DARRIN T. MISH: Welcome to the IRS Solution Attorney show, I am your host the IRS Attorney Darrin T. Mish, and if you’re facing IRS trouble of any sort, you’ll want to tune in for the entire episode this morning.
KATRINA MADEWELL: I’m your co-host, Katrina Madewell. Welcome to the show today.
DARRIN T. MISH: Good morning, Katrina, how are you doing?
KATRINA MADEWELL: I’m doing great, how are you?
DARRIN T. MISH: It’s just another beautiful day in the neighborhood, isn’t it?
KATRINA MADEWELL: I’ve heard that before somewhere.
DARRIN T. MISH: Well, we have a pretty exciting show today all lined up. It’s all about How Every IRS Problem Has A Solution.
KATRINA MADEWELL: I believe that that would be indeed true. I was looking at the opening statement here on our outline, and it’s kind of interesting because I remember talking about this same thing to you. How the bar wants you to use the word “may”. But your perspective of it is all tax problems indeed do have a solution.
DARRIN T. MISH: Exactly, it might not be the solution that you are hoping for, but there is, in fact, a solution to your IRS Trouble. Now, Katrina, what you are referring to with the Florida bar is from years ago, I was doing a lot of direct mail advertising. One of the headlines of the letters was that your IRS trouble can be solved if you are willing to take the first step. I still stand behind that statement. I believe that it’s true.
The Florida bar must preapprove our direct mail solicitation letters. You must pay a fee and it goes to a committee of lawyers. What do you think is going to happen? I mean, they are going to pick it apart. Lawyers are all about language and parsing words. So, they sent it back and they said you know not all IRS trouble can be solved, there are probably some unsolvable ones. I beg to differ, I think that all problems can be solved if you are willing to take the first step. Which is obviously to contact a professional, preferably me. Give us a call and maybe we can get something worked out. But again, it might not be the solution that you are looking for. When we dive into this later in the show, I think people who listen to the entire are going to see that every problem does, in fact, have a solution.
KATRINA MADEWELL: Right. The unique thing too, and we talk about this every single week when we do the train wreck of the week, is not every single client you have will be the same. They are all going to be different.
DARRIN T. MISH: No, it’s almost a cliché that lawyers always say it depends. But it really does depend and that is why we say it so much. It depends on the facts and circumstances of every unique case. Every case is different. There’s a lot of tax resolution companies that work in this area and they are going to want to try and fit every single client into an offer in compromise. This is where you make a deal to settle for less. We are just not really like that at my law firm. I get to make most of the strategic decisions on behalf of my clients and I’m like what I like to call a holistic practitioner. No, I’m not one of those guys that is giving you acupuncture and all this other stuff. There’s a lot of tax resolution companies that work in this area and they are going to want to try and fit every single client into an offer in compromise. This is where you make a deal to settle for less. We are just not really like that at my law firm. I get to make most of the strategic decisions on behalf of my clients and I’m like what I like to call a holistic practitioner. No, I’m not one of those guys that is giving you acupuncture and all this other stuff.
KATRINA MADEWELL: Holistic attorney. I love it.
DARRIN T. MISH: It’s holistic because I don’t care how we win, we just want to win. We just want the best result for the client, that’s the bottom line. If that means filing an offer in compromise and making a deal, then we should do that if that means trying to outlast the statute of limitations. We will get into all this stuff probably in this segment or the next. It doesn’t really matter which solution we use, we are just going to try and find the best solution for the client.
KATRINA MADEWELL: Now, I think sometimes, and you and I have talked about this a lot before, we did an entire show on the mental aspect of someone that has a tax problem. Because sometimes that’s almost where you have to start, isn’t it?
DARRIN T. MISH: I’m going to be really, transparent. I think the mental and emotional overhead that a lot of people have with IRS trouble is about half the battle. I think there is a significant percentage of people who have tax problems. Maybe 30-40%, it’s a big number.
Where the problem really isn’t so much the IRS trouble. The problem is again the mental and emotional stress and anxiety that just dealing with these situations causes. There are a lot of people out there in the world that just can’t or at this moment refuse to deal with it. So, most of those people we can still help because we can help them get over those hurdles. But there are some people where those hurdles or barriers are so significant that we just can’t help them. They are not helpable because they haven’t, again this sounds bad, but they are not in enough pain to want to decide to make the decision to solve it. No matter what it takes.
KATRINA MADEWELL: Well it’s January so the New Year’s resolution for a lot of people might be weight loss, to get in shape to go to the gym. There’s that old saying, you could lead the horse to the water but you can’t make them drink. The muscles are not going to just jump on your body, it’s going to take time and it has to start up in your head before it comes out your body.
DARRIN T. MISH: Exactly. That’s why we don’t do a lot of what I call Chase Marketing. We don’t chase clients and prospects and to try to get their business. My philosophy, as far as marketing is concerned, is we do a lot of what I call Push Marketing. We are trying to attract people to us because we need them to be in the right mindset to resolve the IRS trouble. If they are not in the right mindset, if they’ve been sold, they’re probably not ready to do what it’s going to take to solve their IRS trouble..
Now that might even sound intimidating to some people that you’ve got to get all ready. All I mean by that, is you have to have made the mental commitment that you are going to do what it takes. I am not going to ask clients to do anything crazy. I’ve never asked a client to jump off a bridge, I’ve never asked them to do anything that I haven’t done or I don’t continue to do. So, we are not going to ask…
KATRINA MADEWELL: That’s a relief, you have a tax problem, you do not have to jump off a bridge.
DARRIN T. MISH: There will be no bridge jumping, unless that’s your thing. We are not going to ask you to do anything crazy. One of the things you are going to have to do, a prerequisite to solving just about every tax problem, is you are going to have to get your tax returns filed and up to date so again…
KATRINA MADEWELL: That’s the most painful part, isn’t it?
DARRIN T. MISH: For a lot of people that is really a big deal.
KATRINA MADEWELL: So, what are some of the excuses that you have heard as why people can’t file their tax returns or prepare them? Which is what got them in that hole to begin with.
DARRIN T. MISH: Ok, so there is the fire, flood, hurricane, moved excuse. I just lump that excuse into one and a lot of times those excuses are legit. They did have a fire, flood, hurricane, earthquake, moved whatever the situation may be. But it’s not relevant, it does not matter.
KATRINA MADEWELL: So, let’s say they can ballpark what their income was. I imagine a bigger hurdle would be, I don’t have any of my expenses because I don’t have any of the paperwork.
DARRIN T. MISH: Well, yeah, that happens all the time here several times a week. So, what we are going to do is, we are going to go ahead and get transcripts from the IRS that are going to tell us what 1099’s and W-2’s. The 1098’s and miscellaneous stuff that gets filed with the IRS. We are going to get all that from the IRS so that we know what they have.
One of the reasons we do this is so we can make sure that income that was reported to the IRS is going to be on the tax return. So, if we have a 1099 for $45,000 and we prepare a tax return with $25,000 of gross income it’s an automatic audit. It’s not even a what if it’s a for sure audit. So, we are going to want to make sure that we report at least as much income as the IRS already knows about.
KATRINA MADEWELL: So, you pull them from the transcripts. Which makes sense because you are going to pull exactly what they have. It sounds like a great place to start. I’m just using your example, somebody had a house fire there’s literally nothing left, so what would you do if the income is similar as prior years you would estimate what the expenses are from prior years?
DARRIN T. MISH: You are entitled to make a good faith estimate of your expenses and you are supposed to put a declaration that goes along with that and most of the time if you do that if you put that declaration you are not going to be audited.
KATRINA MADEWELL: Does that get filed with the tax returns?
DARRIN T. MISH: Yeah, it can get filed with the tax return and typically you would want to paper file that return.
KATRINA MADEWELL: So, they would explain their circumstances. Say we don’t have a paper trail, but to our best estimate this is what the expenses were?
DARRIN T. MISH: Exactly. Let me give you another hypothetical. A person had a $100,000 tax liability and they are still missing the last 6 years’ worth of returns, they make $40,000 a year, they have a family of 3 and they live in the Tampa Bay area. Now, does that matter what those last 6 years tax returns even say? Doesn’t make any difference and here is why I am saying that. That’s probably going to blow some people away when they think about it. They’ve been stressing out and freaking out about getting these unfiled returns exactly perfect. I’m saying, no, who cares because you are not going to ever pay the bill anyway, so does it matter?
Here is what I am trying to say. You already owe a hundred grand and let’s say if you take no deductions for those missing years, you owe 200 grand. Are you ever going to stroke a check for a hundred grand, let alone two hundred grand? The answer is no you are not, because you can’t afford it. You know you are living on 40 grand a year, a family of 3, you have no assets, we are going to do an offer in compromise. If the offer in compromise doesn’t work, we are going to file bankruptcy and we are going to wipe them out.
The thing is, we don’t need to spend a whole bunch of time stressing and sharpening pencils and getting the numbers exactly right on the missing tax returns. One theory and philosophy is just take the income from the transcripts, put it on the tax return, take note, take no business deductions and just file the return like that.
KATRINA MADEWELL: See somebody like me I’m imagining if I haven’t filed returns in 6 years like your example. That would give me anxiety. But I think it helps to have this conversation and talk about it on air. Because if that is in fact the case for someone they can go, oh, I don’t have to worry about that anymore. Because, theoretically speaking, we are just going to fix this and hit the reset button.
DARRIN T. MISH: Almost every person that comes into my office, if they have large balances that they owe to the IRS is toiling under a burden of anxiety. I can see it, I can read body language, I can tell that they’re anxious and that they are stressing and they are worrying about this problem. So, I would say 9 times out of 10 when I make some statement like we just made or I just made about who cares about the tax returns they just should be filed it doesn’t really matter how perfect they are. You can see this like visible change in the body language, one of the things that I really try to do…
KATRINA MADEWELL: Well you are going to have to hold that thought, Darrin. We will talk about one of the things you do when someone comes in all anxious as well as the 7 basic solutions when you have a tax problem. We will be back in just a moment.
KATRINA MADEWELL: Welcome back, you are listening to the IRS Solution Attorney show.
DARRIN T. MISH: With the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your co-host, Katrina Madewell. Thank you for sticking with us through the break. If you are just catching the show, today’s show is all about Tax problems have a solution.
DARRIN T. MISH: And specifically, every IRS trouble has a solution and that’s what we were talking about. Before I was interrupted by the untimely break.
KATRINA MADEWELL: That darn music, it wasn’t just me.
DARRIN T. MISH: I was talking about, one of the things that I do when I have clients come into the office.
KATRINA MADEWELL: What is that?
DARRIN T. MISH: Well, one of the things that I try to do is, since I understand after having done this work for I don’t know 16-18 years, I understand the mental strain and the anxiety and pressure that people are under. One of the things that I try to do is I try to have them feeling better when they leave my office than when they came in.
Now it doesn’t happen a hundred percent of the time, but that’s one of my personal values. I want people to feel better. I think everybody who comes into the office should feel better because they are going to have more information than when they came in. That’s one of the things that causes us as humans the most stress. Not being able to make decisions largely because we don’t have enough information.
KATRINA MADEWELL: I would agree with that. People are scared of the unknown.
DARRIN T. MISH: Exactly. So, if you have a tax problem and you owe a hundred grand to the IRS and maybe you make a hundred grand a year and you haven’t filed some tax returns…
KATRINA MADEWELL: Oh, my gosh, we must work the whole year for free.
DARRIN T. MISH: Or a lot of people tell me that they think that this is going to be a lifetime sentence. I will never get out from under this, this is just going to go on forever. I’m sure that, I’ve never experienced this myself, but I’m sure there are people who have killed themselves over tax debt because they just didn’t know what their options were. That’s one of the reasons why we are doing the show today.
KATRINA MADEWELL: And that’s exactly why you are here and that’s why you do what you do which I love that you have this little niche of the market. So, should we go ahead and jump into the 7 basic solutions that every person has if they have IRS trouble?
DARRIN T. MISH: Sure, one of the criticisms that I get of the show is that we don’t get to the point often enough or quick enough so let’s…
KATRINA MADEWELL: Hurry up snap, snap.
DARRIN T. MISH: Let’s do this. Let’s go over the 7 basic solutions all at once here and then we will go back. We will circle back and we will go over them in some detail. So, the first solution is going to be an installment agreement, an installment agreement is a payment plan to the IRS. The second one is currently not collectible status, or sometimes known as hardship status. What that means is that the IRS agrees that you have no ability to pay either monthly or by liquidating assets. They put you on the back burner and they will leave you alone usually for a year or two at a time. The third option is an offer in compromise. We have talked an awful lot about that in the first segment and we’ve talked an awful lot about this every week on the show.
KATRINA MADEWELL: And we have a show coming up on that and it’s what an offer in compromise is and how it works because we kind of glaze over it. We are going to do a whole show on it.
DARRIN T. MISH: Yeah, we are going to do another whole show. I believe it’s going to, I don’t know if it’s going to air next week or within the next couple of weeks but you want to stay tuned for that and listen to that if you think that this might be a situation that might work for you. But an Offer in Compromise is where the IRS will make a deal with a taxpayer and allow them to settle for less. I will give you a couple of examples here in a minute. The fourth option is outlasting the collection statute of limitations and this is a big deal. The IRS has a time clock that is ticking on them and this is beautiful. I’m so thankful that Congress passed this law way back when. The IRS has 10 years from the date you file a tax return with a balance due owing to collect the money and I think that’s great because that means that this is not a life sentence. That it’s a 10-year sentence and I would submit that that’s long, far but at least it’s not your entire life.
KATRINA MADEWELL: The next one is shocking.
DARRIN T. MISH: The fifth option is bankruptcy. Bankruptcy is something that a lot of people don’t think can take care of tax debts and tax liabilities and if you ask 9 out of 10 bankruptcy attorneys they are going to say that bankruptcy cannot solve IRS trouble and that is not the case.
KATRINA MADEWELL: When we come back we are going to tell you how you cannot back around to the seven because we don’t get this stuff fast enough. No break right now Darrin’s looking at me like.
DARRIN T. MISH: I raised my eyebrows like wow that segment went fast. So, in the sixth solution is innocent spouse claim. We never talk about this on the show, we never talk about innocent spouse. But that is where you had a former spouse who racked up the tax obligation and it’s not your fault there for you are innocent.
KATRINA MADEWELL: Does it always have to be a former spouse?
DARRIN T. MISH: Yeah pretty much it has to be a former spouse. You cannot have the benefit of still being married.
KATRINA MADEWELL: Could be late as well, right? Like late spouse?
DARRIN T. MISH: I think it can be a deceased spouse. I did have a case like that one time and it didn’t turn out to well. Lastly, the seventh solution which makes my comment that all tax problems have a solution correct is that it might just be that you need to full pay, it might just be that you have to pay your tax bill.
KATRINA MADEWELL: Ouch.
DARRIN T. MISH: And I know that that’s not really a popular statement but that is the case sometimes.
KATRINA MADEWELL: Alright, so let’s talk about all these in detail. This is why it can take us so long to get through some things. We banter a little bit and I ask you questions about these things and I think about if I were this person what questions would I ask. Of course, we are always open to your tax questions you can call Darrin directly because we love to read your questions and your comments on air.
DARRIN T. MISH: That phone number is 888-438-6474 that’s 888-get-mish g-e-t m-i-s-h.
KATRINA MADEWELL: Alright, so let’s loop it back around to number one so an installment agreement.
DARRIN T. MISH: So, do you want to ask me a question about it or you just me to go ahead and tell you what it is?
KATRINA MADEWELL: I mean explain it the way it is, it’s pretty much exactly how it sounds right an installment agreement, a car payment it’s all sort of the same type of thing?
DARRIN T. MISH: An installment agreement is a monthly payment plan to the IRS. The amount that you owe is in part makes it, depending on how much your payments going to be. The joke is everybody who I talk to no matter how much they owe. If they owe $3000 or if they owe 3 million dollars when I ask them well how much would you feel comfortable paying monthly to the IRS to satisfy this tax debt, the answer is always ding, ding, ding, ding, $300. I don’ t know why, it just is.
KATRINA MADEWELL: That’s your magic number.
DARRIN T. MISH: That’s what everybody always says, $300. When you say that and you owe 3 million dollars, it kind of tells me where you are on the seriousness scale of things. Especially if you are making $270,000 a year and you are willing to devote $300 a month.
KATRINA MADEWELL: Maybe they just want to see what you will say, Darrin.
DARRIN T. MISH: Maybe, but it does happen quite a bit. An installment agreement is basically predicated upon your ability to pay. So, what the IRS is going to do is they are going to look at your gross income and they are going to subtract your allowable expenses. Keyword here is “allowable”. There are charts that tell us how much you can spend on everything from your housing to your food, clothing and miscellaneous items and so on. But, whatever your monthly disposable income is going to be, that’s what they are going to want for an installment agreement payment.
Now, if you owe under $50,000 then the rules change. It can be somewhat easier if you owe under $50,000. Then if the liability can full pay within 72 months, which is 6 years, then the IRS is going to let you make equal monthly payments over those 72 months.
KATRINA MADEWELL: So, that is what I was going to ask on these installment agreements, is it always the whole amount that you owe?
DARRIN T. MISH: Not always, there’s something about a partial pay installment agreement which means that the installment agreement will not full pay within the life of the statute of limitations so let me give you an example…
KATRINA MADEWELL: Which is how long again?
DARRIN T. MISH: It’s 10 years, but I get clients all along that timeline continuum. So, some people come in and they have unfiled returns so we know their statute of limitations is 10 years. They have 10 years left because they haven’t filed, as soon as they file it will be 10 years. But, then I get people who come in and they want to ask me about a 2003 tax return.
They still have liabilities from 2003 and so one of the things that, I don’t even have to think about this anymore, but one of the things that goes through my head is, if this is a 2003 liability then we are probably getting short on the statute of limitations. Let’s say they owe 200 grand. On the statute of limitations, they have 2 years left, or they owe 200 grand, they have 2 years left on the statute of limitations and they make $80,000 a year. So, what that means is they are going to have some ability to pay probably, some ability to pay monthly so I’m going to make up a number. Let’s say it’s a hundred bucks.
KATRINA MADEWELL: You don’t want to say 300.
DARRIN T. MISH: We can say 300. So, let’s say it’s 300 bucks. The $300 times the 24 months left on the statute of limitations is not going to come anywhere near paying off the 200-grand liability. If they have no assets. So, they have no equity in their house, they have no equity in their cars they really have no assets other than their normal household furnishings. Then they are going to be placed in what’s called a partial pay installment agreement and they are going to pay that $300 out over 24 months and then the statute of limitations is going to expire and they are going to win.
KATRINA MADEWELL: So, it’s interesting that you say that equity in the house. Of course, I have to chime in on this one because Florida is an interesting state where they can’t make you sell your house if it’s your homestead. But they can look at the equity in it for this installment agreement, right?
DARRIN T. MISH: Well, I am going to publicly disagree with you real quick.
KATRINA MADEWELL: Ok, please do.
DARRIN T. MISH: So, the IRS can, this is a myth.
KATRINA MADEWELL: They can make you sell?
DARRIN T. MISH: This is a myth and I’m glad that we are addressing it. Here in Florida, we are indoctrinated into this state law that says that we have unlimited protection in our homestead. That is true as state law matters go, but, under the supremacy clause of the US constitution, Federal law supersedes State law. Therefore, the IRS very rarely does seize primary residence in the state of Florida. So, they can seize the primary residence. I’ve seen it happen. It has never happened to one of my clients, but I’ve seen it happen and they can seize that house and they can sell it at auction. So, it can happen.
KATRINA MADEWELL: That was the ace of spades, right there, it totally just got trumped. But that’s alright. You are listening to the IRS Solution Attorney show. We have to take a quick break. When we come back, I promise we are going to dive into the rest. We did quickly go through all seven but we are going to continue to talk about all tax problems have a solution and the seven basic solutions for them. Back in just a moment.
KATRINA MADEWELL: Welcome back, you are listening to the IRS Solution Attorney show.
DARRIN T. MISH: I am your host, THE IRS Solution Attorney Darrin T. Mish.
KATRINA MADEWELL: I’m your co-host Katrina Madewell. Sorry, we had to cut you off there with that. There how, you were talking about how Federal rules basically can supersede state rules and force you to sell your primary residence.
DARRIN T. MISH: Well, it is your job to interrupt me and make sure we make our breaks so I don’t get into too much IRS trouble. I was going to tell you a story at the break. I did have a client one time who contacted me late in the process. He lived in south Florida and I think he owned 250 or 300 feet of waterfront on the inter coastal down in Broward county or it might have been Palm Beach county. I’m not sure but it was very valuable real estate…
KATRINA MADEWELL: Yeah, they would like that.
DARRIN T. MISH: To say the least it was valuable real estate, he owed the IRS a couple of million bucks. He had been a tax protester and had been non-cooperative over the years. He did contact us because he wanted to prevent seizure of the home. We, in fact, did prevent the home from being seized. But that’s an example of the type of person or the type of situation where there’s going to be a primary residence seizure.
KATRINA MADEWELL: So, they were literally trying to seize it?
DARRIN T. MISH: Yeah, they had the seizure order from a district court judge and everything. I mean it was ready to rock and roll but it’s not, John and Mary Smith who own a three-bedroom house in Valrico Florida and live on a hundred grand a year and just haven’t filed for even 10 years making similar income. Those are not the folks who are going to be under the gun for a primary residence seizure in my opinion. In my experience, it’s going to be the guy who owns the 250 feet of prime waterfront on the inter coastal and that properties worth 3 million dollars and he owes 2 million dollars. Does that make sense?
KATRINA MADEWELL: So, it’s more how valuable it is?
DARRIN T. MISH: That’s one of the factors for sure. It’s how valuable is it going to be or how profitable it’s going to be to the IRS. After 1998 they are not allowed to make a punitive seizure which means they are not allowed to seize any property if it’s not going to be profitable. So, before 1998 when there was a big overhaul of the laws, taxpayers bill of rights, revenue officers would go out and seize cars. They would do it for fun. There might be some revenue officers listening and there might even be some that have done this in the past, I don’t know, but they used to go out and seize cars and seize other taxpayer assets to teach the taxpayer a lesson. To show them who’s in charge, to show them who’s boss that’s what they used to do.
KATRINA MADEWELL: You know, moving past there wasn’t a whole lot of equity anybody anywhere because everybody was down.
DARRIN T. MISH: And that’s what, that’s one of the things that triggered that massive outcry in 1998 and caused the laws to be changed and offered so many appeal rights and what not that we have now and the protections. Because the IRS was just really running roughshod over taxpayers’ rights.
KATRINA MADEWELL: I mean, I imagine you probably got some that say or think that they are going to play God in a sense right anyway…
DARRIN T. MISH: God bless revenue officers. There’s a few different personality types. One of the personality types is the type of person who pounds the table and says, pay me yesterday. That can’t happen. Yesterday is already gone. But, moving along, I don’t want to go to deep. We should do a whole show on revenue officers.
KATRINA MADEWELL: I know, right? But number 2 is, currently is not collectible hardship status what does that mean?
DARRIN T. MISH: So, let me give you another example. Currently not collectible or hardship status is when the IRS looks at your gross income and your monthly allowable expenses. It either comes down to you have so little money left over, 5 bucks or 20 bucks or something like that. What I’ve seen a lot is the monthly disposable income is negative. So, it’s like a negative hundred dollars or negative two hundred dollars or something like that.
KATRINA MADEWELL: What happens in that scenario? Do they actually get a break? Is it good for them?
DARRIN T. MISH: If it comes out like that. What the IRS will do is they will place that account in currently not collectible status. They will call it hardship and they will leave that taxpayer alone, usually for a year or two at a time. Now this can potentially be the end solution to a problem.
KATRINA MADEWELL: Because they are going to run out of time, is that what you are saying?
DARRIN T. MISH: Yeah, going back to my example where there’s 2 years left on the statute of limitations. If you can have your account placed into hardship status, then you can just run out the clock. Now the problem that comes with unrepresented taxpayers is they don’t know when the clock stops.
KATRINA MADEWELL: Right, or when it starts.
DARRIN T. MISH: Yeah, and I can tell then for sure when that’s over. We’ve won many, many cases over the years because we outlasted the statute of limitations. One comes to mind. I don’t remember the exact dollar amount in controversy, but it was about half a million dollars.
I had represented this taxpayer off and on for over 10 years. He called me a couple of years ago, to get re-involved in the case and there was some debate and some uncertainty to when the statute of limitations would expire. Eventually, we did determine when it would expire and we based our strategy going forward on how much we are going to pay and how we are going to react to the IRS and there moves knowing that the statute of limitations was going to expire in December of 2016.
KATRINA MADEWELL: What happens if they end up making more money down the road and can they still garnish wages?
DARRIN T. MISH: If you are in hardship status you are currently not collectible. Same thing. If you are in that status, then the IRS is not going to levy. They might file a lien. Just one lien to cover themselves and you are supposed to remain current. You are supposed to have your tax returns prepared and filed and then you are supposed to not continue to owe going forward.
Another thing that I do when a taxpayer comes in, or prospect comes in, is we discuss how did this problem occur. And what are we going to do to prevent it from occurring. Because if we can’t stop it from continuing to happen then we can’t solve the problem.
KATRINA MADEWELL: I was going to say, if you start to fix it you can’t fix it if it’s one going after the next as far as years, right?
DARRIN T. MISH: The analogy is, taxpayers dig in faster than I can fill the hole. If that’s what’s happening, then there’s nothing that I can do. I can’t just go get a bulldozer. Well, maybe I might be able to. Bankruptcy might be the bulldozer we are getting there. So, that’s currently not collectible status.
KATRINA MADEWELL: It’s temporary, right?
DARRIN T. MISH: Yeah, it’s usually temporary it’s usually not the best solution but sometimes it is.
KATRINA MADEWELL: So, how long do they typically hold it in that status? How long have you seen and do they kind of forget about it once it gets in that status?
DARRIN T. MISH: There’s two ways they can do it. They can do it for 2 years. I think they can do it for one year. So, one or two years in time or they can put it in that status semi-permanently unless the taxpayer makes above a certain amount of money. They don’t tell you which one they are going to do and they don’t tell how much is the target amount is of too much money. So, it’s not great but it’s not terrible because they are not going to levy you or seize your assets or anything during that time frame.
KATRINA MADEWELL: Alright, so number 3, offer in compromise.
DARRIN T. MISH: Ok, it’s kind of a chore to explain offer in compromise in like 2 or 3 minutes…
KATRINA MADEWELL: But, again we are going to do a show on this so look for it coming up the week or 2 weeks.
DARRIN T. MISH: Right. So, an offer in compromise is where you make a deal to settle with the IRS and it’s based upon a relatively simple math equation that goes like this: Monthly disposable income times 12 plus your assets equals the amount of your offer. Let’s go back to Mr. $300.
KATRINA MADEWELL: Yes $300 always $300.
DARRIN T. MISH: Ok, so, we are going back to Mr. $300. We are going to take $300 as his monthly disposable income, we are going to multiply that by 12 that’s $3600 and let’s assume he has no assets, nothing.
KATRINA MADEWELL: No car, no house no boat nothing.
DARRIN T. MISH: Yeah, he has no other assets so we can settle that case for $3600. Now, if he owes a hundred grand, then that is an amazing deal. There are probably people listening going, you know, I’m going to call bull snot on that one, that doesn’t happen. I’m here to tell you it happened, it happens a lot. A couple of times a month in my firm we settle a case with that kind of ratio. Just crazy. Six figures, four figures, it happens a lot. But, there’s an exception and here’s the exception; if that monthly disposable income is enough to full pay with the amount of time left that the IRS has then no deal, you don’t get a deal, they want you to pay it out on a monthly, basis am I making sense?
KATRINA MADEWELL: I think so.
DARRIN T. MISH: So, let’s say you owed…Mr. $300 has caused me problems now cause it’s so little but let’s say he owes $8000…
KATRINA MADEWELL: That’s the total tax debt?
DARRIN T. MISH: The total tax debt is $8000. He can pay $300 a month and he has no assets and there’s 2 years left on the statute of limitations. Then let’s say he has 3 years left on the statute of limitations. Because I just did the math in my head and it would still work. But if you had 3 years left on the statute of limitations, $300 time 36 is more than $8000 so he doesn’t get a deal. He’s not going to get to settle for $3600, he’s got to pay the $8000. But if he owes $80,000 then $300 times 36 is not even close to $80,000, so he would get the deal. So, here’s what this means in very simple terms and it’s going to blow some people’s minds. It’s better to owe more tax money to the IRS then less, if you are going to file an offer in compromise, you want to owe more not less so remember…
KATRINA MADEWELL: Which is what our train wreck is, so crazy.
DARRIN T. MISH: So, remember when we talked in the first segment about people’s anxiety is wrapped around with unfiled returns and all that stuff, I just said bigger cases are easier cases to settle then smaller cases. So, like all that is, and this is what kind of hurts my brain is all that anxiety, all that stress, all the marital conflict, all that stuff wrapped up and we haven’t filed our tax returns for 6 years is often useless. Because it might be to your benefit to file returns where you don’t have any exemptions or deductions or whatever because bigger cases are easier to settle for smaller then smaller cases.
KATRINA MADEWELL: And again, this is, I use this analogy a lot in the real estate world because people think a lot of times buyers think, oh, I don’t need an agent I can just go make an offer directly with the listing agent. I’m going to save that money. Well that is not how it works. They already have a contract with the seller and I tell people when you do that and you walk into that situation unrepresented it’s kind of like playing a game, maybe you’ve never played it before or you’ve played it a couple of times and you are playing that game against someone that does it every single day. In my case for somebody like me for 24 years. You are not going to win because I know how to play the game. I do it all the time and this is where somebody like you know the rules.
DARRIN T. MISH: Yeah, I am nodding my head because it’s like, somebody asked me the other day well can’t I just do this myself and the answer is yes, you can do this yourself. Just like when I have a clogged toilet in my house I can fix it myself. If everything goes right I might get it to work, but if anything goes wrong I’m going to end up dirty and mad and really…
KATRINA MADEWELL: And you could have a bigger problem like if you puncture a hole in your plumbing line or whatever.
DARRIN T. MISH: Right or if you pour the wrong substance down the toilet and it gets into your septic and it kills all the whatever. There are just things that you don’t know and I can tell you with a high degree of certainty in my, just call it 16 years of experience dealing with the IRS I’ve already made every mistake. Not every mistake, but I’ve made lots of mistakes and I’ve learned from those mistakes and so you don’t have to suffer from those mistakes.
Now almost every single mistake that I made has been fixed. That’s one of the great things about the IRS niche is that even mistakes that are made, if you make those mistakes you can usually fix them. But the point is, if anything unexpected happens then you are going to be caught and you are not going to know what to do.
KATRINA MADEWELL: And now are we running out of time already to finish all these. I don’t know, but when we come back we are going to talk about number 4, which is outlasting the collections statute of limitations.
We will be back in just a minute.
DARRIN T. MISH: 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, thank you for sticking with us through the break. Now that we are back we are running out of time, we are already the fourth segment Darrin you have to get through a lot of these, so number 4.
DARRIN T. MISH: Ok, so number 4 is outlasting the statute of limitations. We’ve talked about this in the prior segments, if you missed that then you can get the podcasts at The IRS Solution Attorney on iTunes and the Android store. But, basically, the IRS has 10 years from the date of the assessment of the tax to collect the money. If you are looking at a tax bill that has, for example, 2004 tax liabilities on it, then your statute of limitations may be growing short and it might be a good idea to meet with a tax professional and determine when that statute is so that maybe you won’t have to pay the liability.
The fifth option is bankruptcy, a lot of people don’t know this but taxes can be discharged on bankruptcy. I’m going to try and boil this down for you here. If your returns have been filed for at least 3 years and it is just way grossly over simplified. If they’ve been filed for more than 3 years, you may qualify for a bankruptcy. You are going to want to talk to a tax professional not a bankruptcy professional first so that we can determine if those taxes would be dischargeable or not.
KATRINA MADEWELL: So, if you are filing you may be able to include it in bankruptcy?
DARRIN T. MISH: Yeah, you may be able to include them in bankruptcy. And you might even be able to put them in a chapter 7 bankruptcy, which is a liquidation bankruptcy. This sounds scary but you might be able to, again over simplified, push a button and make your tax liability go away.
KATRINA MADEWELL: Hence, talking to somebody like you before you know because we are like zipping through this.
DARRIN T. MISH: Exactly, so the next solution is innocent spouse. You know innocent spouse is super complicated. There’s 3 different types of innocent spouse so I’m going to again simplify this. If your former spouse ran up some tax debt, then you are going to want to be thinking about talking to a tax professional about potentially filing for innocent spouse.
KATRINA MADEWELL: Ok, so I’m going to play devil’s advocate because I was asking about a late spouse and you said, no, not always. But why wouldn’t somebody say, let’s use your scenario they owe a hundred thousand dollars. Why wouldn’t they just say alright well we are going to get divorced?
DARRIN T. MISH: Well, that can happen and if that happens then it’s potentially innocent spouse claim. But one of the claims that the IRS is going to make, counter claims, is going to be, spouse who’s saying that you are pure as a driven snow and totally innocent but you also lived on that income that your former spouse generated and you lived that extravagant lifestyle. So, the case that I was thinking about the late spouse was a gentleman who survived his wife and they lived an extravagant lifestyle. It wasn’t like sort of your average lifestyle, it was above average and we made an innocent spouse claim and the IRS rejected it.
It took us…we filed a tax corp petition to fight it and we almost went to trial on that case. I thought we were going to lose so it didn’t work out that well. That was the argument they were going to make and there were extravagant expenses that she paid for that he was well aware that she was not filing and or paying their taxes on time.
KATRINA MADEWELL: Maybe that is why we haven’t chatted about it so much before cause it’s very complex and it doesn’t sound like it happens all that often.
DARRIN T. MISH: It’s very complicated and I think it has a limited scope so that’s why I don’t talk about it a whole lot.
KATRINA MADEWELL: Alright, number 7, which is not very fun, but full pay.
DARRIN T. MISH: Ok, full pay is the last option. I will give you an example. I get these calls all the time. A guy makes 300 grand a year and he owes 8 grand to the IRS. “Hey, Darrin, what can you do for me?” The answer is, nothing. What am I supposed to do? You can clearly pay that back under those patterns. I might be able to get you an installment agreement if you don’t want to write a check for 8 grand. I can get you an installment agreement and the payments will be super low under a hundred dollars and we can move on from there but I don’t have a magic wand. I don’t have the magic go away wand or magic IRS go away wand, I wish I did.
KATRINA MADEWELL: So, what are the benefits in the installment agreement, does it stop some of the penalties and interest?
DARRIN T. MISH: Well penalties reduced. They are not going to levy you.
Sometimes they are not going to file a lien. So, that would be one of the examples. The other thing could be maybe it’s a higher number. Maybe it’s $25,000 and you technically have that money in the bank but you just don’t want to give up the liquidity. So, it might make sense to go ahead and enter an installment agreement with the IRS so you could make monthly payments of 300 or 400 dollars and take some of that stress off of you so that could make sense. But full pay is the solution in some cases, I hate to break it to you.
KATRINA MADEWELL: Well, it’s about that time.
DARRIN T. MISH: What that sound means is it’s about that time for the IRS train wreck of the week. This is the segment of the show where I talk about somebody who came in and frankly, they were a train wreck. I mean they owed the IRS a bunch of money and usually almost without fail they leave smelling like a rose. So, in this case it was an offer in compromise. My client came in and he owed $549,428.58 so we will call it $550,000. We will round it up to $550,000. It came out, a lot of times I post these results on my Facebook page and people get upset…
KATRINA MADEWELL: That is when we get the hate mail and we have fun with the shows like we did a couple of weeks back.
DARRIN T. MISH: We get all the haters come out and they are like, oh, he owed a half million dollars, he must be a crook. So, in this case, a particular gentleman sold his business and a lot of times he had a contract to work within that business as a consultant or provide some services. I don’t remember what. So, he was still kind of involved in the business but not really.
Part of the terms of the sales contract were that there was a smaller outstanding payroll tax liability and the new owners were supposed to assume that from the sale. They were supposed to pay it and then they were supposed to pay their payroll taxes going forward. That’s not what happened in this case, at all. What happened is the other partners not only not pay the limited amount that was due already, but they went ahead and they wracked up a whole bunch more tax debt. So soon it was almost $550,000.
We filed an offer in compromise and when we filed that offer the offer amount was $66,831.00. That was based upon a very limited amount of monthly disposable income and half of the equity in my client’s house. It was only half the equity because his spouse was not liable for the whole payroll tax penalty because she wasn’t involved in the business. So, it was only his half of the equity in the house.
KATRINA MADEWELL: I may have missed this did he sell the business somewhere along the way?
DARRIN T. MISH: Yeah, he sold the business. He sold the business and then they wracked up the tax debt, a lot of it after he had sold it. So, he is just an employee at that time, but the IRS still made a determination that he was responsible and he should have done something. He did try to do a lot, actually.
While this was all going on, they are not paying the payroll taxes. He’s pounding the table and screaming from the roof tops that they are doing this wrong and they just ignored him. Anyway, they wracked up about $550,000 worth of tax liability, so we filed this offer for $66,831.00 and the IRS accepted it as filed no questions.
KATRINA MADEWELL: So how did that counter offer try to, was it almost out of time or whatever?
DARRIN T. MISH: That never happens, no the statute of limitations wasn’t long and they had a lot of time left on it like maybe 7 or 8 years and it just worked out great and…
KATRINA MADEWELL: I wonder if the ownership interest changing had anything to do with it?
DARRIN T. MISH: It did and the offer specialist realized that my guy wasn’t really the bad guy in this equation. She also realized that he was getting a good deal, it was a little bit more than 10 cents on the dollar.
This client, doesn’t always happen but I wish it did, but this client became a very good friend of mine and it could not have happened to a nicer guy.
KATRINA MADEWELL: Wow, this was a fun-filled show. I had no idea that we would have so much stuff to talk about with these seven things that are solutions to a potential tax problem. If someone wants to reach you, they can get you at 888-get-mish.
DARRIN T. MISH: 888-438-6474 getirshelp.com podcast on Apple and Android also our app is on Apple and Android IRS Solution Attorney.
KATRINA MADEWELL: We will be back same time same place next week.
DARRIN T. MISH: For today we are out.