5 Ways to fix a tax problem. 90% of IRS problems are solved by these 5 methods.Mar 15, 2022
Have you wondered how on earth you will ever get out from under the stress of the IRS?
My name is Todd Whalen. I’m the founder of Advanced Tax Solutions, CPA PC. I’ve spent most of my life helping people solve their problems with the IRS. I’ve lived on this planet for over 60 years, and I’ve seen a lot of tax problems. I’ve been able to find a way to solve most of them for those who’ve engaged my firm. With that being said, there are ways out of the mess.
Have you ever wondered; how did I end up with this mess with the IRS? You are not alone. In my career I’ve helped all kinds of people. I read a statistic published by the American Society of IRS Problem Solvers that 1 out of every 7 people that live in the United States, at some time in their life, will have a brush with the IRS. The population in the US, is 332,403,650 as of Jan. 1, 2022. 1 in 7. I can’t do the exact math in my head but its nearly 50 million people, so let’s just say you are in good company.
What kind of people get in trouble with the IRS? Anyone really. My clients span the gamut of humanity, but often they are men. However, women are starting to show up more each year. I’ve read some staggering statistics about how many women have left the workforce during the pandemic. Many of them have started home businesses, particularly online work, so in a few years I anticipate a larger than normal influx of females. Like anyone else, starting a business doesn’t mean you understand taxes or even how to pay them. My clients are generally salt of the earth type folks. They love sports, beer, and Harleys. It can be anyone. People who make more money tend to have bigger problems. I’ve helped sports figures, movie stars, and even radio personalities, all of whose names you’d probably recognize if it was polite to speak them. I’ve had single moms, college students, cowboys, rich and poor, and lots of construction workers as well as a large population of businessmen and professionals. Tax problems are not limited by geography, income, status or religious. They are truly equal opportunity.
Long ago, about 35 years ago, a lifetime ago it seems, I had my turn. I’m glad I got it out of the way early in life. It was horrible. Have you ever heard the saying that you should swallow a live frog first thing in the morning? That way you know that the worst thing that is going to happen to you today is already behind you! I feel that way about what happened to me, I got my tax problem behind me early in life. A divorce started my tax problem. The first symptom when that curtain fell was that it was impossible to sleep, so the rest of the day was miserable. It’s easy to have a drink in the evening to ease the nerves. But I would still wake up thinking about it. I didn’t have any money to go out and play and “shake it off”. And I was worried. All the time. It’s a very real fear of “what happens next?”. It’s generally a secret and you worry that someday you will have to explain why you’re moving. You fear the future conversation “The IRS took all my money and therefore I lost my house”. At least I didn’t have to worry about the IRS taking my house. She got that. I had to leave my apartment though. God forbid you are interested in dating. Forget it. Romance is out of the question, no matter how lonely you feel. You don’t have money to eat, let alone go out to dinner. I was sleeping in my truck, and I was lonely, scared, and pissed off. You may be experiencing some or all of this, and it stinks.
People will judge you too. I’m a CPA (Certified Public Accountant). One of my old college friends had me over for dinner and I met her husband. It was a nice evening until the “how ya doings” got exchanged. Her husband said I must not be a very good CPA if I can’t even pay my taxes. After a comment like that it’s hard to explain that we split the balance sheet. She got the money, and I got the debts. There’s a country song that goes “she got the gold mine, and I got the shaft”. I can relate. In addition, I had to pay my ex’s housing expenses and it didn’t leave me enough to pay rent, let alone pay taxes. The IRS being a large debt of many, I simply couldn’t pay. Then I filed my taxes, and the only option was married filing separately, as required. The hole was dug at this point I didn’t see any way out. So much for dignity.
So here we are. I know it’s easy to get into trouble with the IRS. Everyone knows that, really. The trick is getting OUT of trouble. Not many people know how to do that. I didn’t at the time of my indiscretion. Where do you even begin? After solving client IRS problems for decades, I can give some ideas now. I always look at the following five types of solutions and help pick whatever is best based on your personal circumstances. These solutions will cover more than 90% of the IRS debt problems that are out there. There are circumstances where the IRS may not entertain one or more of these, but it’s rare. This is certainly the place to start.
Before going into the five common ways that most people fix there IRS problem, let me lay out two foundational truths that must be considered before jumping in. If you don’t consider the following, you may find yourself worse off than ever if you call the IRS.
First, the IRS will not give you any solution until you file all your outstanding unfiled tax returns. You will likely be asked where you work and where you bank at the beginning of your phone call with the IRS. Yes, when you call, they are setting themselves up to be able to garnish your wages and levy your bank accounts in the first few sentences. In many cases, people don’t even know that they have an unfiled return. Sometimes it’s because life got in the way and you didn’t do it. In many cases, the IRS simply lost your return. That has happened to me, twice! I always keep a copy of my certified postal delivery. They are understaffed and inefficient. If you have unfiled returns and can’t get a solution, they can proceed with levies. The only exception to this is if they are already garnishing your wages. At that point they may temporarily reduce (not eliminate) a garnishment on your wages if you prove every household expense that you need to be able to live. Then they will continue the garnishment on everything that’s left. The financial information they demand is a time-consuming process. They have allowances on how much you can spend on each item. In other words, they have a max they will allow for your house payment. The have a max they allow for food. They have a max on how much you can pay for gas, and even your car payment. I think you’d agree that it’s not a great idea to let the government tell you what you can buy with your money. But they keep the levy for all the expenses they disallow. AND if you don’t play their game as they direct, you have just given them a path to all your income, bank accounts, investments, and assets in the financial information you just provided to get the levy reduced. They now know where to find your stuff, and take it. So, listen to this advice. File all outstanding taxes before trying to get a solution. Interestingly, the IRS has defined “all” tax returns to mean the last 6 years. Good to know if you haven’t filed in a long time.
Second, you have to understand the Statute of Limitations (SOL). I will write in depth about this soon, but for now, understand that the IRS has 10 years to collect your debt, starting from the time the tax return was acknowledged by the IRS. There are a few things that can extend that ten year period such as filing for bankruptcy, leaving the country, and certain types of appeals to name a few. But you must consider how long the debt has been around. For example, if you try to set up an installment agreement with the IRS, they will deny it if it goes beyond the SOL. Then you would have to prove all kinds of financial information, similar to what was mentioned above, to get any kind of solution. But if it’s a relatively new debt, it may be pretty easy to get a payment plan, as explained below. The statute of limitations can affect pretty much any solution.
The following is not an exhaustive list, but these five types of solutions will solve 90% or more of all tax collection problems. The first two solutions involve eventually paying the IRS. The remaining 3 can reduce or eliminate the debt.
- The IRS generally will allow 120 days to fully pay them. They will put a hold on collections so the threat is over, and you can resume sleeping at night. Right NOW the IRS, and for a short time, will allow up to 180 days rather than the normal 120, due to covid. Sometimes all you need is a little time. In normal times the IRS will generally grant you 120 days to fully pay them. Not a shiny or glorious solution, but if all you need is a little time, it sure beats getting garnished or levied while you wait for your funds to arrive.
- Installment agreements. A payment plan can be a convenient way to pay them back over time. There are several ways to get a payment plan. The more you owe or more time you need, the more the IRS demands before accepting your terms.
It’s fairly easy to get a payment plan with the IRS if you owe under $250,000. But this type of payment plan will have to pay the IRS before the remaining Statue of Limitations expires. If not, your problem just got bigger, as you will have to provide the same information that you will have to submit if you have a large debt (over $250,000). For smaller debts the rules change if you owe up to $25,000, versus if you owe up to $50,000, or up to $250,000. Most of these differences relate to if they are going to file a lien or not and whether you allow them to direct debit the payment from your bank account. But any of these plans must pay the debt before the SOL.
If you have a large debt or if you can’t pay it off before the SOL, you may want professional help as the IRS is going to require you to provide very invasive financial information (see IRS form 433 for examples). They make you prove every expense and your income. Whatever is left over after deducting expenses the IRS will assume you have available money to pay them. Watch out for the IRS caps of what they will allow. Items like car payments, housing payments and even your food clothing and miscellaneous may be limited if you are outside of what they think you should need.
Another note about the streamline payment agreements discussed above for balance under $250,000 is that if you can’t afford the payment the streamline provision would demand, you’d have to submit the same financial information as if you had a large debt to prove how much they could get from you.
- Uncollectable Status. Sometimes the IRS will place your account in uncollectable status. If you receive a CP71 notice (see top right corner of IRS notice, look for CP71), that means they have already placed you in uncollectable status. What this means is that based on what they know about you, they don’t think you can afford to pay them, so they are going to leave you alone. You can request uncollectable status, but you must complete the same financial information as mentioned above for a larger balance installment agreement. The IRS reserves the right to periodically review your financial information so see if your situation has changed. If so, they will request payment as determined by the updated financial information.
- Offer In Compromise (OIC). An Offer (OIC) is a settlement with the IRS for less than you owe. They really will do this. I know a lot of people who refuse to believe this, but we’ve been doing them with great success for a long, long time (decades). You are required to complete financial information that proves that you are not able to pay them off. Once you prove that they may very well accept something less, sometimes a lot less, and get you back into the system. Any time your financial information supports a Partial Pay Installment Agreement, or Uncollectable Status, you should take a strong look at possibly requesting an Offer In Compromise. Basically, if you look at your financial situation today, and you can see there is no way you could possibly pay them, it’s time to consider an Offer In Compromise.
- If all else fails, and the IRS is looming over your shoulder and none of the above solutions work for you, you may be forced to file for protection under the bankruptcy laws. Not generally the best solution, but if all else fails, you may want to have an experienced professional take a look at it.
As a recap, these solutions will be available for over 90% of the tax debt problems out there. It’s not an exhaustive list but will cover most tax problems. If you have special circumstances, it’s always best to get professional advice.
If you have a smaller balance, you may want to look at diyIRShelp.com for a much less expensive alternative to explain the installment payment guidelines and IRS Fresh Start allowances. I have listed examples of the forms required and exactly how the rules apply. If you have a smaller balance, all you need is some guidance on how to set up installment agreements under the IRS streamline provisions. Do It Yourself to save money. If you can’t get a solution, anything you pay for the diyIRShelp video series can be applied toward services with Advanced Tax Solutions, CPA, PC. Subject to availability and qualification for a valid solution.
If you have taken a hard look at your finances and are pretty sure that you qualify for an Offer in Compromise you may want to check out diyIRShelp.com. This is a Do It Yourself video series that walks you step by step on how to file an Offer In Compromise on your own. The program was designed and taught by Advanced Tax Solutions, CPA, PC founder Todd Whalen. It’s always best to have a professional negotiate with the IRS process who fully understands the IRS maze of rule. However, if you can’t afford professional help, check out the diyIRShelp website. You don’t have much to lose, and if you decide to use a professional, Advanced Tax Solutions, CPA PC will apply what you paid for the diyIRShelp offer program to their services. Subject to availability and qualification (sometime people don’t qualify at all for an Offer, so we won’t engage to do one). This is what sets us apart from our competition… If we know we can’t help you, we will tell you and not take your money! See next page for a comparison of services.
If you need to talk with a professional call Advanced Tax Solutions, CPA, PC. (www.advancedtaxsolutions.com) They can guide you through all the solutions available and discuss in detail the pros and cons to each. 303-753-6040