bonus: an overview of the process.
by jassen bowman
with over 14 million active irs collections cases, there is a tremendous need for competent taxpayer representation. there has never been a better time to add this highly lucrative, recession-proof service to your tax practice.
more on tax resolution: how to maximize crm system tags | 10 steps to setting up direct mail | process communications efficiently | suggested tax resolution client payment guidelines | basics of tax season work flow | when to follow up on prospects | checklists for new lead generation | client management checklists for tax resolution | how to handle client complaints
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in fiscal year 2015, the irs opened 8.1 million new collections enforcement cases, while only closing 7.1 million cases. altogether, these taxpayers owed the irs over $137 billion. that’s more than twice the entire annual budget for the u.s. department of education.
the opportunity for tax resolution services is bigger than it’s ever been. and keep in mind that i’m only talking about collections cases here – these numbers don’t include examination cases. exam is an entire other world unto itself, presenting additional lucrative opportunities.
let’s take a look at the tax return side. the irs has been doing a good job of encouraging voluntary compliance with filing requirements. the number of unfiled return investigations has been going down, largely because of automated data matching and the success of the cp-2000 mail audit program. however, at the start of fy16, the irs still had more than 3 million open delinquent return cases (that’s cases, not total number of returns).
just to round out the numbers, the irs issued 515,247 tax liens notices (668-y) in 2015, and also 1.4 million levies. while these numbers are both significantly lower than in 2014, they still indicate a high level of enforced collections activity.
with all these taxpayers under the gun from the irs, i hope that it’s a no-brainer for you to consider adding this service to your business. but if you’re still not convinced, let me throw a few other facts your direction:
- according to the aicpa, less than 10 percent of cpas ever in engage in taxpayer representation work.
- according to the naea, only 2 percent of enrolled agents engage in any form of representation work.
- the vast majority of tax attorneys actually practice in the trusts and estates arena – not representation for collections and examination engagements.
in other words, the vast majority of your professional peers are not offering this service. as such, you have a tremendous opportunity to gain an edge in your local marketplace by delivering a unique service not provided by your competition.
think about this… your professional colleagues don’t know how to handle these cases. this creates a powerful referral opportunity for you.
now, if that’s not enough for you, then consider this: the average tax resolution case fee, nationwide, is over $3,500 for a “run of the mill” case.
most tax professionals are lucky to earn $100 to $150 per hour doing tax return preparation. tax resolution work, on the other hand, should be billed at a minimum of $175 per hour (or equivalent, if you’re doing flat-fee value billing like i do). most tax resolution practitioners are closer to the $250-$300 per hour range, and some of us are significantly higher (my billable rate is $540/hr – not bad for being “just” an enrolled agent).
as a taxpayer representative, you can:
- boost your per-hour revenue
- help save jobs by preventing small businesses from folding
- help families start over financially
- offer an in-demand service not offered by many of your colleagues
- perform work that unenrolled return preparers are barred from doing, even on returns they prepared (even afsp participants)
- prevent taxpayers from getting screwed over by fly-by-night tax resolution companies
- keep money in your local community, rather than being sent out of state
- help keep dollars in the hands of citizens, instead of the government
some of these items may be things that you don’t care about, but you wouldn’t be reading this if at least one of them didn’t apply.
even if you have no idealistic notions of helping save small businesses, or you could care less about stickin’ it to the man (irs) just a wee bit, i know you want to make more money. so let’s delve into how this whole tax resolution thing works.
overview of primary tax resolution methods
regular installment agreement: a payment plan, generally monthly, that allows the taxpayer to pay back their tax, penalties, and interest, over time. during the period of the payment plan, the irs will continue to charge penalties and interest as applicable. payment must be at least $25 per month, and the irs generally wants to see the liability paid off within about 6 years (72 months) for these to be granted, although this is not codified in law. requires full and fairly intrusive financial documentation. applicable to any and all tax types.
guaranteed installment agreement: if the tax liability is under $10,000 and the taxes are of an income type in nature (not employment taxes), then the irs is required by law to accept a payment plan request that pays off the taxes within 24 months. the $25 minimum monthly payment does not apply. the ease of obtaining guaranteed installment agreements is the reason most advertising you see specifies a tax debt greater than $10,000.
streamline installment agreement: for income taxes only that are between $10,000 and $50,000 (expanding from a $25,000 limit in 2012 as part of the fresh start initiative), the irs will accept a regular installment agreement request without requiring full financial documentation or verification of the supplied information. this one program is the bread and butter of the tax resolution industry, and over 3/4 of your cases will be resolved via this method.
offer in compromise: for taxpayers with minimal or no assets and minimal disposable income, the irs may accept whatever money the taxpayer has as payment in full of all taxes, penalties, and interest owed. this program is not automatic, requires quite a bit of back and forth reworking of numbers, full and intrusive financial documentation, and is not guaranteed. an offer settlement can be paid off over the course of up to 24 months. do not submit oic applications on cases where the taxpayer does not qualify – crunch the numbers to determine eligibility. only 0.38 percent of irs tax debts are resolved via an offer in compromise.
currently not collectible (status 53, cnc): if the taxpayer has zero ability to pay anything at the current time, then this may be an option. full financial disclosure required, and the taxpayer has to be essentially destitute. if the taxpayer is living significantly beyond their means, but has a high income and they just spend it all on houses, cars, etc. that exceed the national standards, cnc may apply in order to give the taxpayer up to 12 months to adjust their standard of living down to the national standards. lifestyle adjustment periods require mandatory re-review after the adjustment period, and are a one-shot deal for the taxpayer.
newco / sole prop flip: slang/shorthand for a “new company formation.” if flipping into a sole proprietorship, taxpayer will usually be required to accept personal assessment of the trust fund recovery penalty. in short, a newco is when the old business is shut down, assets are liquidated or transferred, and the taxpayer gets a “fresh start” with the irs under a new business entity.
bankruptcy: while not generally considered a tax debt resolution strategy, bankruptcy can be a perfectly valid method for obtaining relief from outstanding tax obligations. it is a good idea for a cpa or enrolled agent practicing in the collections representation arena to have a good bankruptcy attorney in their rolodex that they can refer clients to, as there are some taxpayer situations that are simply beyond fixing with their overall debt situation taken into consideration. it should be noted that only non-trust fund taxes can be discharged in bankruptcy. check your specific state laws, but i do not know of any states in which sales taxes and other trust fund taxes can be discharged. for 1040 tax liabilities, the federal requirements for discharge are as follows:
- the tax liability must be from tax years at least three years prior to filing.
- the tax returns for those years must have been filed at least two years prior.
- the tax must have been assessed at least 240 days prior to filing.
the most common reason for not being able to include a personal income tax debt in a bankruptcy filing is because the taxpayer has not filed the tax returns for the tax years in question. be sure to take this into consideration prior to referring the taxpayer’s case to an attorney.