Over my years in this industry, I have always hated the conversations with taxpayers that I know I could have helped but they have either gone too far on their own with the IRS or the IRS has already taken the full amount of the debt owed through a garnishment or a levy. It is difficult to get money back from the IRS once they have it.
When it comes to hiring IRS representation, it is greatly beneficial to be proactive instead of being reactive. I recall one case where we were able to get some of the money taken back for the client.
The IRS Takes $165,000 From Mr. H’s Business Account
There is a very slim chance of getting funds back from the IRS once it has been garnished or levied. One way in which this might be done is to prove that the money is needed to either afford monthly bills on a personal level or in order to make payroll or cover expenses on a business level. In this case, $165,000 was levied from the operating account of my client’s business. To respect his privacy, we will call him Mr. H.
Mr. H was quite frantic when he called us since this large amount of money was needed to cover payroll and other expenses. He was also afraid to deposit any other checks into his accounts fearing that the IRS would take that money as well.
He admitted he had tried to deal directly with the IRS in the past but it was way too much to deal with, so he had just been ignoring the letters from them. He admitted that he knows this was the wrong way to handle it but felt he had no remedy or solution to his tax problems. He said at this point he did not even know how much he owed but he knew it was a lot. He assumed that his bookkeeper had been keeping up with the tax filings for the business but unfortunately that was not the case.
We Get Involved to Help
I explained to him in a case like this we want to get all of his information directly from the IRS first. Our Enrolled Agents were able to put a rush on his file which we can do since the IRS had begun an involuntary action of collections.
Within a few days, we received his personal and business IRS transcripts. His was a very serious case. He owed almost $500,000 to the IRS for payroll taxes from the business. He also had been assigned an IRS revenue officer who seemed to be out for blood since he had willfully been ignoring her for quite some time.
Since payroll taxes are withheld from employees, and in this case, he never forwarded the tax money to the IRS, many IRS officers view this as outright stealing. To make matters worse, his bookkeeper had not kept up-to-date with filing taxes for his business. There were many years of quarterly 941 payroll taxes that needed to be filed.
Fortunately, after we got involved, the revenue officer saw that the client was finally getting serious about remedying the situation. The revenue officer made us aware that she had plans of continuing attempts to levy more funds but was willing to give us an extended hold on collections so that we could work together on finding a solution. Our client was thus able to continue depositing checks into his business accounts to keep the business functioning.
Negotiating With the IRS to Get Some Money BACK
We began negotiations with the IRS revenue officer in attempts to try to get some of the levied funds back. We were able to show that $50,000 of the levied money was necessary to cover payroll and immediate expenses, so the officer agreed to release those funds back to the client.
This, mind you, did not involve a simple phone call; all of these expenses had to be proven through documentation and submitted to the revenue officer. We made sure the remaining $115,000 was applied to the tax debt correctly.
Typically, the IRS will not negotiate on anything unless the taxpayer is compliant with filings. In this case, our client had the missing tax filings but had not submitted them yet, so the revenue officer was willing to negotiate with us because of our enrolled agent’s involvement in the case along with basically a good faith promise that we were going to submit the filings for him.
Since our agents had given their commitment both to the client and the IRS, we had to begin work immediately. We had to file complete business returns for the company for the past 2 years along with the 941 payroll tax filings. Our case managers worked directly with his so-called bookkeeper to piece the last few years back together.
This is probably the only time when it is beneficial to have revenue officer involvement. She processed the older tax filings very quickly. In a normal situation, it can take months for the IRS to process older year filings. Once she finished assessing the filings, she notified our agents verbally and sent letters to us and the client. Unfortunately with these new filings, an additional balance was added to the debt, approximately another $66,000.
Now that our client was compliant, we could begin the process of negotiating the actual tax debt itself. The debt was now close to $565,000.
Getting the Business Tax Debt Reduced
The first step in negotiations was working with the revenue officer to prove the viability of the business. This was a pivotal part of the process because the client absolutely wanted to keep the business open and wanted to do the right thing moving forward. Through the negotiation process, it was determined that the business could stay open and was able to pay back some of the tax debt.
The IRS very rarely allows settlement at the business level but they do the personal level. So, in this case, the goal was to get as much as possible of the tax debt transferred or “trust funded” as they call it to our client’s personal tax debt.
It was deemed that the business could sustain payment of $1100 a month. But there is a statute of limitations on a tax debt. In this case, the final tax debt would expire within five years. So, the Revenue Officer and the IRS were essentially holding the business responsible to pay back only approximately $66,000 of the tax debt.
The remainder of the debt would then be divided up among the owners of the company and they would become personally responsible. Our client had 2 other partners in the business, so the remaining debt was divided evenly among them and they were now personably liable for approximately $166,000 each.
Getting His Personal Tax Debt Reduced
When it comes to owing money personally to the IRS, a taxpayer has a lot more rights than a business does. So when a client has a substantial personal tax debt, we do what we can to financially protect our client and make sure he can pay his monthly bills and keep a roof over his head.
The company was not making as much as it used to and his personal income from the business had been drastically reduced. Using this tight financial situation, we were able to negotiate what is called a partial payment arrangement. A major right that a taxpayer has with the IRS is to be able to afford their allowable monthly expenses. So we were able to get Mr. H into a payment much lower than the IRS would typically require.
With this new payment arrangement, our client was responsible to only make a $600 a month payment. Just like with the business, the same statute of limitations applied, so our client would end up paying back only around $36,000 of the $166,000 dollar balance. In this case, not only was the business allowed to stay open but by going through the process and enforcing all of our client’s rights throughout the process, we were able to save him around $130,000 not to mention all the additional penalties and interest that the IRS typically accrues during the repayment of tax debt.
Helping Mr. H Stay on Track
Despite those great results, our job was not done just yet. To keep the benefits and make sure that our client gets these savings, we had one more thing to do to help our client: we had to do some future tax planning with him.
During this repayment period with the IRS, our client must make sure to stay compliant with his filings and he cannot accrue a further tax debt. We worked with the client and his bookkeeper to set up estimates with the IRS for his quarterly taxes due to prevent him from having a new tax bill.
Mr. H was so happy with our services and wanted to make sure that everything was done correctly moving forward, so he hired us to file all his personal and business taxes from this point on. If he keeps up his end of the bargain with the IRS, he will save tens of thousands of dollars and he never owes the IRS again.
If you have unfiled taxes or tax debt issues that you are unsure what to do about or where to even begin, we can help. Contact us right now and request a free tax relief consultation with one of our experienced tax experts.