After helping countless individuals with their tax issues, one thing I have learned is that no two situations are exactly alike. Any good tax professional knows that there are so many moving parts to qualifying for the different IRS programs available. Which is why we at Innovative Tax Relief start every case by doing what is called a Tax Investigation. This is where one of our Enrolled Agents contacts the IRS in behalf of a client and really puts in some work to figure out what the person will truly qualify for in terms of reducing their tax debt.
For example, you can have two people that owe the IRS $50,000 each. This does not mean they will qualify for the same type of tax relief. One of them may make $25,000 a year and qualify for some sort of hardship settlement with the IRS while the other person may make $100,000 a year and in the eyes of the IRS has a strong ability to pay the tax debt back in its entirety.
Or in another example, two individuals may both make $100,000 a year while one lives in California which has a high cost of living and the other lives in rural Maine which has a very low cost of living. Or somebody might have many dependents or medical expenses that change their ability to pay back the tax debt. The list of the differences go on and on. There is no one-size-fits-all when it comes to tax relief.
Only after having a conversation with a potential client are we able to determine if it is worth it for them to hire us to do a Tax Investigation. That is why we offer free consultations with an experienced tax professional. This is how I met a new client that I will refer to as Mrs. B.
Mrs. B and Her IRS Monthly Payments
A few years ago, Mrs. B called me and really didn’t know what to do about her tax problems. She had tried to handle things on her own with the IRS, so the result was they required her to make a $400 a month payment on a $16,000 tax debt. She told me that she had eliminated many expenses from her budget in order to make her IRS payment because not only was she afraid of the IRS but she was also in law enforcement and did not want to jeopardize her job by missing a payment. So I asked her some questions to help me better understand her financial situation.
When I speak to a potential client and I find that they are currently in the best situation possible with the IRS, I immediately let them know that. I don’t want to waste my time or theirs if I know nothing more can be done. But if I know for a fact that I can help them and save them money, I tell them so–as long as everything that the IRS has matches up with what they have told me because many times it does not.
Then there is the taxpayer like Mrs. B. When somebody has already made an agreement with the IRS and is currently paying them, it makes it a lot more difficult to change course and get the person into a better situation. When she told me her income and informed me that she was also supporting her daughter, I felt that it was worth the time and effort to do a Tax Investigation for her. A taxpayer always has the right to pay their allowable monthly expenses before paying the IRS, so there was a chance that we could get her monthly payments reduced. And even if the payments were affordable for her, a $400 a month payment on a $16,000 tax debt was extremely high for that debt amount.
The Results of Our Tax Investigation
She was able to sign and send back the 8821 IRS tax form that we need to access her information from the IRS. Within 10 days we had all the information we needed directly from the IRS.
It turns out that she made more money than she had told us, and she also had a much bigger problem than the existing tax debt. In fear of falling behind on the payment arrangement she had set up with the IRS, she had gone completely exempt from withholdings at work. So no taxes were being taken out of her paycheck. On top of that, she hadn’t filed taxes in the last two years because she knew that she would owe the IRS more money and there was no way she could afford a larger payment. She did have a daughter but even if she had claimed her daughter as a dependent for those two years, she would still owe the IRS a significant amount more.
It was very surprising that the IRS had not yet defaulted her out of her existing plan because of the unfiled years. When the IRS offers you a payment arrangement and you accept, you agree not to accrue any new tax debt and to file taxes on time every year. Mrs. B had not complied with either of those two requirements.
At this point, we had to discuss her expenses. As I just mentioned, she did make more money than she had originally told me. From our research, we found that she lived in a part of Wisconsin that had a high cost of living. This means that the allowable expenses in her area are much higher than in some other areas. She also had her daughter as a dependent and thus could claim her expenses as well. And she had medical bills and prescription medications to purchase both for herself and her daughter, so those expenses could be used as well.
With her high income, we really had to dig deep and put together a strong case that demonstrated her inability to pay. Anybody else that had her income, lived in a much less expensive area of the United States, and didn’t have a dependent or medical bills would likely end up with a very high monthly payment to the IRS once the tax debt was assessed for the two unfiled years.
She was so happy once we laid out the strategy and then worked within her budget to make our tax relief work affordable for her. She understood that this would not be an overnight fix and that she would have to put in some work on her end to help us achieve the desired results.
Filing Her Unfiled Taxes
The first thing that had to be taken care of was the two unfiled years. Our Enrolled Agents filed these taxes using everything possible within tax law to keep the tax debt as low as possible.
We also made sure that she immediately contacted her human resource department and corrected the amount withheld for taxes on her paycheck so that she would not owe the IRS more once we were finished.
Once the two tax returns were submitted, we had to wait a few months for the IRS to assess the new tax debt balances. During this time, we left representation on file so that we could monitor collections and protect her income. The last thing we wanted was for the IRS to move forward with any involuntary collections that could make her financial situation worse. She ended up owing approximately $14,000 for those two years, primarily because she had gone tax exempt.
Once we received the response from the IRS, we now had to begin presenting her financial situation and enforcing her rights on the repayment of the tax debt.
This part of the process isn’t simple. We must prove and reprove the taxpayer’s financial situation. The taxpayer also has to play a big part in this by providing the necessary documented proof to our agents so they can convey the situation correctly to the IRS.
$400 Monthly Payments Reduced to $25 and $27,000 Saved
After several months of back and forth with the IRS, we were able to come to an amazing resolution for Mrs. B: the IRS agreed to accept payments of $25 a month for her entire tax debt. She would pay that amount for 10 years and if she did everything right moving forward, meaning filed her taxes on time and not accrued any new tax debt, she would be completely out of tax debt and would have paid back only $3,000 on a $30,000 tax debt–a small fraction of what she would’ve paid without our help. She would end up saving $27,000.
Mrs. B was beyond thankful. She had come to us stuck in a payment arrangement that she couldn’t afford while accumulating more tax debt every year. She said she felt like she was in quicksand and now somebody had handed her a stick and pulled her out. In a way, she was right–if she had kept going as she had been, she would have never seen an end to owing the IRS.
With cases like this, it isn’t rocket science how we achieve such great results for clients. It’s about knowing tax law and also knowing what rights a client has and can be enforced to get them into a payment situation which they can afford. By doing that, we can save a client thousands of dollars on the tax debt alone not to mention the penalties, fees, and interest that accumulate when a person attempts to deal with the IRS on their own.
If you have tried dealing with the IRS unsuccessfully or are not sure how to deal with your tax problems, contact us for a free tax relief consultation. We’ll listen, share some information and advice, and let you know how we can help you, with absolutely no obligation on your part.