The most common IRS problem we see is that of a self-employed person who hasn't filed tax returns in several years. They are usually facing some or all of the following issues:
- The IRS has completed certain substitute tax returns that overstate the debt, because several years' returns haven't been filed
- The IRS is using these returns to levy the bank account and to file IRS liens.
- The IRS has issued levies on vendors and others that may owe the owner money.
- The business is weakened or worse, because the owner has lost access to funds in the bank account and lost valuable goodwill with vendors and others
- Because the owner waited so long, legal options available are fewer or require making more painful trade-offs
- Much of the work needed to try and put the fire out has to be done quickly and without the benefit of necessary information.
These problems all started years before when the owner either didn't withhold/pay enough tax or enough employee tax. Instead of making the hard choice to change the business or dump it, he or she sat still and didn't file returns out of fear.
If you situation seems familiar, I suggest you do the following:
- Gather your tax records for years you think are un-filed – bank statements, expense documents, etc.
- If you have lost your documents – contact your CPA or my office about making a good faith re-creation of the numbers
- Gather your current income, budget and asset information
- Look closely at your income and budget – become very familiar with both.
- Figure out how much tax you should be withholding on a monthly or quarterly basis and start doing it
A few positive items:
- It is often the case that if the IRS hasn't already filed returns for you, the returns required are limited to the last six year period.
- If the IRS has done returns, they are probably incorrect as they don't contain business expenses, deductions etc. and you should be able to create the correct returns and replace the IRS returns. This usually reduces the debt.
Once the first steps are complete one or more of the following options may be used to solve the overall problem for good.
- Non-collectible status – which means nothing is paid on the debt while the 10 year clock on collection runs
- Settlement of the debt once and for all for less than what is owe
- Discharge the debt in bankruptcy
- Full pay payment plan
- Payment plan that is “partial pay” meaning that the payment isn't large enough to pay the debt off before the statute of limitations clock runs out
- Qualify for “innocent spouse” relief