any one time. Don’t for a second think that they even know who you are. Always ask to speak to an actual licensed person before signing up with one of these companies — don’t just talk to a sales person. If the sales rep refuses to let you speak with a licensed person, then run away — quickly!

There are, in general, three kinds of licensed tax professionals that can legally assist you: a CPA, attorney, or Enrolled Agent.

While a license to practice means one thing, obtaining competent representation from a licensed practitioner is another. CPA’s are licensed by the state in which they practice, and most CPA’s are not experienced with tax resolution work. The vast majority of CPA’s do just accounting or just tax preparation. The same thing goes for the majority of Enrolled Agents, who are licensed directly by the IRS to represent taxpayers. Less than 2% of all Enrolled Agents have any experience at all doing tax resolution work.

Attorneys, while often much more skilled at and experienced in the world of negotiation than CPAs and EAs, usually don’t have much in the way of accounting skills, and may have a hard time with the numbers side of your situation. It should also be noted that you want an attorney that specializes in tax law, not just a garden variety lawyer.

Personally, I believe that you should only hire a CPA, EA, or tax attorney that is heavily experienced in doing IRS Collections work. Most cities in the United States will have several local professionals that specialize just in this type of work. Search our tax firm directory to locate a licensed professional near you that specializes in this unique area of practice.

As with anything involving your finances, always do your homework on any practitioner or firm before hiring them. Get comparison quotes, and make sure you know what services you are being quoted for so that you can compare apples with apples. Check out BBB reports, and do Google searches using the name of the company combined with phrases such as “scam”, “rip off”, and “complaints”, especially if you are considering hiring a large, out of state, national tax resolution company. Conduct this due diligence before signing any contract or paying any money.

One of the most common questions we are asked has to do with the reduction of interest and penalties on IRS accounts. Any reader of this blog knows that I am adamant about correcting the myths, lies, and half-truths perpetuated by tax resolution salespeople, and the IRS penalty abatement is one of the things least understood and grossly oversold by unlicensed salespeople at large, national tax resolution companies.

First of all, let’s get this out of the way: There is no reasonable cause interest abatement application process within the IRS. It simply doesn’t exist, period. If somebody is telling you they can get your interest reduced, you’re straight up being lied to, and you should seek assistance elsewhere.

There are two, and precisely two, instances in which interest is reduced:

1. Any IRS employee gives you false information, which you acted on and resulted in the interest. This is one reason why all IRS correspondence should be conducted and follow up in writing.
2. Since interest is calculated based on the tax liability, if an amended return is filed and the tax itself is lowered, then the interest is also reduced.

Now, on to penalties. The IRS charges dozens of different types of penalties, but the three that we most commonly talk about are the late filing penalty, the late payment penalty, and the penalty for not making Federal Tax Deposits. These three penalties combined can add a whopping 65% to your total IRS bill. If your tax debt is more than two years old, you’ve maxed out all these penalties, and therefore over half your total debt is penalties.

The IRS does actually have a compassionate side, and it’s generally found in the penalty abatement process. Penalty abatement applications can also be appealed if initially denied, so you can always get a second set of eyeballs on the issue. The thing to keep in mind is that the IRS has very strict guidelines for granting penalty abatements, and these guidelines are referred to as “reasonable cause criteria”.

It should be noted up front that “we didn’t have the money” is NOT a reasonable cause criteria. A drop in revenue, by itself, is insufficient argument for obtaining penalty relief. Any request for penalty abatement simply citing the economic recession will be immediately denied.

Why is this? Here is the IRS’ logic: You made the money, and should have paid the taxes at the time on that money. If you are self-employed and receive a check, then you HAD the money, you simply didn’t give the IRS their chunk of it. Same goes with payroll taxes, particularly trust fund taxes (money you withhold from employee paychecks for income tax and Medicare/Social Security): If you had the expectation to pay some amount of wage, then you theoretically HAD the money sitting somewhere to pay that person, and should have withheld it and turned it over to the IRS. If you couldn’t cover the taxes, you shouldn’t have had the employee and should have laid people off or cut back their hours.

There are ways to argue around this, and we have done so very successfully, but there has to be some other circumstance. For example, you had the money to pay the tax, but paying the tax instead of something else would have created an “undue hardship”. Examples could include a large medical expense that unpaid would have left a condition untreated, or a court ordered payment that would have resulted in other legal consequences, or a bill such as a large automobile repair which would have left you unable to work and resulted in job loss. These arguments are difficult to make and require significantly more work than standard reasonable cause criteria applications, but they CAN be won.

The primary IRS penalty abatement reasonable cause criteria center around natural disasters, loss or destruction of vital business records, bad advice from the IRS or an accounting professional, criminal activity, medical issues, substance abuse problems, and other serious circumstances.

A couple years ago I developed a standard list of questions to ask clients to assist me in preparing their penalty abatement. This list of questions should be given some serious thought before requesting penalty abatement, as you are more likely to get what you want if it covers one of these areas:

• Were any business records lost or destroyed?
• Were there any circumstances that led to a substantial drop in collecting on accounts receivable?
• Was there any transition in the business that lead to the failure to pay taxes?
• Was there a death or serious illness that directly affected the business or personal wages?
• Was there any embezzlement of funds, theft of valuable property, or identity theft?
• Were there any alcohol or drug abuse issues that affected the business or wage earning capability?
• Was there a natural disaster that impacted you or your business?
• Did you rely on the advice of a CPA or IRS employee in making tax decisions?
• Were there any circumstances that created substantial financial hardship, to the point where your business was close to going bankrupt?

These questions cover all of the IRS reasonable cause criteria to one extent or another, so finding an answer to your personal or business situation that covers one or more of these questions is the key to a successful penalty abatement application.

If you would like a professional review of your own situation to determine eligibility for penalty abatement, simply request a case review from one of the licensed professional tax firms in our directory.