No matter if you have the best attorney on the planet or you handle your IRS Problem matter yourself, there are certain things you must do before your IRS Problem can be solved. Here is a summary:
• You must be considered “current” with your tax obligations. What does this mean? You must have all of your tax returns (that you have an obligation to file) filed and up to date. Remember that it’s a crime to fail to file a tax return or to file a false return but it’s not a crime to fail to pay your taxes. But before the IRS can consider your request to work something out with them, they must verify that you are current in the filing of any outstanding returns.
• The IRS will also verify that you have made Estimated Tax Payments if you are required to do so. Many people fail to realize how important the paying of Estimated Tax Payments. Generally speaking if you are self-employed or if you had significant tax liabilities in the prior year, you are responsible for the payment of Estimated Tax Payments. A simple formula for determining your ES payments is to take last year’s balance due, mulitiply it by .9 and then divide that figure by 4 to get your quarterly payment. Eg. If last year you owed $10,000 even, than multiply that by .9 which gives you $9000, then divide that by 4 which means your quarterly payment should be $2250. You can also break that number down by month and make your quarterly payments every month or even every week. It’s a little known fact that taxpayers can pay their Estimated Tax Payments more frequently than quarterly but if you think about it, it makes sense. The government just wants their money. When you make an ES payment just make sure to use Form 1040ES for the current year and make sure to notate on the memo line of the check what period you wish for it to be applied against. If you fail to use the form 1040ES and/or forget to notate the memo line, the IRS might very well apply your ES payment against any outstanding balances that you have. That’s a bad thing and will prevent you from ever exiting the mess that you are in.
• You must get a clear handle on your ability to pay in the opinion of the IRS. How do you do that? Well…if you are dealing with the Automated Collection System (ACS) you go to www.irs.gov and download a form 433-F. If you are dealing with an IRS field Officer like a Revenue Officer or if you are dealing with IRS appeals, you will download a form 433-A. Lastly, if you have an incorporated business or Limited Liability Company you will need to fill out a form 433-B as well. It’s helpful to know how the IRS allocates what are known as “allowable expenses.” But if you don’t understand how they do it or if you just want to hire a seasoned professional to handle your matter for you, that would make sense as well. The point is that the IRS will use the difference between your income and your “allowable expenses” to come to a figure that they believe that you can pay toward your tax liability on a monthly basis. Eg. If your income is $5000 per month and your “allowable expenses” are $4000 per month, the IRS will demand that you pay $1000 per month toward your liability (especially if you owe more than $25,000). There are sometimes exceptions to that rule but it’s a good guideline to remember.
In conclusion, there are certain things that you need to know and do before you attempt to solve an IRS problem. Make sure your tax returns have been filed; make sure you have made your estimated tax payments; and make sure you understand what the IRS thinks your ability to pay will be or you might find yourself with a situation that simply can’t be solved.
Darrin T. Mish is a nationally recognized, tax attorney with a practice based in Tampa, Florida. Mr. Mish not only lectures to attorneys, CPAs and Enrolled Agents across the country but also represents clients on every inhabited continent on the globe. If you would like more information about hiring Mr. Mish for your tax problem you may visit his website at: https://getirshelp.com