Owe the IRS Big Money? Learn How to Solve Your Problem Here

Note: This article is written by R.C. Thornton. He runs a tax relief company, and I had the chance to interview R.C. on the podcast. You can listen to the interview here:


Did you know that 13 million Americans owe the IRS money right now?

It’s a sad story that has played out millions of times since the recession in 2008 and almost every day in my office.  

This is a story that’s equally as bad as, if not worse than, those who lost their jobs and retirement savings during the same crisis. It’s the story of those who owe tens—or hundreds—of thousands of dollars to the IRS.

Maybe you can relate. Maybe you’re self-employed, and a problem in your business made it hard to make payroll and pay your estimated taxes. Maybe you had to liquidate your retirement account to get by or care for a loved one, and accrued a big tax balance from penalties and gains. Whatever the reason, if you can relate, you’re not alone.

If you’re one of those people, you probably already know (or may already be experiencing) what the IRS can do when you owe. They can:

They can do all of this:

This is why it’s so important to act quickly any time you find yourself owing the IRS money.

Besides the above scenarios, IRS penalties can add up as fast as 5% per month, and if you don’t act, you could easily owe an additional 50% in penalties and interest on top of what you owe already. But if you act quickly, you may be able to avoid most or all of these potential penalties.

But how do you get started? You may wonder if professional help is worth your while. After all, it may seem cheaper to solve your IRS problem on your own. In some cases, you can afford to work directly with the IRS to get your problem solved. But in other cases, you may need professional assistance.

The Internal Revenue Code is about 80,000 pages long. The Internal Revenue Manual (which has the rules for when you owe but can’t pay the IRS) is thousands of pages long. The law and the rules are extremely nuanced. Different rules apply in certain situations, which may suddenly not apply with the slightest change in facts.

This is why so many people call or visit me in dire straits because they’ve already tried to negotiate with the IRS on their own. But they failed because they struck a deal that was impossible for them to uphold. And when you break a deal with the IRS, things do not go well for you.

Should anyone represent themselves before the IRS?

If you’re dealing with a fairly simple case, you may be able to negotiate a payment plan on your own. For instance, say you’re a micro-business owner who doesn’t have enough money banked by April 15th to pay your annual taxes. In this case, call the IRS right away to set up a payment plan.

Yes, you’ll have to pay some penalties, but they’re not all that steep as long as you file your taxes on time in the first place. If you have the money to pay right away, or in installments over the next two years, you may be able to deal with the IRS on your own. In fact, you can go online to set up an installment agreement today.

But if your situation is worse—if you owe more money or have other red flags going off—you may be better off finding someone to help you deal with the IRS. 

Why you might actually need professional help

Working with the IRS on balances due is the collections side of the IRS. Unfortunately, there are relatively few accounting professionals who focus on this area. Out of every 300 CPAs in your town, it’s likely that only two or three handle IRS collections. I know here in Phoenix AZ, the sixth-largest city in the US, our firm is one of five or so that focus exclusively on collections.

So when it comes to IRS collections issues, you should find a firm that specializes in this area of law. These firms specialize primarily in the Collections rules, and will be able to assist you in areas like:

  1. Removing penalties through reasonable cause or the first time abatement.
  2. Setting up a payment plan to pay taxes off over time
  3. Getting you declared “currently not collectible
  4. Helping you settle your tax debt for less than what you owe.

A great tax resolution firm can help you sort through the complexity of a case, especially if it seems simple at first but quickly gets more convoluted.

For instance, if it looks like you owe the IRS $11,000, you could actually owe more because of penalties and interest. If you have any unfiled returns to deal with, that will make things even more complicated. And it can sometimes be hard to tell when the IRS is going to start levying your bank account and garnishing your wages.

Plus, you may not know of different ways to work the system in your own favor. For instance, sometimes you can save money through an abatement of penalties. Other times, you can have the tax lien withdrawn or subordinated. Or you could have your debt reduced by filing a replacement for a Substitute for Return.

Even some seemingly simple cases can have pitfalls and opportunities that aren’t immediately apparent. A good professional will walk with you step by step through the options that are available to you so that you can settle your tax debt as quickly as possible and for as little as possible.

But what about scams?

Sadly, our industry has had its fair share of charlatans. Everyone’s heard about TaxMasters, who bilked taxpayers out of tens of millions of dollars by not doing the work or by charging thousands for tax relief that there was no chance of the IRS ever approving in the first place.

The industry has cleaned up since then. However, some of the negative traits of the past live strong today.

Most prominent is the boiler room style sales tactics. These include lofty threats about imminent IRS action, including liens and levies. Now please understand, when tax law professionals make these claims, they may technically be telling the truth. However, it’s the way they present it—with the intent of pressuring you to make a decision nowthat is questionable.

And if you don’t buy now? Many companies will call you multiple times per day trying to pressure you into making a decision.

Should you move quickly when you are dealing with an IRS problem? Absolutely! But, it should be on your terms and not because some slick talking salesman forced you to make a decision you weren’t ready for.

Another common problem is promising extensive relief when it’s simply not possible to get it. The IRS has extremely strict rules for what type of relief taxpayers are qualified for. Settling for “pennies on the dollar,” while certainly possible for those who legally qualify, is not easily obtained. And, frankly, most people do not qualify for this kind of extreme relief.  

To find out what kind of relief you may qualify for, check out the IRS’s Offer in Compromise Pre-Qualifier tool, found here. This tool can give you a ballpark idea of where you might stand in relation to the IRS, but it doesn’t capture all of the nuances in the law to give you a definitive answer. It’s just a guilding light in a sea of fog, and it can help you know when tax firms are trying to sell you based on wildly false claims.

The last consideration is pricing and who will actually be doing the work. I think we all understand that for someone to do an excellent job on our behalf, we have to be willing to pay for that service. However, many of the larger tax resolution companies charge fees that are not only far in excess of what you could get working with a local tax pro or attorney, but they also pass your case off to inexperienced, unlicensed professionals who wind up doing the majority of the work.

In and of itself, this is not bad. The problem comes when there is no accountability because you cannot get someone on the phone to answer questions, and where your case details go “forgotten about” for months. This is an all-too-common occurrence you can read about readily on complaint threads for some of the industry’s largest players.  

So what should you do?

For any company you consider working with, you should inspect thoroughly for complaints. If you don’t see any, you should make very specific inquiries when you talk with the company: who will actually be doing the work? Who is the accountable person? And if they say you qualify for “pennies on the dollar”, ask them specific questions about why. If they can give you a reasonable answer backed by concrete facts, they may be telling the truth. 

With a little bit of research, you can weed out the “sell you anything” salespeople and get a sense of if they truly have your best interests in mind.

Act now, and act smart

IRS problems get worse, quickly. If you act now, and act intelligently, I can guarantee you that the IRS will work with you to solve your IRS problem, once and for all.

R.C. Thornton, II is an Enrolled Agent licensed to practice before the Internal Revenue Service by the Department of the Treasury.  He holds a Masters in Taxation from Arizona State University, and is President of Champion Tax Relief, a tax relief firm serving clients around the country.

 

 

Topics: Taxes

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