Author: Garrett Firestone

Why Tax Resolution Software Isn’t the Answer

When you hire a doctor or attorney, you expect them to have an expert level understanding of your situation and how they can remedy the problem you came to them with.  Tax resolution is no different.  While the IRS authorizes any Enrolled Agent, Certified Public Accountant, or Attorney to represent a taxpayer before them in the collection process, these designations also serve other forms of representation such as ​tax preparation or bookkeeping.  Each one of these credentials permits a professional to work in many capacities as a representative, but it is up to the professional to determine their ​area of focus and educate themselves on the ins and outs of the representation they choose to undertake.

With bookkeeping and accounting comes the requisite knowledge to adequately track the day to day revenue and expenses of a business and record it properly.  There are countless accounting techniques that only someone with specific training and continuing education in the field of bookkeeping​​ and accounting would know.  With tax preparation comes the need to have an in depth working knowledge of the tax code to minimize each clients tax liability with a reasonable basis for each position taken.  Tax resolution is no different than these two forms of representation and in fact requires a multitude of profic​i​encies.

Resolution work requires familiarity with the IRC and IRM, an ability to interpret a taxpayer’s entire situation and apply their needs to a resolution that fits, the ability to recognize when the IRS or state has stepped out of line and not followed proper procedure, knowledge on how to move from one resolution strategy to another seamlessly without exposing the taxpayer to enforced collection, and in an esoteric sense, the ability to motivate taxpayers to seek compliance and establish systems to prevent the issue that caused a need for resolution from recurring.​ Business people shaking hands, finishing up a meeting.These profic​i​encies cannot be gained by simply accessing software that assists with the completion of forms and documents required for a specific resolution option.

The key takeaway we want to leave each reader with is that while there are many ways tax professionals can foray into the resolution world, walking down that path should not be done under the guise that software designed to facilitate the resolution process will create the ability to provide excellent representation.  Excellent representation comes from a working level understanding of the resolution process gained over time through study and work experience​.​ ​Just as accounting software does not make you a competent accountant nor tax preparation software make you an expert at tax preparation, determining the best approach to resolving back tax debt cannot be determined by inputting data into a program.

Avoid Criminal Consequences & Find Harmony

When the IRS sees a business owner with a history of failure to remain compliant, in addition to seeking repayment of back taxes, they can set out on a path to preclude that owner from opening or operating additional businesses.  This path leads to an injunction being sought by the Department of Justice (‘DOJ’) to preclude further business activities that may result in additional taxes going unpaid.  In doing this, the IRS looks to lessen the damage that may come from schemes promoting tax fraud.  Unfortunately, many who have simply run into tough times and have fallen behind on their taxes can become the target of one of these injunctions.

When an injunction is put into place and subsequently violated, the failure to comply is pursued with criminal prosecutions for contempt of the injunction order as well as civil remedies which can involve the forced closure of a business.

“Lead the people with administrative injunctions and put them in their place with penal law, and they will avoid punishments but will be without a sense of shame. Lead them with excellence and put them in their place through roles and ritual practices, and in addition to developing a sense of shame, will order themselves harmoniously.” –Confucius

Shame is a word that no one wants to be associated with.  When we feel shame, we reminisce on our failures that lead to the shame.  Often times, shame follows the failure.  Confucius tells us that by developing a sense of our own shame, we can allow the shame to precede the failure and subsequent punishment that may come from that failure and instill practices that prevent the failure from coming about.Young female entrepreneur working in a home office

The IRS is out to prevent future failures by way of injunctions.  We are here to prevent future failures by helping our clients develop the processes necessary to remain compliant and show the IRS that an injunction is not necessary.  We encourage the use of a payroll company for all future filings to ensure that nothing falls behind.  We partner with the largest payroll providers in the country to streamline implementation and allow you to stay focused on your day to day business operations.  Additionally, we work the the IRS to make sure that all deposits paid timely are communicated to revenue officers handling the case, so they do not find the need to recommend an injunction to the DOJ.

If your business has fallen behind and you are not sure how to address the liability, contact us today.  Once our representation is in place, we will work diligently to prevent the need for an injunction to be sought and get your business back into compliance with the taxing authorities.

Tax Resolution – What it is and isn’t.

Tax debt can be confusing and finding good advice and an adviser with your best interests at heart can be a trying process.  You can find positive and negative reviews for just about every provider in the industry so it can be tough to pull the trigger and hire help when you can’t afford to be wrong.

Critics, unfamiliar with the nuance of our practice, often claim that the process can be handled on your own at a fraction of the cost, with no need for expert advice while others target the fact that many companies operate without credentials.  At 20/20, we are a firm of Enrolled Agents, licensed to practice before the IRS.  We have been in business for nearly 20 years representing clients and offering our expertise to help resolve tax debt through the most effective means possible.  Additionally, we know first hand how arduous dealing with the IRS can be.  According to the IRS, a 2015 study showed that only 37% of calls to IRS customer service were actually answered with the average wait time being 27 minutes.tax calculation

Everyone Can Settle Tax Debt – A Marketing Gimmick

Advertisements push the notion that your debt can be reduced and you will only pay a fraction of the amount owed.  While this is true for some, others will find this may not be an option.

The IRS and most states base their willingness to reduce a liability to less than the principal tax owed on the financial condition of the debtor.  If they believe, based on a financial analysis, that there is a greater good that can be achieved by settling the debt and focusing on future compliance, they will agree to settle the liability.  As tax resolution experts, we work diligently to make the argument that a client’s financial condition warrants the acceptance of an offer to settle, or as it is known, an Offer in Compromise.

Some will find the Offer in Compromise process is not one that best meets their needs since they don’t meet the qualifications.  In those instances, we work to reach a resolution that works within a client’s budgetary constraints so they can remain protected from enforced collection.

Easy Enough To Do On Your Own – A Dangerous Rhetoric

In some cases, the tax resolution industry is criticized because individual debtors can obtain installment agreements without a financial review when their liability falls below a certain threshold.  These agreements are known as Streamlined Agreements and involve either a 72 or 84 month limit on the time required to repay the liability.  In a situation where the Streamlined Agreement amounts to a lower monthly payment than a financial review suggests, we do recommend these, but only if it is the most effective resolution.

There is a lesser known solution whereby a debtor can reach an installment agreement that doesn’t amount to paying the liability in full, but makes payments through the collection statute expiration date (‘CSED’).  While there are exceptions to the CSED rule of 10 years that can toll the time frame, in most cases, a debt becomes non-collectible 10 years after it originally becomes due.  These types of agreements are reviewed no less than every two years to see if the debtor can increase their monthly payments, but typically result in a greater savings than a full pay installment agreement.

In addition to compromises and payment plans, we work to abate penalties and lessen the impact of tax liens imposed on our clients.  Most of the time, a taxpayer will be eligible for a first time penalty abatement (‘FTA’).  The FTA is a no strings attached abatement that can be given without cause provided there was a history of compliance with no penalties for 3 prior tax periods.  In addition to the FTA, we are able to submit a reasonable cause penalty abatement.  An abatement for reasonable cause must be constructed to represent that the failure to file or failure to pay was not a result of willful neglect, but rather the result of reasonable cause.  Typically, the IRS applies the cause stated to their reasonable cause assistant to determine if the threshold has been met to abate the penalties.  Even if an initial request is denied, a qualified tax resolution expert can contest the ruling through an appeals process.  In cases where liens pose a problem, solutions are available.

Representation Matters

Did you know the right to representation exists in the IRS collection process?  If sued by a creditor for the same amount that the taxing authorities allege, would you represent yourself?  Maybe, but most likely not.  The IRS recognizes the adversarial nature in which they are pursuing their best interest, not yours.  As a result, the right to counsel in the collection process is afforded by the Taxpayer Bill of Rights.

It is important to understand that the resolution process is not one where a licensed expert can make your liability disappear with an incredibly low settlement offer, but rather one where an expert can analyze your profile and your debt and develop the solution that saves you the most time and money in the long run.  We believe we offer the most intelligent and thorough solutions in the industry today and strive to offer solutions that we believe are attainable in order to provide our clients the service and solutions they deserve.

Is the IRS Allowing Private Collection Agencies to Bully Low Income Taxpayers?

The National Taxpayer Advocate’s 2017 Annual Report to Congress suggests that the IRS has done little to protect vulnerable taxpayers from its private debt collection initiative.  The main vulnerability comes from private collection agencies setting up repayment terms that fell within the streamlined guidelines, which taxpayers can obtain without submitting financial information.IRS - file cabinet label

Often, a streamlined repayment option puts the debtor in a situation where the payments are more than they can afford.  While the IRS offers repayment options that are based on the ability to pay, the report found private collection agencies are pushing for repayment based only on streamlined conditions.

It is important to know that like most debts, when back taxes are owed to the IRS, you can find a repayment option that does not amount to paying the liability in full.  If you have fallen upon hard times or are simply facing a debt that is beyond your means, completing a financial information statement is the first step in determining your eligibility for alternative repayment options.

At 20/20, we believe our team of Enrolled Agents provides the best representation money can buy.  We work with taxpayers to regain their footing and develop a resolution that works for them.  At the same time, we recognize that there are many who simply cannot afford to hire a representative for themselves.  In these cases, it is important to know that there are Low Income Taxpayer Clinics. According to their website, “Each clinic determines whether prospective clients meet income guidelines and other criteria before agreeing to represent them or provide consultation services.”  If you feel you might be a candidate for their assistance, we encourage you to reach out and ask for help.  In the event you don’t qualify, contact us and see how we can help.  Ultimately, the difference in going it alone versus having representation could be a costly one.

Dananananananana Tax Scams!

If you can hear yourself reading that title to the tune of the old Batman song, you’re not alone.  Unfortunately, not even Batman can help you if you fall victim to one of the many tax scams targeting taxpayers this time of year.  The two most prevalent and pervasive scams prey on taxpayers soon to receive refunds and those that have a delinquent balance owed to the government.batman

The first type, one which preys on refunds, is carried out by attempting to steal identifying information so a fraudulent tax return can be filed on the taxpayer’s behalf in order to have the refund sent to the criminal.  Ways in which one might fall victim to this is by way of an e-mail or link impersonating an official organization requesting information that would typically be found on a tax return.  Such information includes your social security number, address, past tax return information and potentially even your pin # that you may have chosen with the IRS.

If you believe you have fallen victim to this type of scam, there is something that can be done immediately.  The filing of Form 14039 with the IRS notifies them that you may have had your information stolen and they will begin to work with you to correct any fraudulent returns filed on your behalf.  It also results in the creation of an Identity Protection PIN which can be used for future returns and should not be shared with anyone.  Taxpayers can also preemptively file Form 14039 to request the creation of an IP PIN in order to protect their filing process before it becomes compromised.

The second type of scam is one we see far too often here at 20/20.  When a taxpayer has a delinquent tax account and owes either the state or IRS, it is common for a lien to be filed against them.  Scammers will typically pose as state agents or IRS revenue officers claiming that there is a tax lien of public record in your name and insist you pay immediately while making threats of criminal consequences.  The IRS insists they will not initiate contact with a taxpayer by phone, however that comes with the caveat that they may make contact by phone after previously sending notices regarding the tax debt.  This contact is typically made by a revenue officer and you can request they provide their ID # as well as contacting your local IRS Taxpayer Assistance Center to confirm their legitimacy.

If you still believe you cannot safely handle your back tax debt alone, we are here to help.  At 20/20, our Enrolled Agents work directly with Revenue Officers and State Agents every day to assist taxpayers in need of affordable resolution options.  Contact us immediately to get a Tax Facts Report and engage us to step in on your behalf to lower your tax liability and find a manageable resolution.

A Perfect Storm

The 2000 film, “The Perfect Storm”, details the harrowing events of the fishing vessel, Andrea Gail. In the film, the ship and crew were lost at sea as a result of numerous weather elements coming together to form a force of nature that was unstoppable. A similar storm may be forming with respect to the enforcement and collection of unpaid payroll taxes.

A year ago, the Treasury Inspector General For Tax Administration (“TIGTA”) published a report in which they indicated a greater need for a focused strategy in effectively addressing egregious employment tax crimes. In the report, TIGTA recommended that criminal prosecution be sought by the Department of Justice more frequently to create a greater general deterrent.

Additionally, on March 2nd 2018, Deputy U.S. Attorney General Rod Rosenstein stated that the Trump administration would vigorously pursue offenders that fail to pay payroll taxes. The criminal offense associated with failing to pay payroll taxes is set out by 26 U.S.C.§ 7202. It states that “Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”Boat in Pond

These reports and comments are typically heard as rhetoric intended to encourage compliance, however a recent case from Wisconsin brings potential for concern. While prosecution rarely happens for minor offenses of 26 U.S.C.§ 7202, a Wisconsin business owner, Gary Auerswald, was recently targeted for prosecution by the US Attorney from the Western District of Wisconsin.  What makes the case unique is that the amount in question was only $24,482.43 and only for the 4th quarter of 2014. While there may be more to the story that is unknown, this may also be the start of the crackdown Rosenstein spoke of.

One thing is for certain; there has never been a more important time to get in front of back taxes, especially unpaid and unfiled payroll taxes. If you think your business may have delinquencies, do not hesitate to contact us and see how we can help you get out in front of any delinquencies and not be another target for the US Attorney to prosecute.

Tax Liens & Credit Reports: Will you benefit with a higher credit score?

Do you have a tax lien?  If so, how it impacts your credit profile may soon change.

The three major credit reporting agencies (TransUnion, Equifax, & Experian) have come to the realization that they cannot include tax lien information on consumer credit reports and still be in compliance with the Fair Credit Reporting Act, 15 U.S.C. § 1681 (“FCRA”).  The FCRA requires credit reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates”.  Simply put, credit reporting agencies have found it too costly to accurately report tax liens on consumer reports and will therefore no longer include this information beginning April 2018.Wooden Gavel

It is important to understand how a tax lien impacts your financial profile to determine whether this new development will benefit you.

Credit reporting agencies compile data and then this data is used to formulate your FICO score.  The FICO score was developed in 1956 by Bill Fair and Earl Isaac, to measure consumer credit risk and is used by most financial institutions to make decisions on whether to furnish or deny credit.  Since your FICO score is based off of reporting by the three major credit bureaus that will no longer include tax liens, it is likely you may see an increase in your credit score.  Depending on the type of credit you are seeking, your FICO score can play a major role in determining the cost and amount of credit you are eligible for.  If you received credit of any type while you had a tax lien on your credit report, you may want to consider talking with your lender to see if you are eligible for a rate reduction.  They will likely pull a new credit report and that report should no longer include your tax lien, thereby increasing your score and reducing your credit risk.  This is likely to work with loans that involve a less intensive underwriting process.

Loans that are typically reviewed with greater scrutiny (e.g. mortgages) may not be impacted in any way as a result of this new development.  Lenders will still be privy to tax lien information if they seek it out specifically.  Companies such as LexisNexis offer reports on liens and judgments and claim to be accurate on over 99% of their reports.  If your lender specifically seeks out this data, the removal on your credit report will likely have zero impact on your ability to secure or renegotiate a loan.

If a tax lien is still creating problems for you, there are permanent solutions to find relief.

Form 12277 must be filed with the IRS in order to request a tax lien be withdrawn and no longer reported anywhere.  While anyone can file Form 12277, the filing begins a formal review process that is most successful when navigated by a seasoned tax professional.  At 20/20, we have an excellent track record of formally having tax liens withdrawn.  Please contact us for a consultation to discuss the merits of your tax lien and how we can assist you in obtaining a formal withdrawal.