There are many different types of situations that force people to come out of “hiding” from their tax issues and make them face the IRS to get themselves back on track.
Many times it is the result of some sort of involuntary collection action by the IRS or at least the threat of such.
Other times people have changes in life where they need to get their past in order, especially with the IRS. This can be when they are about to get married and a future spouse demands they rectify any problems with the IRS prior to tying the knot. Or sometimes people are at the point in life where they want to buy a home but they are being held back by their situation with the IRS.
A Father’s Tax Situation Affects His Entire Family
In the particular case I’m going to share with you, Mr. H’s daughter was accepted to college and needed proof of her father’s tax filings in order to be accepted for financial aid to pay for her schooling. Mr. H had not filed in many years but did not want to let his daughter down. He was also very embarrassed that his past had caught up to him in this way.
Mr. H reached out to us and needed to get his tax issues resolved quickly, at least regarding the filings that the school was looking for so that his daughter could obtain financial aid. He knew he had to get those years filed in order to help his daughter, but he also knew he could not leave the rest of his tax situation as it was.
He understood that with a situation like his there would be no overnight fix. He was very honest and explained that he had been speaking to a few different companies and they all wanted large lump sums upfront without even really knowing anything about his situation or what could be done. Personally, I have no clue what these other companies could have possibly based their cost on considering they knew very little about his tax situation.
All Mr. H knew was that he had not filed taxes for approximately 6-10 years but was not exactly sure. He had none of his W-2’s or any other income information. He was also very honest and told us that he had gone tax-exempt during a good portion of that time, so he knew he would be owing a good amount of money to the IRS. He also mentioned that he had moved around quite a bit and it was very unlikely that the IRS had his correct address.
Step 1: The Tax Investigation
I explained our process to him and why it was 100% necessary to start with a Tax Investigation. I explained to him that in most cases when somebody fails to file for such a length of time as he did, the IRS may have done what they call “substitute returns”. This is where the IRS will file those unfiled tax returns for you. Since he had gone tax-exempt as well, there was a very good chance that the IRS filed substitute returns for at least some of the years.
I explained to him that if the IRS has filed those years, they will not be giving him any of the credits or tax deductions that he may have qualified for. But there are also provisions set up where we may not have to file returns for some of the older years. By not having to file those years, not only would it save him on the cost of filing but it would also eliminate the chance of him owing any tax debt from those years. And if that period included some of the years in which he went exempt, there could be substantial savings right from the start. The only way to figure all of this out for him was by having our agents put representation on file and get his tax records directly from the IRS.
He was excited about how we do things and loved all of our great reviews online. He immediately hired us for the Tax Investigation. He sent back his signed representation forms quickly, so we were able to contact the IRS and request his transcripts.
We Saved Him $15,000 Right Off the Bat
We were back on the phone with him within 10 days ready to go over everything we discovered. He was correct that he had not filed in quite some time. There were 10 years of unfiled tax returns. He had gotten lucky, though, and the IRS had never filed any of those years. The good news was that he would only be required to file 6 of the 10 years. If he had been required to file the other 4 years, he would have accrued an additional $15,000 of tax debt. So just by doing this preliminary work and knowing tax law, the savings had already begun.
Unfortunately, I speak to many clients that have tried to figure these things out on their own first and they typically use tax software to file all of the missing returns. They then contact us with massive tax debt and I inform them that they probably would not have had to file all of those years. But once they are filed and the debt is assessed by the IRS, there is no backtracking. The debt is owed.
It is especially important in these cases to figure out a full game plan and strategy first so that all tax law provisions can be used throughout the entire process to save a client as much money as possible.
The first step in his case would be filing all those years. We filed the years required for his daughter’s financial aid as quickly as possible. This was particularly important to him since his daughter meant everything to him. Once all the years were filed, we now had to wait for the IRS to assess the filings.
For the years that he was required to file, he was correct about the fact that he had gone tax-exempt for most of that time. This meant that he was going to owe the IRS a substantial amount of money. The IRS took a few months to respond and during that time they kept everything on hold until they had assessed all filings.
The IRS Wanted $36,000
Mr. H ended up owing $36,000 which included the assessed tax debt plus penalties, fees, and interest. This was expected and we were very ready to deal with this debt for him to see how much we could get it reduced.
Mr. H was not a low-income earner and thus a person that would be a sure fit for one of the hardship programs the IRS offers. But his wife was not working and his daughter was still living in his household as a dependent.
The backbone of all the hardship programs that are available is one’s ability to pay the debt back. A taxpayer has the right to pay their allowable monthly expenses and the expenses of those that are dependent on him or her prior to paying the IRS. This is where our agents get involved. Our Enrolled Agents can represent a taxpayer’s rights on the repayment of tax debt.
From Owing $36,000 to Only $3,000
Over months of going back and forth with the IRS, proving and reproving exactly where Mr. H was financially, our agents were able to come to terms with the IRS. He would be responsible to pay back only $3,000 through monthly payments over a long period of time and the remainder of the tax debt would eventually be forgiven.
Mr. H and his family were excited that they were finally able to stop looking over their shoulders, so to speak, wondering when the IRS would come after them. He had come to us as an embarrassed man in jeopardy of preventing his daughter from getting the funding she needed to further her education. Now, not only was he completely compliant in terms of his filing requirements but he was also in a payment plan that he could afford.
If Mr. H remained compliant with the IRS moving forward, he would save close to $33,000 not to mention the $15,000 we saved him for knowing which years did not need to be filed. Sad to say, many other tax preparation companies would have just filed those years for him simply in order to charge him more money or because they don’t understand the tax law. He also told us that because we were willing to investigate and clearly assess his situation first, we were much more affordable than the other tax relief companies he had originally spoken to, saving him even more money.
This was not the end of the case for us, though. We had to do everything possible to make sure that he was set up for success and did not lose the amazing benefits we worked so hard to obtain for him. In his case, he needed to make sure that the correct amount was withheld from his paycheck for taxes so he would never again owe the IRS. If he did that and was sure to file his taxes on time every year, he would be out of debt with the IRS in no time.