Are you still struggling with tax debt?

When you originally signed up for the Taxing Times email newsletter, you most likely did so because you were looking for information on reducing your tax liabilities and fighting against IRS collections actions.

I do hope that the advice and tips that I share in the newsletter and in the blog have been helpful to you in working out a solution to your tax debts. However, if you are still struggling under the burden of IRS Collections, and are in a position where hiring full service representation simply isn’t financially feasible to you, I’d like to make you an offer of assistance that you’re simply not going find anywhere else.

I recently put together a comprehensive “Do It Yourself Kit” that includes the instructions for negotiating your own tax relief. This kit, which I’m tentatively referring to as the Personal Tax Resolution Toolkit, contains not only instructions for negotiating your tax resolution, but also includes little tidbits of “tribal knowledge” gained through years of working with the IRS that most people simply don’t know.

On top of that, the kit includes the necessary forms, template letters, and other materials that you’ll need in order to represent yourself in front of the IRS.

But wait, there’s more! 🙂

Since I want to get this kit into the hands of a few real life customers in order to have them put it to the test for themselves, I’ve decided to add in some additional personal guidance and assistance from myself in order to help out with their case.

Now as you probably already know, I take on very few new clients, and heavily guard my time, especially via the telephone. However, for the next few days only, I’m going to include some personal assistance as a bonus for the first few Personal Tax Resolution Toolkit customers.

What kind of personal guidance am I including? For the rest of this week, I’m basically giving away the store:

  • A 30-minute telephone consultation with me to review your situation and advise you on a course of action (worth $125)
  • Power of Attorney Service (worth $195): I will become your Power of Attorney with the IRS and monitor your IRS account activity.
  • IRS Notice Advisement (worth $495/year): Advise you on what IRS notices mean and what you need to do about them, as they arrive.
  • Investigation of Liability (most firms charge $500 to $1,000 for this service): Obtain and analyse your IRS account transcripts, and advise you as to what you need to do to correct them and what options may be available to you, such as Appeals actions.
  • 60 days of unlimited email access to me as you work through your tax situation (value: at least $2,500, if not more)

Again, this is only going to last for the next few days, and I can absolutely guarantee with 100% certainty that I’m never going to make this offer again, especially for such-a-low-price-it’s-almost-free. But, I want to get the toolkit into a few people’s hands so they can work with it and give me feedback on the system from the perspective of somebody that is not a tax professional.

To take advantage of this offer, or if you know somebody that could use this level of assistance right with an IRS tax debt, please visit the Personal Tax Resolution Toolkit page.

This offer will stand through Friday evening or the first five customers, whichever comes first, at which point the free access to a licensed tax professional will be removed from the offer.

If you’re still struggling with an IRS tax liability, take advantage of me now while I’ve got some free time, and save a ton of money over traditional tax representation.

The Truth About Tax Resolution Fees

Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different potentials for abuse by the firm offering the services, and it is important to do your due diligence and fully understand what you are paying for, how much, and when, before ever paying a single dime to a tax resolution firm.

One of the most common fee models is a retainer model, which is a carryover from the world of legal and CPA firms from which many tax practitioners come. Under this model, you pay an up front amount, which the firm holds on to and then bills against on an hourly basis. Close to the time when the retainer is all used up, you will (or, actually, SHOULD) get a bill showing what was done, how long it took, and the hourly rate it was billed at. This bill will usually also include a request for additional retainer. The key thing to remember here is that if you don’t keep paying, they don’t keep working.

If you’ve been researching particular companies online, you may already have come across BBB, forum, Attorney General, and other complaints against some firms that aggressively bill down retainers, and are constantly asking their clients for more money, without making much significant progress on a client’s actual tax case. It is important that you thoroughly vet a company before giving them money, in order to avoid becoming another victim of a devious company.

Another common fee model is a flat fee-for-service model. This fee model has a large number of variations, from a flat fee for a specific package of quoted services, to a “menu of services” model where each service you can order off the menu has a specific fee. This latter method is very akin to the most common pricing model used in tax return preparation, where each specific tax form has a particular fee for preparing it. You’ll see this fee model used at just about any CPA firm or retail tax preparation outfit (including Jackson Hewitt, H&R Block, etc.).

When you are speaking with a sales person regarding a package of services, it is very, very important that you understand exactly what services you are being quoted for, and what the company’s policy is regarding fees for additional services. When it comes to tax matters, it is not uncommon for additional services to be required, which will require additional fees if they are not covered in the quotation you are already working under. Ideally, the sales person you speak with will have conducted a thorough analysis of your situation and will have included everything in the proposal sent to you.

When comparing proposals between multiple companies, keep in mind that you probably aren’t comparing apples and apples, but rather apples and oranges. Here are things to consider when comparing proposals between firms that are competing for your business:

  • Is any tax return preparation included in the quote?
  • Does the fee include all appeals necessary for handling your case?
  • For business owners, is Trust Fund Recovery Penalty representation included?
  • How many quarters or years of tax issues are covered by the fee quote?
  • Is a penalty abatement application included, or is that extra?
  • What specific resolution option does the fee cover, and what happens if the resolution strategy changes?

This last question is particularly important. There are some tax resolution firms that will try to sell everybody an Offer in Compromise, because they charge a higher fee for this service. However, it is critical for anybody and everybody to understand that most individuals and small businesses DO NOT QUALIFY for an Offer in Compromise. In fact, the IRS accepts less than 20% of all Offers that are ever submitted, and the only reason this number is so low is because of the high number of ineligible offers that get submitted in the first place. It is also important to understand that the average processing time for an Offer in Compromise exceeds 10 months.

What does this mean for your fee? Well, a reputable firm will conduct a thorough financial analysis, and tell you whether or not you are an Offer candidate. If you are not, then they will negotiate another resolution option for you within the same fee. If a firm tells you they will charge an additional fee for negotiating an Installment Agreement (monthly payment plan) after you’ve already paid a higher fee for an Offer in Compromise, then you should seriously question this.

You should also beware the firm that tells you that, yes, you are an Offer candidate, even when you own assets in excess of your tax liability. Simply put, if you have assets that exceed your tax debt, then the IRS will never accept your Offer. There is an incredibly rare exception to this rule, but it’s so rare that it only happens once or twice per year (literally). This exception is called the “Effective Tax Administration” rule, and if a firm tells you that you can qualify under this rule, then chances are you are being straight up lied to. You practically have to be on your death bed in order to qualify for this exception.

Another big thing to consider when discussing fees is the issue of what’s an appropriate fee, and what is too much. The cost of a service obviously varies based on geographical location, but in general fees for tax resolution services across the country do fall into a line of what’s appropriate and what’s not. Here are some examples of what would be considered standard fee ranges for certain services:

  • Negotiating an IRS Installment Agreement, penalty abatement, and all appeals on a $40,000 personal income tax debt: $2500
  • Same as above, but on a $200,000 business employment tax debt: $5,000 to $7,000
  • Trust Fund Recovery Penalty representation: from $1,000 to $2,500, depending on the nature of the case
  • Preparing a basic personal income tax return, married filing jointly, a home, two jobs, couple kids: $300-$500
  • Preparing a small corporate income tax return with less than $250,000 per year in revenue and no significant assets: $500-$800
  • Preparing a more advanced corporate tax return with multiple shareholders, assets, high revenues, etc: $1,200-$2,500
  • Negotiating an Offer in Compromise on a $150,000 personal tax debt: $3500 to $5000
  • Negotiating the release of a wage garnishment, and nothing else: $400 to $1,000

These are just examples of the types of fees you may see when it comes to working out tax problems. There are numerous factors that go into properly quoting a tax resolution fee, but when comparing proposals, these numbers can give you a good idea of what is considered reasonable.

Options for Low Income, Low Tax Debt Situations

A friend of a friend was recently referred to me for some help with a tax problem. This individual isn’t rich, works a regular job for a paycheck, and simply got behind on personal income taxes. The situation is compounded by the possibility of some errors on the originally filed tax returns, which I have yet to examine to make that determination one way or the other.

This is NOT an uncommon situation these days. Regular, working class folks that owe a few thousand this year that they can’t pay, and the same thing the next year, etc. Do this for 3 or 4 years, and suddenly you owe the IRS $10k, $15k, $20k…with penalties and interest growing it daily. So, what to do?

First and foremost, I have a rule. It kind of stems from my rule regarding work from home opportunities (“Never pay a fee to get a job”), and it goes like this: Don’t get screwed by a tax resolution firm promising you the world when you can easily fix the problem yourself.

Yes, the IRS carries a big stick. But they’re not going to hit you upside the head with it if you take care of the situation.

First of all, if you believe you’ve made mistakes on your tax returns that caused the liability, then you should have the tax returns amended. You have three years from the date a return was filed in order to correct it, so if you’re in that time window and you think you would owe less if they were fixed, start there.

Second, if your tax liability is under $25,000 and it’s personal income tax, then there is a special program available called a Streamline Installment Agreement that you should look at. Under this program, the IRS will let you enter up to a 5 year payment plan (or less, if you can shoulder the monthly payment), in order to pay this off. Warning: Penalties and interest still accrue while you’re on a payment plan!

If the tax debt is getting old, say older than 6 years, then another option might be to get you into a non-collectible status and just ride it out until the statute of limitations expires (which is 10 years). For this, you have to be able to demonstrate that, in a nutshell, you are flat broke and scrape by paycheck-to-paycheck. If you suddenly win the lottery, the IRS will see that and come knocking on your door again, of course.

The final option to consider, if you *are* broke and really just want the monkey off your back, is an Offer in Compromise. Despite the commercials you may see on TV, the Offer program is not a straight up “pennies on the dollar” deal, but you must rather demonstrate financial necessity. If you’re single with no kids, have a car payment, and don’t own anything of value (art, a house, coins, gold, guns, stocks, bonds, retirement accounts, classic cars, an island, etc.), and you make less than about $3000 to $4000 per month (it depends on what part of the country you live in), then you might be a candidate for making an Offer in Compromise of some nominal amount (it has to be at least $1). This route requires extensive personal financial disclosure and takes about 6 months from start to finish, most of which is simply waiting on the IRS to process the application. If you have kids or a spouse, the amount you can make and still qualify goes up. If you don’t have a car payment, the amount you can make and still qualify goes down.

Elsewhere on this blog, I cover the OIC program and Streamline Installment Agreements in further detail. Also look for the Guaranteed Installment Agreement post if you owe less than $10,000 — those are easy as pie and can be done over the phone using an automated voice response system.

If you qualify for a Guaranteed or Streamline Installment Agreement, you can easily do it yourself over the phone. Getting into Status 53 (Currently Not Collectible) is almost as easy, and takes less than an hour on the phone with the IRS. An Offer in Compromise is obviously a bit more complicated, and while plenty of people do these themselves, many choose to hire representation to help them out on this (but you still need to be weary of getting screwed on fees and doing business with a reputable firm).

Until tomorrow,

Jassen Bowman, EA

IRS Offers in Compromise And Your Tax Refund

Expecting a tax refund this year after you filed your tax return last month? You did file your tax return last month, right? A couple quick things about that.

First, if you have filed an IRS Offer in Compromise (OIC) and it is pending approval, or it has been accepted, you MUST file your tax returns on time and paid in full for a period of 5 years. If you fail to do this, your Offer in Compromise will be denied or, if already approved, REVOKED, and your full tax liability reinstated.

Second, if you filed your tax return and are waiting for that refund check, you’re going to be waiting for a very long time. One of the conditions of filing an Offer in Compromise is that the IRS will intercept (i.e., take) your tax refunds on any tax returns you file. They will do this through December 31st of the year in which your Offer in Compromise is ACCEPTED. Since it takes usually 6+ months for an Offer in Compromise to work it’s way through the complete bureaucracy of the IRS and negotiate it’s final acceptance, you really don’t want your Offer in Compromise to span multiple years.

If you are thinking about filing an Offer in Compromise anytime soon, do it NOW. Then, try to get it DONE before the end of this year. That way, you will get to keep any tax refund you might be due to get when you file your tax return next year.

If you need assistance with your Offer in Compromise, check out our Offer in Compromise Application Service, which offers preparation of your OIC application and required financial forms for a low flat rate as an alternative to traditional full service tax representation, which will typically cost you several thousand dollars for an Offer in Compromise application.

Evaluating Your Tax Resolution Options

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. Tax resolution companies and independent tax professionals don’t want to hear this, but the reality is that most people can fix their tax problem without professional help. Simple tax debt problems that only cover a year or two, especially cases where the tax debt is under $10,000 (or under $25,000 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.

Let Your Tax Preparer Handle It

Most people don’t know this, but even if your tax preparer isn’t a licensed attorney, CPA, or Enrolled Agent, they can actually still represent you in most cases if they prepared the tax return from which the tax debt comes. If you trust your tax preparer to do this for you, chances are they can do it for much, much cheaper than a licensed tax practitioner, and will most likely obtain similar results for you. This is especially true, again, if the debt is under $25,000 and consists solely of 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 $25,000, you MIGHT want to take hiring professional licensed representation into consideration.

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 guy. If the sales guy 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 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. It should also be noted that the CPA personality stereotype is mostly true — fairly timid number crunching geeks. When it comes down to pure negotiation skills, most EAs and CPAs just don’t have the personality to hold ground against an IRS officer.

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 in general. 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 tax resolution work. In fact, I may be so bold as to suggest working with a licensed tax professional that ONLY does tax resolution work, and doesn’t do seasonal tax preparation at all, doesn’t run a payroll service, etc. Most large metropolitan areas of the United States will have several local professionals that specialize just in this type of work. In addition, there are dozens of nationwide firms that offer these services, and it’s ALL they do.

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”.

I hope this article will help you in selecting the best option for resolving your tax debt situation. In future articles on this blog, I’m going to focus on the “do it yourself” side of things, and show you how to do things on your own, or at least provide you with information to understand what your tax practitioner is doing or is quoting to you.

5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt

There has been a lot of media attention lately placed on the tax resolution industry. With the recent FTC bust on American Tax Relief, the California Attorney General coming down on Roni Deutch, and the Texas AG going after Tax Masters, the American consumer is left with the impression that IRS tax attorneys and tax resolution firms are just as bad as used car salesman.

While it’s true that these companies, and numerous others, have created a bad name for the tax resolution industry as a whole, the fact of the matter is that these companies are the exception, not the rule. There are dozens of companies with horrible BBB records and numerous reports on Ripoff Report and other web site. However, for every one of those bad apples, there are dozens of reputable, hard working firms that are just as big as the con artists, and for every one of THOSE firms there are literally hundreds of independent practitioners out there, including IRS tax attorney, IRS licensed enrolled agents, and state licensed Certified Public Accountants. Any of these licensed professionals are allowed to represent  taxpayers in front of the IRS.

The FTC recently posted a consumer alert telling people to handle their IRS disputes themselves. As an Enrolled Agent myself, I’m obviously biased in opposition to the FTC’s statement, but there is also a logical side to it. Look at it this way: You have one Federal agency telling you NOT to exercise your right to representation in front of another Federal agency. Doesn’t that sound a tad bit interesting?

Here are five reasons you should use professional representation to resolve your IRS tax debt:

  1. First and foremost, you should hire professional representation when dealing with the IRS for the exact same reason that you would hire an attorney if you got a DUI: The professional knows the laws, knows how the system works, and deals with it every single day, you don’t. It’s the same reason you call a plumber when the pipes burst, or the fire department when the house catches fire. These professionals are experts at what they do, in the same way that you are an expert at what you do.
  2. In the same way that attorneys talk to attorneys on a slightly different level than the rest of us do, IRS collections agents, auditors, and other staff are financial and accounting people, and they will speak differently with another accounting professional than they do with you. This benefits you in a number of ways, including avoiding miscommunications and helping to cut off issues before they arise.
  3. Your tax professional is unique because they speak multiple languages: Tax law, accounting, negotiation, and probably a few others. These languages are important to speak when addressing the IRS. Again, it comes down to doing what you do best, and hiring out the rest.
  4. Your tax representative understands all your options and what to do in different circumstances, you don’t.
  5. An Enrolled Agent or tax attorney is YOUR representative, and is looking out for YOUR best interests. The IRS agent on your case is not your friend, and is there looking out for the best interests of the government.

Keeping the above things in mind,  choose carefully when it comes to taxpayer representative. Exercise your right to representation, and don’t let the IRS bully your around just because you don’t know the laws and aren’t an accountant.

In my next post, I’ll discuss what you should look for when choosing a representative, and questions you should asking before sending any money.