Tax Problem Resolution
Profile of a typical Tax Problem Client
Typically a procrastinator.
Probably, but not always has other debt.
May have unfilled Tax Returns.
Usually doesn’t know how much he or she owes.
Often a small business person.
Often brings records into office in a shoebox.
What we do for our Tax Clients
Figure out where they really are.
Determine how much tax and other debt they owe.
File Power of Attorney with IRS.
Separate ones for biz and for Personal
Must have each tax year or period if Payroll tax
Using Form 8821
Order Transcripts to determine.
How much IRS Says they owe.
Where IRS is with regard to collections.
What W2 and 1099 info IRS has on client.
How to obtain Transcripts
Practitioner’s Priority Service
Revenue Officer
Disclosure Office
Have client go to IRS
Transcript will show
If taxes filed
When filed
If SFR or actually filed
Date Tax assessed
Amount of tax interest and penalties
Prior Bkand dates
Whether OIC filed
SOL
If Lien filed
Assist in getting past due tax returns completed.
W2/1099 Transcripts
Best Information Return
Developing a relationship with an Accountant
Do an “analysis” of their situation and make a recommendation of how we should proceed to solve their problem.
Ch 7
Ch 13
Lien Release
IA
Abatement
OIC
Sit tight on Sol
Non collectible status
Represent the client in solving the problem.
Setting and Collecting Fees for Tax Problem Resolution Matters
The “Analysis” fee agreement
Analysis includes
Filing POA
Obtaining Transcripts
Reviewing Tax Returns
Determining Dischargability of Taxes in Bankruptcy
Review for suitability of Offer in Compromise
Analyze other options
Review with client and make recommendations
Fees charged
Analysis $500-750
Levy release $500-$750
Installment Agreement $300-500
Abatement $750-1000
OIC $5000-$7500
Appeals $500 and up
Tax Court $1500
The common denominators for several types of Tax matters, the budget and allowed expenses
Levy Release
Non Collectible Status
Installment Agreements
Offers in Compromise
The 433 Collection Information Statement
Used in most things we do
Designed to allow the IRS to collect
Listing of assets and liabilities
Income and Expenses
Allowed Expenses
The big issue in most cases
IRS will allow only these expenses in most cases
National Standard expenses
Regional Expenses
Obtain expense standards on IRS Website at:
Discussion of how to best use the standards for clients benefit
Our Allowed Expense Spreadsheet
Simple Excel spreadsheet
Used in OIC
Levy release
Non Collectible Status
Installment Agreement
11. Analysis of Bankruptcy vs. other Tax Problem Resolution
Basics of Bankruptcy Discharge
Offer in Compromise vs. Bankruptcy Discharge
12. Case Studies of Tax Problems:
The first two examples are taken from our newsletter. They represent a profile of a client that we see over and over in variations. It will be useful to examine these examples in more detail.
I
Imagine a client coming in to your office. He had a business that failed. He owes $90,000 in payroll taxes, $60,000 of tax and interest and $30,000 of penalties. He has gone to work for $3,000 a month. He is married with 2 kids. He has virtually no assets after the business failure. The rest of his debt has been paid off. He wants to know what to do.
Analysis
In this case it is clear that Bankruptcy will only provide a little help. In Chapter 13 he would be able to pay the tax and interest and discharge the penalties. He would still have to pay $60,000 through a Chapter 13. Payments would be over $1,100 per month for 60 months. He just can't afford the payments.
A much better option would be an Offer in Compromise. In an OIC he would be able to pay far less than $1,100 per month. Depending on circumstances, we would expect to have him pay no more than $200 or so per month depending on his legitimate expenses. This case is perfectly designed for an OIC.
II
In this example, imagine the same client, but his taxes are personal tax not payroll tax. The tax is $15,000 (tax and interest only) per year for 2005, 2006 2007 2008 2009 and 2010.He filed for automatic extensions of time to file his returns and they were due on October 15 of each year.The returns were filed. The IRS has filed liens.
Imagine also that he has the following assets:
House valued at $200,000 Mortgage $160,000
Car valued at $10,000 with $8,000 owed.
Analysis
If he files a Chapter 13, the years 2009 and 2010 will be priority taxes. They will have to be paid in Chapter 13. Since the IRS has filed Tax Liens, the years 2005,2006, 2007 and 2008 while dischargeable, must be paid because of the liens and the amount of equity in the property (to the extent of the equity in the property). Therefore he would have to pay $70,000 in a Chapter 13. (the Homestead Exemption does not apply against the IRS lien)
In an Offer in Compromise, the IRS would look at the value of his home and take 80% of its value as the OIC value. The same is true of the vehicle. Therefore this client would have NO ASSET VALUE in the home or car for purposes of an OIC. He would only have to pay a modest amount to settle an Offer in Compromise, under these circumstances.
The purpose of these two examples is to show you the incredible value of Offers in Compromise in settling tax liability. It is also to show you that you can provide a real service to clients by learning Tax Problem Resolution.