Discussion:New client with huge prior year tax liability
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Actionbsns (talk|edits) said: | 14 June 2007 |
| I have a new client this year that indicated to me early on that in prior years they had extremely high incomes, however, the business faltered, failed, they ended up in bankruptcy and lost pretty much everything. They have moved here from Philadelphia to start over and he is working a VERY normal job, earning around $40k, wife not working, home schooling kids. They are now just making a nice living, nothing edgey. They received a reminder letter this week of the $100,000+ tax liability that is still looming over their heads, reminding them it should be paid in 30 days, and that the records are being transferred to Hawaii so they can be monitored better. He FAX'ed the letter to me for my records and we talked about it a little. It seems there have been discussions with IRS in the past but I'm not sure of the details or what agreements they may have reached. I suggested he might want to consider an Offer in Compromise. I'm thinking that since his economic situation has changed so dramatically from 2000 and 2001 (the years of the large tax debt), he might have a good argument. I know a lawyer in the Bay Area (California) who does offers and sent him an e-mail to get his thoughts. I'm not interested in doing offers in compromise myself - just staying on top of regular tax issues is plenty for me. Anyone else have any suggestions for a situation like this? Or a referral to someone who will do an Offer, if the person I've contacted isn't interested. | |
| 14 June 2007 | |
| If he is just getting by the account might be coded 53 (CNC). Then just wait out the 10 years. | |
Death&Taxes (talk|edits) said: | 14 June 2007 |
| Find out his net worth before even beginning. Many have their income change, but have the net worth, though tied up, to pay in full, so OIC will not be accepted. | |
Actionbsns (talk|edits) said: | 15 June 2007 |
| D&T, I have their stuff for the tax return, they don't have much, not even their own home. They are renting and just enjoying an easier, not flamboyant, lifestyle. Unless there's something they haven't shown me, but there's no 1099B's or 1099 int, not much there I'm pretty sure.
Kevin, what does it mean to be coded 53 (CNC)? | |
| June 15, 2007 | |
| Currently Non-Collectible | |
| 15 June 2007 | |
| If the IRS analyzes the CIS (Collection Information Statement - Forms 433A etc) and determines that the taxpayer cannot make even a token monthly payment, they are instructed to code the account 53. The computer "watches" the 1040 returns filed to see if income goes up. If/when it does, the account can come out of 53 and the taxpayer will be asked again to pay his tax.
It's in the IRM, but I have usually had to ask the IRS to code accounts 53, because they don't like to on their own. In your client's case, if he filed his 2001 tax return on time (4/15/02), then 5 years of the 10 year SOL for collection has already passed. What if he could get 3 more years with no payments as CNC, then 2 years @ $150 a month? You would be a hero. Let me know if you need more info - still drinking that wonderful Kona!!! | |
Death&Taxes (talk|edits) said: | 15 June 2007 |
| Kevin makes a great point! And remember, submission of an OIC extends the 10-year Statute for collection. | |
Actionbsns (talk|edits) said: | 15 June 2007 |
| Thanks for the info Deb and Kevin. I'll be taking another, more detailed look at what we have, most likely get some additional information from the client so I know their past history better. I took a look at the IRS Collecting Process you posted Deb, that's really helpful. We may be able to formulate a plan together that I'm comfortable working with, works well for them and I'll have a client for life I think. Kevin thanks for the offer of additional help, I'll let you know how this develops. D&T, good point about the OIC and 10 year statute, we learn important things everyday from this site. | |
Death&Taxes (talk|edits) said: | 15 June 2007 |
| But it is also possible that the bankruptcy extended the statute. You will know more when you have all the facts and the transcripts of the account. | |
Death&Taxes (talk|edits) said: | 19 June 2007 |
| I believe to waive the 10% penalty, the IRS has to levy the IRA account under Sec. 6331. If voluntarily cashed in to make the payment, the penalty does apply. Sec. 72(t)(2)(A)(vii). | |
Death&Taxes (talk|edits) said: | 20 June 2007 |
| IRS can say anything, but they were not giving your client the whole story. Section 72(t) is very specific that the account must be levied, not voluntarily cashed and turned over.
If an OIC was to be proffered, your 'expert' was trying to raise money for the offer, and for his fee too. By some chance were the IRA proceeds deposited with the expert's firm? I know of one or two 'experts' who will only work by having complete control of the money. If he were simply negotiating with IRS to liquidate the balance due and set up a payment agreement, he might have been less cavalier with your client's money. I had a case where I wanted the R.O. to levy the IRA, but she dithered and diddled while interest and penalty ran. In the end my client suddenly popped up at IRS with money for full payment one day, to my amazement. He said an old girlfriend gave or lent it to him. It is cases like these that make me run away from collection work. Bad enough negotiating with ROs, but when you client pulls the rug from under you after you have pleaded poverty on his behalf, it ruins your credibility with IRS, | |
| 25 June 2007 | |
| Why is anyone arguing over what the IRS allegedly said? The law is clear and there is NO discussion on the subject.
As far as being on your "high horse" (not intended for the poster immediately prior to mine), frankly, who cares? You don't like delinquent taxpayers. Fine. You sound like former Commissioner Everson. We charge a significant amount to our clients and appropriately so. The amount of time to secure financial information and negotiate with the IRS is enormous. I am on record as saying the industry sucks, but that has nothing to do with charging an appropriate fee for the work involved with a case. | |
Actionbsns (talk|edits) said: | 2 July 2007 |
| LJ, sorry you had such bad luck with your client. I don't think that avoiding the tax liability is my client's first choice, but rather a final choice and only after they've lost everything else. Where do you propose a family of four or five people, who are earning enough to put food on the table and a roof over their heads, get the kind of funds this debt will require? Maybe we should bring back debtor's prison? | |
| 3 July 2007 | |
| Actionbsns, what was the date of bankruptcy? If the petition date was more than 3 years after the due date of the timely filed tax return, there is a good chance that the tax debt was discharged any way, regardless of whether the Service knows about it or not. | |
Actionbsns (talk|edits) said: | 4 July 2007 |
| Riley, in talking with my client, I didn't get the impression the liability was discharged in the bankruptcy, and certainly the letter he recently received indicates it hasn't gone away. Thanks to fellow Taxalmanacer's this client is now in the hands of a professional who can help guide him where he needs to go. | |
