Breakdown of The IRS Collection Process

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DARRIN T. MISH:  Good morning, welcome to the IRS Solution Attorney show. I am the IRS Solution Attorney, Darrin T. Mish.

KATRINA MADEWELL:  I’m your co-host, Katrina Madewell. That music is a little long in the background this morning.

DARRIN T. MISH:  That’s what happens when your producer is talking to somebody else instead of paying attention.

KATRINA MADEWELL:  And as he waves us by like carry on, carry on.

DARRIN T. MISH:  Move right along people.

KATRINA MADEWELL:  We love to talk about the weather, but man, it was a breeze to drive here this morning. Everybody is on spring break so the roads were super clear.

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DARRIN T. MISH:  Oh, is that why it was so good?

KATRINA MADEWELL:  Yes and I had ice all over my windshield.

DARRIN T. MISH:   I woke up in Zephyr hills Florida and it was about 34 degrees, got down to about 32 on the drive here.

KATRINA MADEWELL:  It was colder where I was at because I had to wait for 10 minutes.

DARRIN T. MISH:  It was kind of breezy so it was, there was a wind chill actually believe it or not. We live right on a lake and the wind was blowing right off the lake and it was cold, very cold. But I did not have ice on my windshield like you did.

KATRINA MADEWELL:  Florida version of cold anyway.

DARRIN T. MISH:  I don’t know what is up with March 16th. We got a cold front but that is it, that is the last cold front of the season.

KATRINA MADEWELL:  There is something else we should say, because it’s March 16th.

DARRIN T. MISH:  Which means if you didn’t file an extension for your corporate or partnership tax returns yesterday, you are late.

KATRINA MADEWELL:  You’re late, you’re late for a very important date, you are late.

DARRIN T. MISH:  Yep, if you didn’t file that then you’ve got a problem.

KATRINA MADEWELL:  I was telling Darrin I’m so happy I have mine done.

DARRIN T. MISH:  Remember the refiling penalty for a corporate or partnership return is $395 per month or a portion of a month per share holder.

KATRINA MADEWELL:  Or they could have filed an extension and not had that?

DARRIN T. MISH: I filed four extensions. I am going to file that 1040 extension while I’m at it. Just in case I can’t get it done by April the 17th this year.

KATRINA MADEWELL:  Oh yes that’s right, you’ve got some extra days but don’t think you’ve got extra days because you will run out of time. That’s how it works.

DARRIN T. MISH:  Yeah, exactly.  So today I thought we would talk about, we do like a breakdown of the IRS collection process.  We haven’t done that in a while so we could talk about what happens if you are going to file a return this year. Or maybe you’ve filed many returns in the past with big balances due and you still owe the IRS. What’s going to happen? How does that work procedurally and what can the IRS do and what can’t they do does that make sense?

KATRINA MADEWELL:  So is the collection process, does it vary depending on the type of tax you owe?  Or is it all pretty much the same?

DARRIN T. MISH:  Not too much, it’s pretty much the same.  There are some I would say payroll taxes are more serious than income tax although the process is generally the same.  You have generally the same rights, there is some variations but no it doesn’t really matter that much.

KATRINA MADEWELL:  And they don’t, it’s more serious for the payroll. Theoretically you are holding half of someone’s money that you should have already paid to the IRS, right?

DARRIN T. MISH:  We haven’t done an entire show on payroll for a while cause it’s just not that interesting. It’s really complicated and there is just lots of moving parts. But yeah for sure if you are the employer and you are not remitting the payroll taxes in a sense that is stealing it’s theft and it’s bad and you can go to jail.  We don’t talk about jail very often on this program. But you can go to jail for the failure to pay payroll tax depending on how much money we are talking about and how often you’ve done this in your life.

KATRINA MADEWELL:  And if it’s blatant right do they look at that?

DARRIN T. MISH:  Yeah, all the cases that I’ve seen just the media type cases that I have seen about payroll taxes and the failure to pay those. The people that have gone to prison or have been prosecuted have been you know repeat offenders and/or just blatant.  I will give you an example that comes to mind a guy in the Midwest owned a chain of restaurants and instead of paying the payroll taxes he went out and bought boats and fast cars and big mansions and things like that…

PAT GEORGE:  My kind of guy.

DARRIN T. MISH:  Yeah, he is probably going…

KATRINA MADEWELL:  Not the IRS’s kind of guy.

DARRIN T. MISH:  I’m going to suggest that he is probably going through a midlife crisis kind of thing or something like that and the IRS really looked dimly on that.

KATRINA MADEWELL:  The running joke is anybody you know 40’s ish 50’s they buy a corvette midlife crisis.

DARRIN T. MISH:  That is the reason why I won’t buy a corvette.

KATRINA MADEWELL:  That’s why I told my husband you want to buy a corvette you are not buying a corvette.

DARRIN T. MISH:  So I may or may not drive a large pickup and that is my version of a midlife crisis.

KATRINA MADEWELL:  That’s way better than a corvette I think.

DARRIN T. MISH:  Well actually it has a lot more uses.  We haven’t talked about the farm in a while so last weekend I just had a hankering to do some farm work and remember I have that big orange orchard that’s pretty much dead and I need to clear the orange trees out because I want to turn it into just a hay field you know for cattle or what not and so I chained my pickup truck up to some orange tree for fun…

KATRINA MADEWELL:  No you did not?

DARRIN T. MISH:  I ripped them out by the trunk, roots and all and I have to tell you, because I didn’t. I’ve seen people do it I’ve never done it myself and I have to tell you I let out a primal scream after the first one came out I was like yes I am victorious.


PAT GEORGE:  Now let me guess I bet you drive a Ford?

DARRIN T. MISH:  Well is there any other kind of pickup truck?


DARRIN T. MISH:  Yeah ok so I do drive a Ford.

PAT GEORGE:  See I knew that would yank it out of there.

KATRINA MADEWELL:  What are you talking about you drive a Ford to.

PAT GEORGE:  That is why I drive a Ford.


PAT GEORGE:  Built tough.

DARRIN T. MISH:  I don’t know if a 150 would do it?  Maybe, maybe…

PAT GEORGE:  It would do some of it.

DARRIN T. MISH:  Well even with the super duty that it took it’s not one yank it’s like 4 yanks and on the fourth one I just literally flies out…

PAT GEORGE:  Well those orange trees have been there for a while.

KATRINA MADEWELL:  How big is that tree?

DARRIN T. MISH:  Well they were big.  They were mature, I would say the average trunk diameter is 8 inches you know they are big…

PAT GEORGE:  Wow big.

KATRINA MADEWELL:  So when Darrin’s not battling the IRS this is what he does, he roams around the farm and he yanks out orange trees with his F350?  I don’t even know.

DARRIN T. MISH:  Yeah it is a 350.

KATRINA MADEWELL:  With his big white redneck truck.

DARRIN T. MISH:  I think she might have just insinuated I was a redneck of sorts.  I’m a very complex man.

KATRINA MADEWELL:  Only a little.  He doesn’t look like a redneck if you were to see him we are Facebook streaming live so you can see him hop on over to Darrin Mish’s page…

PAT GEORGE:  Although he doesn’t look like a guy that has a Ford pickup truck yanking out orange tree’s.

KATRINA MADEWELL:  He doesn’t, he does not look like this redneck attorney he, sometimes he wears boots but for the most part he’s always kind of dressed to the nine’s.

PAT GEORGE:  He’s got cuff links on all the time.

KATRINA MADEWELL:  Yeah and he’s got cuff links always.

PAT GEORGE:  What farmer wears cuff links?

KATRINA MADEWELL:  And Heather’s got a shirt pressed all nice so you know he dresses sharp like he’s dressed like he could go to court.

PAT GEORGE:  He dresses like he’s still got California in him.

KATRINA MADEWELL:  Yeah, he does.

DARRIN T. MISH:  Like I said I am a complex guy you know, wear a cowboy hat on occasion not that often just can’t get used to it, it’s too hot here.

PAT GEORGE:  And he is also the kind of guy for the listeners to know that he said on spring break he is going to go to the key’s and I said Key west and he said no that’s not really family oriented. I’m going to go up in Marathon where we are going to snorkel and we are going to swim and we are going to scuba dive with the kids.

KATRINA MADEWELL:  Yeah, the deer you can feed them out of your hand they are so domesticated.

PAT GEORGE:  He will probably do that.  See I feed another kind of deer in key west out of my hands.

KATRINA MADEWELL:  I bet you do, I bet you do.  Alright let’s hop back to our topic so we can give our listeners that want to hear about this stuff a little bit of value today.

PAT GEORGE:  We just did we let the listeners know what kind of guy they are listening to that was knowledgeable.

KATRINA MADEWELL:  Yes, he’s well if you had to hire Darrin to help you with an IRS issue I would tell you that he is very laid back he will make you feel comfortable.

PAT GEORGE:  And you would be in great hands and yes you would leave him as a friend like a lot of his clients do, they become friends.

KATRINA MADEWELL:  And Darrin you know he doesn’t say this every week but I can tell you for sure cause I’ve known him long enough. We’ve been hosting the show together long enough he does not like repeat business.

DARRIN T. MISH:  No I don’t.

KATRINA MADEWELL:  How often have you heard that?

DARRIN T. MISH:  If I’ve fixed a client’s big tax mess I, the goal is to fix them pretty much for life.  I will take repeat business, but if they just did the same thing over again then it’s really kind of demoralizing you know, you kind of get one shot at this if, like the train wreck of the week I saved the gentleman a lot of money, if he comes back in a couple of years with the same behavior and the same situation….

KATRINA MADEWELL:  Would you feel like you’ve failed him or you didn’t do him just or teach him or maybe too easy.

DARRIN T. MISH:  I would probably internally feel like I failed him but in reality, he failed himself.

KATRINA MADEWELL:  It’s on him yeah.

DARRIN T. MISH:  Yeah, he failed himself for sure.  So, let’s talk about real quick about how the IRS collection process works.  Basically, if you don’t pay your tax in full when you file your tax return, you are going to get a bill right with the amount that you owe with some penalties and interest and. That’s actually a demand and you have 10 days to pay that bill.  This is sort of an interesting tidbit that if you go to day 11. Then something called an invisible silent Federal tax lien attaches to you and attaches to all of your property.

KATRINA MADEWELL:  Wait invisible silent tax lien is that what you said?

DARRIN T. MISH:  Yeah, it’s an invisible tax lien, it does attach and for certain court procedures and what not. The tax then takes higher priority over most other debts that you would owe not secured debts but unsecured debts.

KATRINA MADEWELL:  And is this if they file bankruptcy or something or I don’t understand this?

DARRIN T. MISH:  Yeah, it’s hard to explain in the time that we have allotted. It’s like an invisible lien after day 10 so they have to give you notice and demand in 10 days and then after that it becomes a more serious situation.

KATRINA MADEWELL:  Because of the time we should bring up one more thing before we jump into the collection process is if you owe money at least file your returns on time. That is going to save you some money, right?  At least get them filed even if you don’t pay it?

DARRIN T. MISH:  Yeah, I would say if this is a single year that you owe money and you don’t owe a lot of money then you are going to want to file on time.  Now it’s hard to give individualized advice on the radio…

KATRINA MADEWELL:  Correct right everybody’s scenario is different.

DARRIN T. MISH:  So this is not individualized advice, probably no advice at all.

KATRINA MADEWELL:  I feel like we should be playing some attorney jargon here.

DARRIN T. MISH:  Instead we get to wait for the break music, right?

KATRINA MADEWELL:  Yes that’s a one size doesn’t fit all you’ve got to talk to Darrin to make sure…

DARRIN T. MISH:  So what I was going to say is if you owe a lot of money in a single year you may want to come and talk to somebody that’s professional. It might be better to have a plan in place before you just file that return.  I see that mistake a lot, somebody owes a hundred grand for one year and they just file the return on time. They want to save the $500 or whatever for the late filing penalty. What they don’t realize is they are going to start this collection process rolling without a plan, that’s bad.

KATRINA MADEWELL:  See I’m glad I brought it up because then we got to talk about it.  So, if you have a tax issue, problem or question or you owe a lot of money on taxes Darrin’s your guy. You can get him at 888-get-mish again that’s 888-get-mish and the numbers are?

DARRIN T. MISH:  888-438-6474, 888-438-6474.

KATRINA MADEWELL:  You’d think I would have that memorized by now but I don’t.  We will be back in just a moment stick around.

DARRIN T. MISH:  Our northern listeners are probably laughing right now.

KATRINA MADEWELL:  Yeah, they are not very happy with us. Some of them are snowed in but we are complaining about it being 32 degrees when we wake up and you know it’s what, what’s the temperature now Pat 45?


DARRIN T. MISH:  And I think the high today is going to be around 60-65 somewhere around there.

PAT GEORGE:  Low to mid 60’s.

KATRINA MADEWELL:  I mean you really can’t complain about it.

DARRIN T. MISH:  And I saw tomorrow is 75-77 something like that so it’s going to be real nice again here really quick.

PAT GEORGE:  Then back in the 80’s.  This should be the last cold spell so we will be able to jump in the pool soon.

DARRIN T. MISH:  We’ve got to wear our jackets.


DARRIN T. MISH:  He brings flavor and color.

KATRINA MADEWELL:  Oh he is so colorful for sure.

DARRIN T. MISH:  So today we are talking about the IRS Collection process and kind of giving you a breakdown of how it works.  In the first segment of the show we weren’t talking about farm animals or whatever we were talking about.


DARRIN T. MISH:  We got to the point where we were talking about well you get a notice and a bill and a demand to pay within 10 days and then what happens?  You had asked the question well if you are going to owe should you just file on time so that you can minimize the penalties. Well you know I am a lawyer so it depends right so if you have an extension…

KATRINA MADEWELL:  Which he doesn’t usually give that answer so I’m so proud of him that was totally an attorney answer.

DARRIN T. MISH:  If you have an extension you are not going to get a late filing penalty so you don’t have to worry about that. We have talked about on the show many times that if you don’t pay your taxes by the due date by April 15th or the 17th as in this year, then you are going to start having failure to pay penalties.  Well those are going to come up no matter what unless you pay on April 15th. So, I don’t know about you are definitely want to file on time, you know if you owe I don’t know about that advice as a general rule.

KATRINA MADEWELL:  So I got a curious question for you just because you are so knee deep in this particular line of work. It’s just curious cause our whole administration is being reformed. So, if you could revamp this process, what do you think would fix this them just taking a payment plan no matter what?  What would your solution be if someone wants to file the taxes but they can’t afford that hundred-thousand-dollar bill?

DARRIN T. MISH:  Well if I took off my lawyer hat….

KATRINA MADEWELL:  Yeah take off your attorney hat that represents people.

DARRIN T. MISH:  Then put on my politician hat.

KATRINA MADEWELL:  What would you suggest?  What do you think would fix this just kind of curious?

DARRIN T. MISH:  Well when you mean fix it you talking about collecting more money for the Treasury?

KATRINA MADEWELL:  Well like for example if you owe a hundred grand in taxes these are your scenario. Let’s say they’ve got a thousand bucks it’s all they have but they filed the returns on time. They pay the thousand dollars they are still going to get stacked right with failure to pay that other balance. They are going to get penalties and interest. I’m thinking more along the lines of if you could freeze that penalty and interest right cause that hundred thousand dollars can grow to what?  I mean you’ve seen people have ridiculous tax bills to start out.

DARRIN T. MISH:  Well the general rule is after a period of about 6 or 7 years it doubles so you could…

KATRINA MADEWELL:  So it could be 200?

DARRIN T. MISH:  Yeah you would owe a hundred in tax and a hundred in penalties and interest so that’s not unusual.

KATRINA MADEWELL:  So to try to keep the penalties and interest and all that crazy thing if you could reform this what would you change?

DARRIN T. MISH:  You are not going to expect this answer. The first thing I would reform is I would do away with our present system of the requirement of estimated tax payments.  I’m not saying I wouldn’t require estimated tax payments I would almost make them mandatory in some way.  I would figure out some way to keep small business owners honest so they would do more pay as you go.

KATRINA MADEWELL:  And they wouldn’t have that problem.

DARRIN T. MISH:  And they wouldn’t, they wouldn’t get into the trouble that they are in.  That kind of cuts against my personal political beliefs because I think the government should be small or less invasive. On the other hand, we do have this huge percentage of small business owners. They just don’t get that they are supposed to be making estimated tax payments. They don’t get how to do it that makes sense for them. So, they kind of need to be protected from themselves and that sounds really kind of elitist. I don’t mean it that way I just mean we need to have some better system that makes more sense. So that people who pay as they go as you know 1099 independent contractors or small business kind of people. That’s the biggest problem that I see.  I see lots of other stuff where people cash in 401K’s to buy houses free and clear and just things that make you scratch your head. You wonder why did you do that, who told you to do that and inevitably they say well nobody told me to do it I just did it.

KATRINA MADEWELL:  Just thought it was a good idea.

DARRIN T. MISH:  Yeah, I thought well if I had my house free and clear and I live in Florida nobody can take it right?  Well except for the Federal government so there is that.

KATRINA MADEWELL:  Which doesn’t often happen but it can.

DARRIN T. MISH:  Yeah it doesn’t happen all that often but it can happen.  So that is probably a thing that I would do.  You kind of put me on the spot by…

KATRINA MADEWELL:  I know you were not expecting that question at all.

DARRIN T. MISH:  Well I haven’t even thought about it that much because I don’t anticipate going into politics. I don’t anticipate being tasked with fixing the mess that they have created.  The human part of me would try to make programs that would make it easier to settle their tax debt. The business owners you know slash politician who is trying to balance a budget would probably be like no go get the money you know.  So, it’s really hard to say what I would do in my present role, my role is to, I almost said beat the IRS.  My role is to help clients…

KATRINA MADEWELL:  Win, win, win.

DARRIN T. MISH:  Figure out how to solve their problems in the manner that is the most advantageous to them which is usually the lowest amount and move on.  I really like that role because people come into the office and they are torn up, you know they are emotional. They are upset they have been worrying sometimes for years and it feels good after that initial consultation.  One of my big goals is to send people out that day feeling better or at least more informed then when they came in.  Some people don’t but most people do, I would say.

KATRINA MADEWELL:  That makes sense.  Alright so the collection process so once they actually get that notice they owe the money that is when it starts?

DARRIN T. MISH:  Yeah in a way.  The first notice you are going to get will be a letter that explains what’s the balan4ce due and demands payment in full.  It’s going to include the amount of the tax, penalties and interest and you know give you a payoff date basically.

KATRINA MADEWELL:  How long is that usually?  30 days or something?

DARRIN T. MISH:  No it’s 10 days, it’s 10 days which is obviously not super realistic and then what happens is the taxpayer, if he doesn’t pay let’s just assume he’s not. Then you are going to go through a system or a series of automated letters and they start out nicer and then they get scarier ok so the first one or two. It used to be longer by the way it used to be like a 6-letter sequence that you can pretty much hang your hat on.  If you are on letter one you are like oh we are fine we’ve got lots of time or people would come in and they would just give you the latest collection letter. That is what we ask that they do and that letter does tell me where are we in this process.  So, you will eventually get a letter called a CP 504 and that CP 504 comes certified mail and it’s kind of scary.  The first time I got one just as a non-lawyer taxpayer I was scared. I mean it came certified mail, only really good news or really bad news comes certified mail typically.

KATRINA MADEWELL:  So what if they don’t get it, what if they are away or they are traveling or they avoid it what if they just don’t pick it up?  I’m sure that happens don’t you think if they think they are getting a letter?

DARRIN T. MISH:  It does.

KATRINA MADEWELL:  From the IRS they go oh I didn’t get it.

DARRIN T. MISH:  And what happens is the IRS, the law says that the IRS has to send the letter to the last known address. What’s the last known address the last address on the last tax return file.  So, we live down here in Florida super transient kind of place, I mean I forget, you would know how much does our population grow every day or every month

KATRINA MADEWELL:  Oh my gosh it is ridiculous I used to keep up with this but I don’t but it’s a lot and I can tell you just a real low point is that we work with alone is probably 25% of our…

DARRIN T. MISH:  So these folks come down from Indiana, Iowa, Michigan, Ohio all those places.


DARRIN T. MISH:  And they don’t necessarily file a change of address with the IRS, they might put a forwarding order in their last address. Although a lot of people don’t which is one of those head scratching situations but so if they don’t get that letter. If they don’t get the IRS letters then it’s not the IRS’s fault it’s the taxpayers fault for not having a last known address.  Now if they are filing returns then it’s usually not a big deal the next return they file.  So, let’s say the move from Denver to Florida when they file their return with their Florida address. The IRS will update the address automatically and start sending the notices there.

KATRINA MADEWELL:  So they send it, it doesn’t matter if you get it…

DARRIN T. MISH:  Doesn’t matter if you get it.

KATRINA MADEWELL:  And so our population is almost 20 million in 2014 so we are waiting on new census data soon. You can see basically they track this with California which is. They were almost 39 million at that time and it looks like, I don’t know we probably jump 10 million people about every 5-10 years.  The chart…

DARRIN T. MISH:  Wow I’m glad I have my space.


DARRIN T. MISH:  Maybe I can sell it to somebody who wants to put a whole bunch of houses on it.

KATRINA MADEWELL:  At some point you may.

DARRIN T. MISH:  And move someplace else without so many people.

KATRINA MADEWELL:  Ok.  So, if it says CP 504 at the top that’s really bad?

DARRIN T. MISH:  No if you get the letter it’s really scary because it says this is our notice of intent to levy.  It just has a bold headline, this is our intent to levy and then if you read the smaller print it says levy your state tax refunds.  Well in Florida what does that mean, nothing, it means nothing at all we don’t get state tax refunds. If they people are coming from up north or if they live up north and they live in a state with a state taxing system then they can withhold or take that refund.

KATRINA MADEWELL:  And levy is different than lien those get mixed up a lot right so levy is?

DARRIN T. MISH:  A levy is a seizure essentially and a lien is a notice to the world usually filed at the clerk’s office that you owe the money to the IRS.

KATRINA MADEWELL:  You owe money.  Alright so when we come back we will talk about what happens after you get that CP 504 certified mail and what next.  We will talk about the time line that it takes to usually to go through the collection process and a little bit more.  If you have a question or you think you owe taxes and you are starting to get some of these notices and you want to know what’s next we will try and help you out.  You can call us at 888-404-1010 that’s our live studio call in line because we are here today in MoneyTalk 1010 888-404-1010.  Pat George back there will take your call and patch you over to Darrin and me.  We will be back in just a minute.

KATRINA MADEWELL:  It’s pretty right on time though.

DARRIN T. MISH:  Yes, it is.  We make sure to get a lot of air out of that song, out of that bumper for the next 3 or 4 shows, right?  Welcome back to the IRS Solution Attorney show I am the IRS Solution Attorney Darrin T. Mish.

KATRINA MADEWELL:  I’m your co-host Katrina Madewell thanks for sticking with us through the break and today we are talking all about the IRS collection process what happens and when and how long it takes…

PAT GEORGE:  And I need Bill to listen to this today very closely because I think that I am going to have to pay. I was a bad little boy and I cashed in some stocks so I could redo a kitchen and things like that and I’m going to have to pay correct?

DARRIN T. MISH:  I don’t know depends on your basis on the stock, right?  Did you make money on the stock?

PAT GEORGE:  Did I what?

DARRIN T. MISH:  Did you make money on the stock?

PAT GEORGE:  A little bit.

DARRIN T. MISH:  Well then you only have to pay the tax on the difference between the basis and the sale.

PAT GEORGE:  Really?


PAT GEORGE:  I thought I had to pay, you know you take a big lump sum out and you have to pay a tax on all of that.

DARRIN T. MISH:  Well is it in a retirement account?



DARRIN T. MISH:  Well ok you didn’t say that part.

KATRINA MADEWELL:  Listen, see this is exactly why when somebody asks a question you get the attorney answer.

PAT GEORGE:  Yeah ok I’ve got to pay.

DARRIN T. MISH:  And so if we were sitting in my office we would have asked you a bunch of questions before you even told me…

PAT GEORGE:  And the thing is though, and I have you guys here and then I have my stock show tomorrow with Flash and Michelle and they say take your money or you are going to lose it don’t leave it in the stocks unless you are…

KATRINA MADEWELL: Well that’s her take right is the sky is falling a little bit, the stock market is going to crash and burn.

PAT GEORGE:  You know don’t leave it in there so and I go well if I invest it in a kitchen at least I have something to show. So, I take it out and do that so is that not good in your eyes?

DARRIN T. MISH:  Well probably a different way to look at it is if you invest it in the kitchen at least you got to enjoy the kitchen for the life of the kitchen, right?

PAT GEORGE:  Well I’m working on it I haven’t enjoyed it yet.

DARRIN T. MISH:  But you will eventually so that’s one lesson that my wife and I learned at our last house. Instead of putting things off, you know someday we will do xyz and we did it right before we sold so that we could get the better prize.

KATRINA MADEWELL:  That happens all the time.  Nine out of ten sellers are like yeah, I’ve been meaning to do this forever and then they do it and they sell the house they don’t even get to enjoy it.

PAT GEORGE:  I think of that all the time so that is why I am just going to do it. You know and say the only way I’m going to do it is I’m going to have to bite the bullet and pay the tax and I haven’t even started my taxes for this year yet.

KATRINA MADEWELL:  You are running out of time Pat.

PAT GEORGE:  I know.

KATRINA MADEWELL:  It’s already March 16th.

DARRIN T. MISH:  You could always go with form number, IRS form number 4868 and just get an extension and kick that can down the road to October and it will be all good.

PAT GEORGE:  I could also not even do anything and then in about a year come to you.

DARRIN T. MISH:  Yeah you might be able to do that.

KATRINA MADEWELL:  Darrin does not encourage that by the way.

DARRIN T. MISH:  So in the prior segment we were talking about the letter CP 504 that comes certified mail to the taxpayer and it’s basically a scarier demand.  It talks about levy and most people when they read it, myself included. The first time I read it are so sort of taken aback by this letter that they start to almost kind of semi panic.

KATRINA MADEWELL:  You are going to levy me already it’s only my third letter.

DARRIN T. MISH:  Sort of semi panic and they don’t really read that it’s only applicable to state tax refunds. There is another really important thing that the letter does and what it does is it starts to accelerate or max out the penalties.  So, you are going to pay, I believe it’s, I always screw this up I think it’s 5% per month to a maximum of 25% in penalties after you get the CP 504 so it’s really. Don’t worry about the exact amount that I just said. What you need to know is once you, you don’t really want to get a CP 504 if you can help it because it accelerates the penalties.

KATRINA MADEWELL:  Well how can you help it if you don’t have the money to pay you don’t have the money to pay.

DARRIN T. MISH:  Well if you can enter into an installment agreement before that CP 504 gets issued then you are not going to have those penalties quite as bad.

KATRINA MADEWELL:  So what would somebody look like that like a non-attorney that doesn’t know anything about this stuff. A lay person that owes a hundred grand in taxes. They would just call the IRS and go well I filed my return sorry I don’t have the money can I make a payment arrangement with you?

DARRIN T. MISH:  Well you know a hundred grand that’s kind of a rough fact pattern I was thinking more like 10 so if you owed 10 grand and you know you can afford to pay that over a 6 year period then you call the IRS and you wait for 2-3 hours and eventually if they don’t give you the proverbial courtesy disconnect which is when they disconnect you after you’ve waited for hours because they think that’s better than taking your call I guess but if you can get through all the way…

KATRINA MADEWELL:  Sorry we are busy call back later.

DARRIN T. MISH:  If you can get through all the way to somebody you would probably get an installment agreement done on that $10,000 balance for like 2-300 bucks.

KATRINA MADEWELL:  Well the crazy part is they put you on hold for a couple of hours and hang up on you but you can’t even walk into a local IRS office anymore right?  Didn’t we talk about this one?

DARRIN T. MISH:  Yeah, they call them IRS taxpayer assistance centers. So, in the interest of better efficiency and better customer service they decided to eliminate all customer service at taxpayer assistance centers.  This is your government at work folks this is really, it’s like Orwellian and I always think it’s like Alice in Wonderland, this is how the government works and I think I am starting to see some changes but the new administration has only been in for I don’t know 60 days or something and I’m not saying that I am a huge fan of the new administration necessarily but…

KATRINA MADEWELL:  But you won’t know for a while.

DARRIN T. MISH:  But yeah but the stream lining of government and the stream lining of government services would be a good idea in my opinion. There is a lot of fraud and wasted abuse not only on via the citizen’s sake but also on behalf of the government.

KATRINA MADEWELL:  So if and when you can get through because it can be a frustrating process hold, hold, hold and then work on a payment arrangement. Over how long typically will they give you to repay that?

DARRIN T. MISH:  Typically on my example the $10,000 if it’s relatively new you know you just file the return or so or within a year or so. They are going to give you 6 years to pay that thing back so I mean that is plenty of time.

KATRINA MADEWELL:  Now are they tacking on penalties and interest during that if you’ve got a payment plan?

DARRIN T. MISH:  They are going to tack on penalties and interest but the penalties and interest won’t be as severe as if you would of waited until you got the CP 504.

KATRINA MADEWELL:  What type of interest do they charge anyway do you know?

DARRIN T. MISH:  Right now I believe it’s 3% but it’s compounded daily. So, the effective rate is a little bit higher than that and then there is also interest on the penalties to so it can be significant.  The rule of thumb as we stated before it’s going to double every 6-7 years something like that.

KATRINA MADEWELL:  You said they give you 6 years?  So, I’m just running kind of like general and schedule which I know is not right if they are compounding the interest daily and adding penalties. If you had $10,000 and (inaudible) that at 3% over 72 months it’s only a $28 payment I know it’s more than that.


KATRINA MADEWELL:  Oh wait was that years? No 72 months.

DARRIN T. MISH:  Again you are famous for putting me on the spot.

KATRINA MADEWELL:  No I put the wrong number in there.  6 years so $151.00 that makes sense.

DARRIN T. MISH:  The way my math would work is I would propose about $150 monthly payment in that case. They might say we can’t do $150 but we can do $153 or whatever and probably work out.  That’s in a really simple case where you owe 10 grand. You can obviously afford the $150 a month. It’s not really that big of deal other than the time invested to get that installment agreement.

KATRINA MADEWELL:  Ultimately it could cost him a lot more in the end, right?

DARRIN T. MISH:  Yeah and I don’t tell a lot of people this. There is a way to get an installment agreement online now it’s called an online payment agreement application.  Basically

Google IRS online installment agreement and there is a screen and you go through the screen. You can propose an installment agreement if you are not way deep into collections and a lot of times that will work as well.  There is also a form where you can request an installment agreement just by mail it’s called form 9465 it just changed this past week. Haven’t even looked to see what the changes are but it changed and you can send that in by mail.  That’s kind of a neat little trick for a couple of reasons. One is it’s going to take them because it’s mail right it’s not the most efficient thing. It’s going to take them like 90 days or a 120 day to get back with you to say ok or no and technically under I believe it’s.  I put some code here IRS 6331K the request for an installment agreement prevents further collection action.

KATRINA MADEWELL:  So they have to stop?

DARRIN T. MISH:  They have to stop so that’s kind of cool.  We do that sometimes.

KATRINA MADEWELL:  So I wonder how often they actually lose that request?

DARRIN T. MISH:  Well I would suggest that if you send that in, that 9465 by mail you send it in by certified mail…

KATRINA MADEWELL:  Versus online?

DARRIN T. MISH:  Well online is ok.  You are going to get an instant answer online. So, you know your installment agreement application online was pending for 5 seconds and then it was rejected or accepted.  The thing about the online application is if it’s rejected you don’t get your appeal rights versus if it’s through the mail you are going to get, it’s going to say well we are rejecting it and you have appeal rights or sometimes they will say well we couldn’t take your $149 proposal but we can take a $167 and your first payment starts on….

KATRINA MADEWELL:  How do they figure out what that number is going to be?

DARRIN T. MISH:  It’s the math that we just talked about.

KATRINA MADEWELL:  They figure out what they will owe with the penalties and interest at the end of that 6 years and they calculate it backwards for you?

DARRIN T. MISH:  It’s not really that precise because the interest rates change when the Fed changes their interest rate and all that kind of stuff.

KATRINA MADEWELL:  Which will happen by the way this year.  It will happen.

DARRIN T. MISH:  Yeah it looks like anyway.  It looks like the Feds are going to change.

KATRINA MADEWELL:  I bet money on it.

DARRIN T. MISH:  But that’s not necessarily a bad thing it’s also an indicator the economy is coming along so that’s good.  So, one of the things that I wanted to talk about was that if you do owe the IRS money you might want to consider other sources of funds rather than getting an installment agreement from the IRS because if you do the installment agreement from the IRS that’s much like borrowing from the IRS…


DARRIN T. MISH:  And the interest, your so-called interest rate from the IRS yeah, it’s only 3% compounded daily which is terrible. There’s interest and penalties so it effects the interest rates much higher.  It might make more sense to put it on a credit card or well if you have good credit and you have zero. You can do balance transfers and you have zero percent that makes perfect sense.

KATRINA MADEWELL:  I would never do that personally but ok.

DARRIN T. MISH:  Yeah but you are like a Dave Ramsey disciple, right?

KATRINA MADEWELL:  Yes I am.  I would not do that.

DARRIN T. MISH:  But I don’t think that Dave Ramsey would preach “oh yeah you should borrow the money from the government. You should pay all those interest and penalties.”

KATRINA MADEWELL:  He doesn’t think you should borrow any money at all from anyone ever.

DARRIN T. MISH:  Yeah which is my problem with the guy because if you never borrow any money for anything ever then you can never leverage at all.

KATRINA MADEWELL:  I just don’t know if I would put it on a credit card I think that I would if anything do a home equity line of credit and I’m not really…

DARRIN T. MISH:  Yeah that could be great.

KATRINA MADEWELL:  Just because you will at least get the interest deduction, or you should…

DARRIN T. MISH:  Let me give you a scenario where you know…

KATRINA MADEWELL:  But I wouldn’t make it a habit.

DARRIN T. MISH:  Yeah you should certainly not make it a habit I mean that’s like. That’s a bad habit as using your credit card to go out and buy vacations that you never pay for and that kind of thing.


DARRIN T. MISH:  Let me give you a scenario where I think it would make sense. You know you owe 10 grand and it’s kind of a one-off thing it doesn’t happen all the time. It’s just a one-off thing and you have the potential to put that on a zero percent balance transfer for 18 months or something. You are like yeah, I could totally knock this out in 18 months.  So, the total cost of that money is whatever the balance transfer fee let’s say it’s $300 I mean that’s a no brainer in my mind.

KATRINA MADEWELL:  Does it in the problem though that at the end of that time period do they accrue all the interest or just your balance I don’t even know.

DARRIN T. MISH:  You mean if you don’t full pay?  No, it’s just the balance.

KATRINA MADEWELL:  Like if you don’t pay the whole thing just whatever the balance is?

DARRIN T. MISH:  It’s just whatever the balance is.  Then typically if your credit is good enough you’ve got one zero percent balance transfer. You are going to get a bunch more in the mail you just balance it back and forth.

KATRINA MADEWELL:  So I guess you could knock it out using your example. If it is 10 grand no interest over 18 months you would have to make a $555 payment and change every month to knock that out in that time.

DARRIN T. MISH:  Or you could pay $150 a month for 6 years.

KATRINA MADEWELL:  Yeah it makes sense.

DARRIN T. MISH:  You know I’m not saying that’s the right thing to do for everyone. You got to kind of think outside of the box a little bit you can’t go oh well I’m always going to be on this.

KATRINA MADEWELL:  I would tell people, and this is just me to sell something.  You need to sell something and pay it off.  You owe 10 grand and you can’t afford it and you didn’t save it sell something.

DARRIN T. MISH:  You know I talk to a lot of people and we talk to slightly different kinds of people. I know you meet a lot of people to and your people that are buying houses are in pretty good shape credit wise, probably mostly my folks are not. So, my folks probably don’t have something they can sell to pay off their tax debt. Cause my average clients tax debt is in the hundreds to thousands.

KATRINA MADEWELL:  That makes sense so they can sell their house maybe but they would still owe some money.

DARRIN T. MISH:  Yeah usually not you know because they don’t usually have hundreds of thousands of dollars’ worth of equity.

KATRINA MADEWELL:  Well we had fun that conversation went sideways as always. So, when we come back we are going to zip through the rest of the IRS collection process and then Darrin has an exciting train wreck of the week.  If you’ve never caught this part of the show stick around cause when we come back it’s very exciting.  Darrin will talk about a customer that he represented, what their total tax debt was and how they wiped it out.  Stick around you are listening to the IRS Solution Attorney show and we will be back in just a minute.

KATRINA MADEWELL:  I can’t even understand the lyrics.  What?

PAT GEORGE:  Tried and you failed you can’t afford it now.

KATRINA MADEWELL:  Oh you can’t afford it now.

DARRIN T. MISH:  It’s the accent of the singer, it took me awhile and when you saw me smile it finally…

KATRINA MADEWELL:  I know I saw you smiling I’m like I guess I’m slow or late to the party because I didn’t get it.

PAT GEORGE:  You bought and you want to pay later and you can’t afford it now.  Oh oh.

DARRIN T. MISH:  Welcome back to the IRS Solution Attorney show and trouble.

KATRINA MADEWELL:  That’s Darrin Mish and I am Katrina Madewell your co-host.

DARRIN T. MISH:  Today we are just talking about the IRS collection process and kind of how it works.  We talked about a certain letter called a CP 504. It starts accelerate your penalties and what not and we talked a little bit about the different types of installment agreements. If you owe over $50,000 and looks like that might raise to $80,000 here coming soon. It’s a little bit easier to get into an installment agreement if you owe over $50,000.  It’s actually pretty hard and they want you to pay what your monthly disposable income. Your monthly disposable income is typically a pretty big number.

KATRINA MADEWELL:  They want more information.

DARRIN T. MISH:  Yeah, they want a bunch more information and they want to delve a little bit deeper into your financials, actually a lot deeper into your finances to determine what’s the minimum acceptable payment that they would take…

KATRINA MADEWELL:  Why you owe them 80 grand.

DARRIN T. MISH:  And then there is a couple of other options for people that we will go over really quick. One being an offer in compromise that’s where you make a deal to settle for less with the IRS. We don’t really have time to talk about that too much today but it’s based upon your monthly disposable income and the value of your assets.

KATRINA MADEWELL:  And we have talked about it a lot so you can pick that show up on a podcast.

DARRIN T. MISH:  Yeah for sure it’s called The IRS Solution Attorney podcast. You can also sometimes have your case be placed in hardship status or also known as currently not collectible.  If the IRS puts your case in hardship status, that would mean that they don’t expect you to pay anything presently monthly. It does not solve the problem. It is not a solution to the problem unless the statute of limitations which is 10 years has drawn very near.  Let’s say you get put in hardship status with 6 months left on the statute of limitations. Well you haven’t won today but in 6 months you are going to win because it is going to expire.

KATRINA MADEWELL:  And it’s interesting I never know what these are going to do but we actually have a customer that is in the process of buying a house. I had to refer them to Darrin and they owed this money and we told them to call the IRS and see what they say. They said that it’s not collectible and it’s old and they’ve gotten tax refunds for the last couple of years.

DARRIN T. MISH:  And I think what the IRS said is technically true it is not collectible because the statute of limitations is expired. What they didn’t say was the next thing which was it’s not collectible. It’s expired it’s unenforceable and you are entitled to a release of that lien you know they didn’t say that.  There’s been some big news in the last week and that is that these tax liens are going to start coming off people’s credit reports.  They are going to stop impacting credit scores did you hear that?

KATRINA MADEWELL:  No I did not but that would be a great show for Tampa home talk.

DARRIN T. MISH:  I’m not really sure what the rationale is but I think it’s going to be a good thing.

KATRINA MADEWELL:  Well think about that if you owe tax money, we were just talking about borrowing it in the last segment. You can’t borrow against your house if you are showing a tax lien.

DARRIN T. MISH:  Yeah what we don’t know is if the tax liens are still going to cause underwriters to fail to write loans.

KATRINA MADEWELL:  Well if it doesn’t show up on public records, on your credit report they probably won’t catch it.

DARRIN T. MISH:  It will show up on public records but it won’t impact your score so who knows what that means.

KATRINA MADEWELL:  Yeah but it will not do it unless you are paying it off they might make an exception.

DARRIN T. MISH:  Ok so this is the train wreck sound means that it is time for my favorite segment of the show the IRS train wreck of the week. This is the segment of the show where we talk about somebody who came into the office. Their situation was just kind of like a train wreck and still owed a bunch of money it was just a mess and they didn’t know what to do. We got down to business after they hired us and we hopefully made it all better. In this case, the gentleman is an interesting guy I really like him a lot.  He’s from Maine and I don’t know if you’ve ever met anybody from Maine. They are really stoic, they are very emotionless, I think it just must be the weather it’s just really harsh.  So, they’re never really happy, they are always kind of slightly unhappy.

KATRINA MADEWELL:  The sun doesn’t come out much there.

DARRIN T. MISH:  And that’s just kind of the deal.  This gentleman we went through a bunch of trouble actually where, at first we thought this was a case where he wasn’t going to owe a lot of tax. Then ultimately, we figured out the position that he wanted to take was not really valid.

So, we filed the returns and he ended up owing $147,000 and we filed an offer in compromise in March of 2016. Like most offers it just kind of sat around for about a year and eventually I got a call from the lady and when she wrote it up. We answered all the questions and stuff and when she wrote it up she wrote it up as a full pay.

She had taken some erroneous positions and she wrote it up that he didn’t get an offer. So, I met with the client and we filed an appeal with the IRS appeals. I get this letter from appeals scheduling the conference and the letter is really weird. It says pretty much you lose but if you want to talk to me on the phone here is your date and time.

I didn’t really like that letter obviously because I didn’t think I lost, I haven’t lost. I just didn’t think it was real professional. So, I get on the phone with the lady and the conversation kind of goes like this. She’s like ” Well Mr. Mish you lose, you lose, you lose, you lose and this is a waste of time.”

I was kind of taken aback at first I didn’t know how to deal with it. Then I got kind of mad but you can’t get mad at them because that’s not going to help anybody. So, I very politely asked to speak to the supervisor and she knew what the issue was and about an hour later I got a call back from the same lady who told me I was.

You know she was really rude, wrong. She goes ” Yeah, I talked to my supervisor and you need to give me this, this and this documentation wise and we are going to re-look at this thing.”  Long story short yesterday I got the call they were going to settle that case for $6,346.00.  He owed a $147,000 and now they are going to settle for $6,346.00.

The issue was any expenditure that a tax payer makes that is necessary for the production of income is an allowable expense does that make sense?


DARRIN T. MISH:  Anything they…

KATRINA MADEWELL:  If it costs you that money to run that business you take it as a deduction.

DARRIN T. MISH:  And the issue was he had a rental house and they didn’t, they wanted to count the rental income coming in as income. They didn’t want to count the mortgage payment or the property taxes or the insurance or the utilities or anything as expenditures going out. That made no sense that’s completely unfair it’s inequitable and ultimately, we won that…

KATRINA MADEWELL:  Can we take Mark’s question really quick.

DARRIN T. MISH:  Really quick…

KATRINA MADEWELL:  Really quick Mark what’s your question?  Where did he go Pat?  Hi, Mark, real quick you are on air and we only have less then a minute what’s your question?

MARK:  Hi, am I on the air?


MARK:  Alright. I have a quick question about I have a very simple tax return it’s not itemized nothing like that but went through chapter 7 bankruptcy in 2016. How will that impact my filing for this coming April?

DARRIN T. MISH:  I really don’t think it will impact your filing at all just go ahead and file your return as per normal and I don’t think it will have any impact what so ever.  What were you thinking?

MARK:  Doesn’t make any kind of indication on my filing?

DARRIN T. MISH:  Are you worried about the canceled debt?

MARK:  Yeah.

DARRIN T. MISH:  The cancellation of debt is an exception, bankruptcy is an exception so you don’t have to do anything.   If you have a 1099C that was actually, that debt was cancelled or discharged in the bankruptcy. You have to file a form 982 and check the box that you went through a title 11 case which is a bankruptcy.

MARK:  Ok, unfortunately it’s still not completed yet so I don’t have that 1099 C I don’t have that.

DARRIN T. MISH:  You will probably never get one.  Mark, you will probably never get one because you went through bankruptcy.

KATRINA MADEWELL:  Hey Mark, we really appreciate your call hold on just a minute Darrin’s going to finish up with you we’ve got 4 seconds so this week…

DARRIN T. MISH:  We’re out.


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