1. WHAT ARE INCOME TAX PROBLEMS
Clients often come to us who have unpaid income tax problems. These tax problems come in several varieties. Unpaid taxes can result from:
Didn’t file Form 1040's tax returns for various years
Did file the required IRS income tax returns, but didn’t have the money to pay the tax
The IRS filed a tax return for you and you owe taxes.
Any combination of the above scenarios.
2. SOME ROOT CAUSES OF UNPAID OR UNFILED INCOME TAXES
A client’s failure to file their income tax returns or to pay their taxes usually come about because of one or more of the following reasons:
Clients has low income which causes them to have to spend the money they had set aside for taxes.
Clients have low income which causes them to not be able to set aside enough money to pay the taxes in full.
Clients have poor bookkeeping habits which causes them to accidentally spend the tax money.
Clients have their records lost or destroyed which causes them to not file their tax returns or not know how much tax they actually owe.
A spouse either runs off with the tax money, or doesn’t pay it to the IRS on time, or doesn’t file the tax returns..
Client intentional tries to avoid paying the payroll tax.
Client is a tax protestor.
3. UNDERSTANDING THE IRS’ ATTITUDE TOWARD TAXPAYERS WITH UNPAID TAXES
To say the least, the IRS attitude toward taxpayers who owe taxes is never “friendly”. Their job is to collect the taxes from you, and they’ll do whatever it takes to legally get the job done.
The IRS can be very aggressive, and they put a lot of pressure on taxpayers to pay unpaid taxes.
The IRS’ attitude toward you goes something like this:
There is NEVER any circumstance in life that should keep you from paying your taxes.
If you owe taxes you are probably untrustworthy at best, and a scoundrel at worst.
Caution! Their collection efforts may result in you going out of business, or make it very difficult to pay your necessary living expenses. But the IRS really doesn’t care. After all, you caused this problem, not them.
They will use ALL the weapons in their arsenal to collect the money you owe them, including seizing business and personal assets. You must be very aware that they don’t care about what happens to you or your business, just as long as they get their money.
Laws, written to greatly favor the IRS, make it more difficult for you to file bankruptcy against income taxes. This means that you might not be able to get rid of income taxes simply by filing bankruptcy.
4. KNOWING THE IRS’ SPECIAL RULES FOR SETTLING UNPAID TAXES
Special IRS rules apply if a client wants to file an “Offer in Compromise” on income taxes. An Offer in Compromise is when you pay less than you owe to settle your tax debt. Sometimes you can settle for a lot less than you owe, and the IRS still considers your tax debt to be “paid in full”.
Special rules that apply:
You must have filed your most recent Form 1040 Form, or at least have it filed by the time the settlement Offer is filed.
In addition, you should also have filed the previous five tax year’s Form 1040 tax return
If you have a business, you should have filed your most recent tax year’s Form 941 tax return.
Also, if you have a business, you must have filed the last two quarter’s Form 941 Forms, and paid them in full.
After an Offer has been accepted by the IRS, you must file ALL required tax returns and pay ALL required taxes for at least the next five years. If you don’t do this then the IRS will revoke the Offer and they will begin collecting the entire tax amount originally due, PLUS interest and penalties.
5. DEALING WITH THE STRESS OF FACING THE IRS
Dealing with the IRS under any circumstance can be stressful. But taxpayers who owe taxes to the IRS face even greater stresses. These additional stress factors include the following:
Having to worry about concentrating on your job or business, AND worry about raising money to pay the back taxes.
Having to worry about the ordinary pressures of life, such as paying personal expenses, while also paying the back taxes.
Having to worry about paying current taxes and filing the current tax returns - on time, every time.
Pressure from very aggressive IRS collection folks, who don’t understand how tough it is to work a regular job or to run a business, pay your expenses, and pay taxes.
And perhaps the greatest stress of all for some is the stress of trying to keep your marriage from falling apart due to these extra stresses.
6. STEPS YOU MUST TAKE TO PREPARE TO DEAL WITH THE IRS
Certain steps must be taken in almost every case when beginning to defend a Client against the IRS.
These steps include obtaining the following information and documents from the Client:
Obtain an up to date Income & Expense Statement for the Client’s business, if it is still in business.
Obtain a completed IRS Form 433-B on the business to determine what assets it has and their values.
Obtain a completed IRS Form 433-A on Client’s personal finances to determine what income, expenses and assets the Client may have.
Obtain a very detailed budget form for Client’s personal expenses.
Make sure that Client’s business, if one is operating, has filed its most recent Form 941, Form 940, and Form 1120 if needed.
Make sure that Client has filed his most recent tax year’s Form 1040, as well as for the past five years as well.
Obtain copies of the most recent tax year’s IRS Form 1040 and Form 1120 (if Client has an incorporated business which is in operation).
7. DEVELOPING A GAME PLAN TO SOLVE YOUR TAX PROBLEM
Once the Client’s financial information has been complied by my office, we will begin to analyze it. We do the analysis in order to accomplish several goals:
Obtain the IRS’ own internal information on Client. This special IRS internal information shows us all of the Client’s tax debts, important dates such as when tax returns were filed, and which tax returns the IRS believes, rightly or wrongly, have not yet been filed, as well as other important information.
We attempt to stop any IRS collection action, such as garnishments or the placement of liens on any business or personal assets.
We may set up an Installment Agreement (an IRS monthly payment plan). We may do this even if we are going to settle with the IRS by filing an Offer in Compromise (an Offer is where you settle with the IRS for less than the amount of taxes you owe, sometimes much less ).
We must become very well-acquainted with your financial facts so we can determine if you are even a good candidate for an Offer in Compromise (an Offer is where you settle with the IRS for less than the amount of taxes you owe, sometimes much less).
8. CONCLUSIONS YOU SHOULD REACH IF YOU ARE SERIOUS ABOUT SOLVING YOUR TAX PROBLEM
The best way to deal with a tax problem is to NOT ignore it. Just like with rotten vegetables, unpaid taxes don’t get better just because you put them into a dark closet. You must:
Reach down within yourself and get the courage to face up to your problem.
Deal with your problem sooner, rather than later.
Try to develop a workable plan to deal with your problem, both now and in the future
Hire a tax professional who can advise you each step of the way
Hire a tax professional who stand between you and the IRS and will be an emotional buffer between you and the IRS, so that you don’t have to talk or meet with the IRS.
Realize that there’s a lot at stake here. This is your life we’re talking about. ONLY hire a true licensed tax professional, who can verify that he/she has the experience (and guts) necessary to defend tax clients.
MAKE SURE sure that your licensed tax professional has defended clients, just like yourself, a large number of times. Unfortunately, hiring a local accountant or CPA may not get the job done. You certainly don’t want them to use your case to learn on. You’re not a guiena pig. Let them learn on someone else.
9. TAKE ACTION
Forcing yourself to action may the be the hardest step of all. You must:
Deal with your problem — Don’t ignore it.
Only YOU can start the process of dealing with the IRS — START TODAY.
Try to get a good night’s sleep. When you go to bed at night, try to sleep. Try to stop your mind from thinking about just your tax problem.
Get out of bed in the morning. When you wake up in the morning and you want to simply pull the bed covers up over your head and hide from your problem — don’t do it. Jump out of bed and take action.
Don’t forget to spend quantity time with your family all through this crisis. You’ll need this time to recharge your mind and body — Plus your wife and children still need you to.
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