It seems like the wrong time of year to be thinking about taxes, unless you’re a nerd like me and you think about things like this often. In my defense, I got an email from Erik (my business partner) summarizing what had he gotten done for a client and one of the things we’ve gotten removed off this person’s credit report is a tax lien.
We do deal with tax liens on people’s credit reports pretty regularly, but it occurred to me that I haven’t written about it lately. In addition to dealing with tax liens on people’s credit reports, I’ve also been in the trenches with the IRS a few times myself.
First things first, dealing with the IRS and taxes can be terrifying. I know because I’ve been there. One year the IRS thought that I made 30k more than I claimed on my taxes. I could not figure out why. I talked to the CPA that did the return. I ordered my transcripts. Everything seemed correct. I had a tax preparer friend look everything over. It was all good. But back and forth with the IRS and they were threatening to levy my account (take money out of my checking account) to the tune of 16k.
I did not have 16k, and I couldn’t figure out why they thought I owed them anything at all.
I spent hours on the phone with them. Sometimes 3 hours on hold before I could talk to anyone. It finally took someone going over my transcript with me, line by line, and we discovered that someone had reported 30k in income under my social security number with a different name that didn’t show up on my copy of the transcript. I had to send in a bunch of documents proving that I was me and that I hadn’t worked at W2 in California while living in Washington. It took forever to get resolved and the IRS froze my tax return for the following year. I wound up having to work with a Tax Payer Advocate to get the return back, and I still am waiting on money back from that year, when they tried to charge me penalties and interest for the money that I didn’t wind up owing.
If you get in a pickle with the IRS, here are my best advice from the trenches.
1. If things aren’t clear, go in person and figure it out with a real human. I got this tip from a CPA who told me there was one helpful person in the Spokane office and that I should go in person and talk to her (and get up and go to the bathroom if she didn’t call my number and go back and get a new one). They opened at 8 and I was there and through security at 7:50 in the morning so I was first in line. Otherwise, the wait was sometimes over an hour, just for being third in line.
2. If you can’t get anywhere with the IRS yourself, ask for a Tax Payer Advocate. After the IRS seized my return for taxes on income I didn’t owe, I couldn’t get anywhere with them. The Tax Payer Advocate’s are IRS employees, but they work in a separate division. They have the ability to submit paperwork that jumps the line, especially if it’s going to cause you economic hardship and/or you’ve shown good faith working with the IRS and haven’t gotten anywhere.
3. Get professional help. In my experience, the cut off for working with a professional is dependent on how much you owe. If you owe over 3k, it’s probably worth working with someone, even if their fee winds up being a wash with what you owe, just to save yourself the hassle. Nothing says no fun like getting your account levied, and a professional can help you with this.
4. See if you’re eligible for what’s called “Offer In Compromise”. This is where the IRS takes less than is owed. They’ve got a specific formula and a handy little pre-qualification wizard here if you want to explore on your own.
If you need a referral, I’ve got a few people I keep in my arsenal. You can just email me, give me a little summary of what’s going on, and I’ll send you to who I think can best help you. I work with some small, independent people and a firm in California with about 20 people that is the perfect size for anything really complex that you might want to involve an attorney on. You can work with anyone, any where by the way. They don’t have to be local to you. I recommend working with someone with significant experience.
Back when I did forensic accounting (snooooooze) I worked with a client who hadn’t paid taxes in 18 years. His wife would prepare the taxes, forge a CPA’s signature, and he would sign them and she would put them in an addressed envelope, stamp them, and shove them in a drawer. We worked with a local person who was a CPA and a tax attorney, but he still had no idea how to handle this and I am sorry to say that it got the client into even more hot water with the IRS.
In a case as complex as his, if I had known the group I work with in California I would sent him there right away. Lesson learned.
If you’re at a place in your life and business where you need a bookkeeper, I’ve got a few of those as well that I love (a few because sometimes they don’t take new clients). Let me know if you need someone.
And if you’ve got pesky tax liens on your credit report, we’ve got about a 70% success rate of getting them removed if they are paid. Less if they aren’t paid, but unpaid tax liens will haunt you forever so it’s best to see if you can negotiate a settlement and move on with your life.
If you’ve wanted to work with us for credit repair but couldn’t afford our custom work, I’m working on a self serve option coming out this month so stay tuned.
Now that I’ve written this, I’ve got scenes from the Disney animated Robin hood stuck in my head.
Prince John wants you to pay your taxes.