strategies-init

Now we want to move on to the meat of the presentation, which is how to resolve IRS collections issues. There are a series of remedies that are prescribed within the IRM and that the IRS will accept as an acceptable means of resolving a taxpayer’s delinquent account. Those measures are as follows: The first measure is the IRS will always allow you to pay them in full. They will take a cheque for the full amount anytime you want to give it to them. They are happy to do so. The next remedy is if a taxpayer needs more time to pay, they will give you a 120-day extension to pay. It’s just very nice of them. The next method of resolving – although not prescribed by the IRM – is to run. You can run from the IRS. You can flee. You can evade their collection statute. You cannot keep any cash in the bank and say, “IRS, come after me”.

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I want to give you some tips on how to pay the IRS in full. It seems pretty easy at face value. You write them a check. You hand to them and you say, “Thank you. Have a nice day.” But there’s actually some new answers that I want to go over that you may not be aware of and that may help you in guiding clients towards paying their liability. The first thing that I would caution you on is that IRS liabilities are somewhat negotiable, particularly the penalty portion of the liability. If you had a client with a failure to file penalty, let’s say they’ve been assessed a $5,000 failure to file penalty, just asking the IRS to negotiate or abate the penalty, and/or possibly submitting a penalty abatement letter can reduce the balanced owed particularly if the client is going to pay the underlying tax. If you have a situation where you’re willing to pay the underlying tax, then in a lot of situation the penalties are highly negotiable depending on the circumstances.

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The next method for resolving IRS liability is the 120-day Extension to Pay. The IRS particularly if the client has a wonderful compliance history will grant an automatic 120-day Extension to Pay. You can get this simply by calling ACS or writing in. We recommend you call ACS in saying, “My client intends to pay fully. But we need a little bit of time. Can we get 120 days?” Generally, if you don’t ask for 120 days then we won’t give you 120 days. So, make sure you say, “I want a 120 days.” Again, when you’re dealing with ACS agents, a lot of times they are not being most taxpayer-friendly. You want to make sure you ask for your 120 days. However, what the IRS doesn’t tell you is even though a 120-day Extension is granted for you automatically, there may be ways to buy your client a little bit more time. For example, if you call ACS and you say, “My client is going to pay you but we need 30 days to pay it off. Can you give me a 30-day collection hold?” The IRS will say, “Great.

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Briefly I want to talk to you a little bit about the Statute of Limitations on Collections. By law, the IRS has 10 years to collect on a liability from the daily assessment. The IRS when a liability is assessed, let’s say the taxpayer will file the return on April 15th of 2010, then, the IRS would have until April 15th of 2020 to collect on that liability. Now, the date of assessment is really important for determining statute of limitations because there are multiple things that would cause the Statute of Limitations to talk. For example, if you have a 2010 return which is due in 2011 and you don’t file it until 2014, then the date of the assessment is not 2011, it is 2014. Correspondingly, if you file a return on 2011 and then amend the return in 2014, that will re-trigger the Statute of Limitations on Collections. Also note, if you got a client with SFR filings, a Substitute for Returns, and you go and file the tax return, that will reset the collection’s Statute of Limitations. So, it’s very important to be mindful of the collection’s Statute of Limitations.

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Briefly, I also want to talk about some of the problems associated with running from the IRS. Now, it seems like a funny subject–people running or evading their collection potential. I don’t want to use the term ‘evading’ very loosely because I will not want to see a criminal activity. But we may be dealing with a client who has just been off the grid for a couple of years, or through a series of an unfortunate circumstances has not met their filing obligations, and maybe have not been using their bank account or have been kind of sticking their head in the sand. By ‘evading,’ we don’t suggest they’re criminals. They’re just ducking their responsibilities from the IRS as it tends to happen from time to time. The problems with “running” from the IRS are these. Mainly you are always at risk of collections. Any asset that you have, any job that you hold, if you are not actively working on an installment agreement with the IRS or negotiating an Offer in Compromise or doing something to resolve your account, then you are technically not in compliance. When you are technically not in compliance, the IRS can take a serious of actions against you. They can levy you. They can garnish your wages. They can put liens on you. That pressure doesn’t go away if you are not doing something to actively resolve your account.

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The next thing I want to talk to you about is Installment Agreements or payment plans. The IRS is famous for accepting payment plans for liability. They recognize the taxpayers who may owe a large liability may not have all the money upfront. Therefore, in order to get back in the compliance they need to be put on the payment plan. There are four types of payment plans that you should be generally be aware of. The first one is what’s called an automatic payment plan or an automatic installment agreement. An automatic installment agreement is an Installment Agreement by right. If you owe less than $10,000, the IRS statutorily require to put you in a payment plan if you request it. That’s a very powerful tool for taxpayers with smaller liabilities and you can call the IRS, and put them in a payment plan immediately without much consideration to their financials. The second type of an installment agreement is what we call a Streamline Installment Agreement. Taxpayer should owe $25,000 or less or in certain cases $50,000 or less can apply for a streamline installment agreement.

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What happens when an Installment Agreement is rejected? When an Installment Agreement is rejected, fear not. You have several options. What will happen is you usually submit a request for an installment agreement to the IRS with the company financials. If the IRS decides to reject that Financial Statement, they will issue a letter. That letter is a formal rejection of the installment agreement. They say, “Dear taxpayer, we have decided to reject your installment agreement. We think you can pay.” We know you want to pay $300 a month; we think you can pay $3,000 a month.” The taxpayer goes, “Oh, no. I can’t pay $3,000 a month.” At that point you can take your Installment Agreement to the Appeals Division of the IRS through what’s called the Collection Due Process Appeal. You can appeal the rejected installment agreement. That letter is your ticket. In your appeals, you file a CDP Form and get into appeals. An Appeals officer will give you a second bite of the apple with respect to your financial statement. The Appeals Officer generally is not allowed to consider new information. He has to go base on the financial statement that you submitted. But oftentimes that letter that you received from the IRS rejecting your financial statement will clue you in to what the problem is. The IRS thinks you have available equity in your home.

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The Offer in Compromise Program is a program that was developed by the IRS to give taxpayers a fresh start on life. A taxpayer in exchange for a lump sum or in exchange for a settlement of monthly payments can eliminate past tax liability in exchange to the promise of future compliance to the IRS. If the taxpayer promises to pay in full and on time, and file on time then the IRS will forgive their past tax liability. Sounds a good, great deal but it’s also a tremendous deal for the government, as well, because the taxpayer is essentially getting back into compliance to paying everything and the government loses that cost of having to administer the taxpayer’s file. It’s actually a win-win for both parties. With that said, there’s been a lot of negative press associated with the Offer in Compromise Program. You’ll see hilarious ads on TV that you can settle your tax liabilities for putting your pennies on a dollar. Although that is true, a lot of people have abused the program. They submit Offers in Compromise that don’t have a chance of being accepted. Offers in Compromises work on a pretty strict formula which I will get into a minute. The most common type of Offer in Compromise is what we call a Doubt as to Collectability Offer in Compromise.

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Let’s talk a little bit for a second about Doubt as to Collectability Offer in Compromise, the successes and the more common ones. So, Doubt as to Collectability Offers in Compromise fall under a specific set of guidelines. Doubt as to Liability Offers in Compromise are based on a formula that is the quick sale value to find by the IRS at 80% of the value of the taxpayer’s assets plus the positive monthly cash flow times 60 months. If a taxpayer is showing $10 and positive monthly cash flow over 60 months, that’s $600. A hundred dollars a month in positive monthly cash flow, that’s $6,000. A thousand dollars a month in positive monthly cash flow, that’s $60,000. Positive cash flow is really important from an Offer in Compromise standpoint because little changes in the positive monthly cash flow of the taxpayer really affect the minimum offer amount that the IRS will accept. When determining whether your client is an Offer in Compromise candidate, one of the best things to do is ask the client what assets do you have? List out the assets that they have, determine what their value is, meaning not with the client’s assessed value is but with the quick sale value of the client of the asset is. Then, take those assets and list the client’s income and expenses out, and figure out what their positive monthly cash flow is if any and then, that gives you an idea of what their minimum offer amount is. That’s a really great trick to pre-screen Offers in Compromise.

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