Getting nailed for back taxes by the Internal Revenue Service is tough enough, but many taxpayers make a bad situation even worse by fumbling one of life’s most delicate situations, according to Travelers Tax Group.
Travelers Tax Group, based in Chicago and Los Angeles, has been working with the IRS on a daily basis for more than 25 years to classify its accounts receivable. Before they begin the process of negotiating a settlement with the IRS, the Travelers Tax team of lawyers, accountants and federally licensed enrolled agents often must first undo the damage their client has already done.
“First and foremost, the IRS is never - never - on your side,” says James Rome, of Travelers Tax Group. “Here’s just one example: The IRS will tell a taxpayer to go ahead and file an offer in compromise. The taxpayer thinks great, I can negotiate a settlement myself. Well, one of the reasons they do that is so you will divulge all of your financial information. It essentially gives them a road map to all of your assets.”
See the following page for Travelers Tax Group’s Ten Costliest Taxpayer Mistakes.
Travelers Tax Group often starts by getting the IRS to release the levies on a client’s bank accounts. “If you lock up a person’s bank account, they can’t do business, they can’t pay their employees and they are forced to shut down,” says Rome. “That’s not in anyone’s interest.”
The next step is to assess the damage already wrought by the client and/or their previous representative. “If a client has represented themselves or has used an accountant or lawyer who is not deeply experienced in working with the collection arm of the IRS, there are usually some fences to mend and false starts to undo,” Rome says.
The IRS works hard to collect full back taxes, penalties and interest. Travelers Tax Group specializes in pre-settlement planning using the IRS guidelines in order to get the client’s disposable income as low as possible prior to submitting an offer in compromise. The goal: a settlement the taxpayer can carry.
“Usually what the revenue officer will do it try to force them into a balloon payment which will cause the taxpayer to default, shutting down their business,” says Rome. “We stop that from happening. We’ll set up a balance where they make the minimum payment so that in the rough months they still remain in compliance, and they can double up in the good months so they don’t fall out of compliance.”
Travelers Tax Group’s Ten Costliest Taxpayer Mistakes
Here are the ten costliest mistakes taxpayers make when nailed by the IRS for back taxes:
1. Failure to hire an attorney: An experienced tax attorney has ready access to the strict IRS guidelines used in negotiating a settlement. Hiring an experienced tax team is viewed very favorably as a sign of good faith and resolve by the IRS.
2. Failure to hire effective counsel: As comfortable as you may be with your family lawyer or accountant, they probably don’t have the qualifications and experience to negotiate effectively on your behalf before the collection arm of the IRS.
3. Ignoring letters and collection notices from the IRS: A notice from the IRS is the first step in a legal procedure to secure the right to seize your assets. An effective tax team can halt the collection process until a permanent solution can be found.
4. Failure to contest a tax levy: The IRS has become more aggressive in wage garnishment and seizure of bank accounts, IRAs and even residences. These can be legally contested, or even better, prevented.
5. Failure to file a return: It is a crime not to file a tax return if tax is owed. It is not a crime, however, to file your taxes and not pay them.
6. Failure to pay payroll taxes: Employers who fail to file or pay 941 employee withholding taxes are viewed very seriously by the IRS; they not only pocket tax money, but the IRS has in turn already paid returns on that money to employees. Penalties and interest are very steep, and there is no relief, even in bankruptcy.
7. Paying your full bill: Taxpayers who pay their tax liability without demanding relief from penalties and interest may overpay by thousands of dollars. Many taxpayers qualify to have them reduced, removed, or even refunded.
8. Filing bankruptcy: Bankruptcy won’t apply to any tax liability owed for the past three years, and may even extend collection time and add penalties and interest.
9. Allowing the IRS to file your tax return for you: Yes, it is an option, through a process called Substitute for Return, or SFR. Don’t do it! The IRS will disallow any deductions and tax you at the highest possible rate (did you really think otherwise?).
10. Failure to remove a federal tax lien from your record: When the IRS accepts an offer in compromise; it is generally required to remove all tax liens within 30 days.
