If you owe the IRS back taxes, there are many possible tax problem resolution outcomes.
I find these days that the IRS is operating with a sub-par number of employees. Service is poor because of lack of staff and funding from congress. Our office handles extreme cases of tax resolution and I’m going to share some strategies, cases, and outcomes.
As background information, everyone should be aware that there is a statute of limitations. This is the length of time the IRS has to challenge entries on your tax returns. Most often it is 3 years from the date you filed (or 4/15) your return. This statute protects you from many but not all later inquiries. It does not protect you from tax fraud.
Do not ever write something on your return that would put you in tax fraud or even become suspected of tax fraud (wrongful or criminal deception intended to result in financial or personal gain). Fraud is a crime and you will need an attorney in addition to a good CPA, if you are accused of fraud (which raises your costs considerably).
Many years ago a tax attorney sent us a married couple who needed to refile a couple of years of returns. The husband was a self-employed painter and the wife an attorney. The wife came to realize the husband had committed tax fraud on his self-employment form (his entire painting career). Since a joint return holds both people liable, the attorney had inadvertently committed tax fraud. Thus the couple went to a tax attorney which lead to ‘voluntary disclosure’ and me reworking 2 years of returns.
We had 2 cases of taxpayers coming to our office who haven’t filed tax returns in more than 10 years! This kind of deliberate act is actually criminal. Fortunately, the IRS is more gentle and kind than merely taking you to court immediately. In 1 case the collection agent went to the taxpayer’s house after the taxpayer ignored a dozen threatening letters. In the other case the IRS garnished 60% of the taxpayer’s salary. Both of these acts motivated the taxpayers to come in and bring their returns up to date.
I’d like to point out that even after we filed all the missing returns, there were ‘substitute returns’ filed for several years for each of these two taxpayers. A substitute return is a return the IRS prepares (often creating more tax than the actual tax the taxpayer owes) and is hard to get removed! The other important point is that the IRS (and NYS) do NOT have the same collection laws as a delinquent bill collector. The IRS can garnish most of your wages!!!
One woman came to us after winning $100,000 in lotto. She withdrew $60,000 from her retirement funds and bought herself a house for $240,000 on Long Island. This was at the advice of her friends who suggested she invest in real estate with her winnings. The advice was very poor for this taxpayer. This woman never earned more than $30,000/year. No one mentioned the $100,000 was taxable or that the retirement withdrawal was taxable. Combine her $30,000 salary, $100k of winnings and $60k of retirement withdrawal this woman was looking at $190,000 of earned income as a single person. Taxes were about $60,000 federal and about $30,000 to NYS. She of course had spent every dime she had on the property and had to pay a mortgage too. The IRS garnished most from her $300 weekly salary. We were able to get that number down to $100/month and later $50/month. They say winning the lottery makes some people poorer; this case supports that notion.
The single most successful device NYS has been using to get deadbeat taxpayers to pay is preventing a driver’s license from being renewed. If you owe $10,000 or more to NYS you will be surprised if you want to drive. Although you can work with a temporary license, it is restricted and prevents you from driving for entertainment (some cases no driving at night) and certainly is not useful if you have to drive to buy food in the supermarket.
Generally, the IRS & NYS do not call you on the phone. The number of fraudulent phone calls claiming to be the IRS (and about to sue you) are high; they are false calls and the IRS never threatens over the phone (they do it in writing many times before they act).
Lessons learned: Pay your taxes, file your taxes timely and avoid getting in the cross hairs of the government. You will find the government’s requirements to ruin your life are merely sending certified letters of tax bills. From there the government is allowed to lien, levy and garnish your money. Don’t ignore the tax letters you get in the mail; seek out professional advice to counter them.
Harlan Kahn CPA
If you are in deep tax trouble, don’t delay and make matters even worse – apply for a free consultation and let’s get your tax issue resolved.