For many reasons, business tax debts tend to be far more dangerous than individual tax debts. This is primarily because the IRS and state taxing authorities use a completely different playbook when it comes to collecting unpaid taxes from businesses than they do when collecting from individuals.
With individual tax debts, the government is supposed to collect in a fashion that allows people and families to meet their basic living expenses. While it is true that tax collectors can and do wreak havoc on the lives of individuals, at least they are supposed to be merciful enough not to force individuals into total financial ruin (homelessness, starvation, etc.).
Such mercy, however, is absent when it comes to business tax debts. The IRS and state taxing authorities do not view a business as a human being, and it matters not that a business generates income that is, in fact, necessary to cover the basic living expenses of both the owner(s) of the business and its employees. If a business fails to resolve its tax debt in a fashion that is acceptable to the government, the tax collectors will not hesitate to force the business to close its doors. Their attitude towards the owners and employees of the business is very much “feeding and sheltering yourselves and your families is not my problem, go find another job.”
This, coupled with the fact that resolving business tax debts can be very challenging, leads many business owners to seek professional help with their tax debts. This raises the question of whether it makes sense to seek out a business tax lawyer rather than some other kind of tax professional. The short answer is that it depends on the size and severity of the tax debt, as well as the business owner’s level of motivation to save their business.
Most small business owners have put their blood, sweat, tears, and just about all their money into their business. So, it makes sense that they want to minimize their risk of losing their business due to unpaid taxes. A good tax attorney with extensive experience in resolving business tax debts specifically can both minimize this risk and ensure that the tax debt gets resolved with the most favorable terms available by law.
When Should a Business Owner Consider Seeking a Business Tax Attorney?
When a business tax debt becomes “serious,” meaning that the continued existence of the business is in jeopardy due to unpaid taxes, it is time to consider finding a business tax attorney. What I mean by a business tax attorney in this context is a tax attorney who has extensive experience resolving business tax debts.
A business tax debt is “serious” if either of the following is true:
- The business tax liability is at least $10,000 and the financial condition of the business is such that it is unable to pay its current taxes (payroll taxes, sales taxes, etc.) as they become due, or
- The business tax liability is over $25,000 and the financial condition of the business is such that the tax debt cannot be repaid over a 24-month term.
In the first situation, though the tax debt might be quite large, the bigger problem is that the business is unable to meet its current tax obligations as they become due. Neither the IRS nor state tax collectors will put up with this for long. Keep in mind that, in addition to being responsible for collecting tax debts, tax collectors are also law enforcement officers. They will not allow businesses to continue to operate for long in violation of the tax laws, and they will shut such businesses down for the sole purpose of enforcing the law even if they know that they will never collect a dime of the tax debt.
Having a tax attorney experienced in resolving business tax debts can make the difference between the survival and demise of a business in this type of situation. The bottom line is that a business with negative cash flow—regardless of whether it owes taxes—must figure out a way to fix its cash flow problem in order to survive. However, this rarely happens overnight.
Businesses in this predicament almost always need time to get things turned around, and the very last thing they need is the government sweeping their bank accounts and levying their accounts receivable while they fight for the survival of their business. A good business tax attorney has experience utilizing a surprisingly large array of tools that can be used to stop or slow enforced collections—especially if the attorney is involved relatively early in the process.
Filing the right kind of appeal at the right time, for example, can be a powerful tool to stop enforcement. Some of the most important rights of appeals expire after time, so involving an attorney early can often result in a stronger defense. This, in turn, could translate into a lot more time to fix the cash flow problem.
Keep in mind that defending the cash flow troubled business from enforced collections is only the first step in the process. Once the business starts consistently meeting its current tax obligations as they become due, then the business will become eligible for a tax resolution agreement. At that point, the attorney will determine which tax relief program best suits the needs of the business, and resolve the tax debt by negotiating the most favorable terms for which the business qualifies (tax settlement/offer in compromise, penalty reduction/abatement, affordable monthly payments, etc.).
In the second situation (liability over $25k and unable to repay over 24-month term), the business tax debt is “serious” because it can often be very challenging to convince the IRS or state to agree to terms that the business can afford. If the government does not agree to terms, they have no choice but to proceed with enforced collections, which can result in the demise of the business. If they will not agree to terms that the business can afford, then the agreement is destined for default. Default is often followed by enforcement and reluctance to grant another agreement.
It is, therefore, critically important to negotiate affordable terms on the first go-around. I would add that, if your business has already defaulted one or more time, your tax problem is “very serious” and requires immediate professional assistance.
Many tax indebted business owners who choose to forego engaging a high-quality business tax attorney wind up experiencing nightmare scenarios trying to get any tax resolution agreement approved by the IRS or state. Others feel bullied into entering an agreement with terms that they cannot afford (or they wrongly believe they have no other choice).
A good business tax attorney knows when and how to stand up to the IRS or state and fight. They will minimize the chances that a fight becomes necessary in the first place by structuring the tax resolution proposal—with terms that their client can afford–in a fashion that maximizes the proposal’s chance of approval. Second, and of equal importance, the tax lawyer will know when a proposal was rejected due to an incorrect analysis by the government, and they will know the best way to fight it. And win.
And if you think that analyzing the financial condition of a business is not open to interpretation, think again. IRS and state tax collectors will generally interpret all “gray” areas of financial analysis in a fashion that most favors the government. Such interpretation rarely results in an agreement that the business can afford.
There is an art to anticipating the areas in the financial information that are open to interpretation, and a good business tax lawyer will identify these areas ahead of time and include documentation and/or arguments in their proposal that will minimize or eliminate the chances of a government-skewed interpretation. This can easily make the difference between an agreement to which the business can comfortably adhere, and an agreement destined for default.
Is a Business Tax Attorney a Better Choice than Other Tax Professionals?
First, understand that there are only three types of tax professionals with unlimited authorization to represent taxpayers before the IRS (states generally have the same requirements): CPAs, enrolled agents, and attorneys. CPAs and enrolled agents are accountants, and ought to be used regularly by businesses for tax preparation, accounting, tax planning, and such.
However, when a business incurs a tax debt, it is, with very few exceptions, no longer an accounting issue. The accounting phase is over with and done. What matters now is defending the taxpayer’s rights, advocating effectively on behalf of the taxpayer, and persuading the government to accept terms that are favorable to the taxpayer.
Defending rights, advocating effectively, and utilizing persuasive skills fall squarely down the middle of an attorney’s wheelhouse, and it is exceptionally rare to find an accountant who can do any of these things as well as even a mediocre lawyer. Thus, it is pretty obvious why an attorney, especially a tax attorney with extensive experience resolving business tax debts, is far better suited for the job.
Experience resolving business tax debts is also hugely important, and few accountants have much experience resolving any tax type of tax debts (dabbling in a tax debt case or two per year does not equate to significant experience). Even fewer have significant experience resolving business tax debts.
Understand that many accountants will not accept a challenging tax debt case, and instead refer clients with tax debts to professionals that are better qualified to handle such cases. In fact, a lot of accountants around the country refer clients with tax debts to my firm, Fortress Tax Relief. It’s also worth noting that an astonishingly high number of CPAs have engaged my firm to help them resolve their own tax debts.
A sharp mind is also important when it comes to choosing a tax professional for assistance in resolving a business tax debt. It is no secret that the taxing authorities wield an incredible amount of power. Consequently, going up against them presents a David vs. Goliath scenario. The little guys don’t get to use slingshots, so being more clever than the taxing authorities is one of the only ways to help level the playing field.
CPAs tend to be smart people, though many of them would not have been accepted to law school or passed the bar exam had they tried. Also, a mind great at number-crunching isn’t necessarily good at advocating.
Enrolled agents don’t even need to have a college degree, and it is doubtful that many of them could have gotten accepted to law school and passed the bar exam had they tried. Although brilliant CPAs and enrolled agents certainly exist, and though there are a couple lawyers out there who would appear to be incapable of tying their own shoes (I have no clue how they passed the bar exam), you will significantly increase your chances of finding a tax professional with a strong intellect by choosing an attorney.
If your business has a serious business tax problem, Fortress Tax Relief can help. Fortress is the only significant national tax relief firm in the country where every case is handled personally by a licensed tax attorney. Although Fortress accepts individuals as clients, its focus since its inception in 2003 has always been resolving business tax debts. Every one of our tax attorneys has extensive experience resolving business tax debts, and there is no tax relief firm in the country better equipped to assist business owners in tackling this type of problem.
If you would like to learn how Fortress can help your business, pick up the phone and give us a call. We have caring and knowledgeable tax professionals who would be happy to answer any questions you have and to outline a solution tailored to your specific circumstances. We do not accept all cases, and we may be able to steer you in the right direction if another firm or professional is a better fit for your needs. There is no charge for a telephone consultation, so give us a call now!