Prior to the COVID-19 pandemic, there were already millions of individuals and businesses owing significant sums of money to the IRS or state taxing authorities. With the brutal economic fallout caused by the pandemic, that number has skyrocketed. This has changed the playing field—in terms of both risks and opportunities–for taxpayers who are in collections. I’m going to explain how to minimize the risks and capitalize on the opportunities in the hope that I can:
- Help you avoid the nasty consequences that may be coming soon for those who don’t act; and
- Help you understand and exploit the unique tax relief opportunities that have become available as a result of the pandemic.
First, it’s important that you understand how we got to where we are right now in the world of tax relief. It’s a different ballgame than any of us tax professionals have ever seen.
There is little debate in the consensus that 2020 has been an unprecedented and extremely difficult year for just about everyone. No matter what your personal view on the current pandemic is, one thing is certain: COVID-19 has had a devastating impact on businesses. Whether your business has been decimated, you’ve lost your job or had your hours reduced, or you’ve been financially affected in some other way, the impact of the Coronavirus has resulted in long-lasting financial devastation for a large swath of America.
In a recent article from the Brookings Institution, published on September 17, 2020, several facts were presented regarding the severe impact that Covid-19 has had on the U.S. economy. (https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-economy/). A sampling of these facts includes:
- Small business revenue is down 20% since January.
- Layoff and shutdowns—and not reduced average hours—are driving in total hours worked.
- The number of labor force participants not at work quadrupled from January to April.
- The number of people not in the labor force who want a job spiked by 4.5 million in April and has remained elevated.
- In 26 states, more than one in five households was behind on rent in July.
When revenues are down, but overhead costs remain mostly constant, prudent business owners are forced to make difficult decisions on how to best allocate the limited revenue that is being generated. Many times, these tough decisions result in some form of tax liability. While far from ideal, many are forced into a situation where they have little choice but to play catch-up with the taxing authorities with the best intentions of making things right at a later date when things are more prosperous. The hope is that society, and in turn the economy, will go back to some semblance of normalcy, hopefully sooner than later.
The decision to “postpone” paying taxes may have been reinforced by the gracious, but temporary, leniency that the collection arm of the IRS was extending during the initial stage of the pandemic when the IRS had effectively suspended involuntary enforced collection action through July 15, 2020.
It is all too common that a temporary reprieve from negative repercussions ends significantly more quickly than one would like, and then the seriousness of the situation along with the potential negative ramifications come to the forefront. It is undeniable that owing a back tax liability is a terrible burden. To make matters worse, what initially may have seemed like a manageable tax debt quickly becomes exacerbated by the onslaught of penalties and interest that accrue. Thus, what may have started as something manageable can, in very short order, evolve into something that is altogether unmanageable and, in many instances, flat out crippling.
While the darkness of the situation may at times seem unbearable, there is a bright light on the horizon in the form of viable and affordable tax relief options. In addition to the IRS People First Initiative released earlier this year, the IRS has put forth several programs referred to as the Fresh Start Initiative that can provide very favorable tax relief options for those who qualify and know how to work the programs. If you would like to learn more about these programs, check out a previous article of mine: https://www.taxfortress.com/irs-fresh-start-initiative-facts-fiction/.
Surprisingly enough, the severe downturn in the economy and the resulting financial devastation that it has created has resulted in new tax-saving opportunities for many tax debtors. In other words, there are a lot of businesses and individuals with unpaid taxes who, as direct result of the pandemic, now qualify for substantial reductions to their tax liabilities.
For the most part, taxing authorities require outstanding tax liabilities to be paid as quickly as possible. However, they do take into consideration a taxpayer’s actual ability to resolve the liability without creating a financial hardship. Thus, when a taxpayer has reduced business revenue and/or reduced personal household net income, their ability to make monthly payments to the IRS is reduced.
This simple fact may allow a tax relief expert to take advantage of one of the Fresh Start Initiative programs, whether it be that of an Installment Agreement or an Offer in Compromise. There is also an option called Currently Not Collectible status which, if approved, requires no payments whatsoever towards the tax debt. Penalty reduction or elimination is a possibility as well.
The unprecedented convergence of the following 3 factors leads me to believe that there is no better time than now to cut deals with the IRS and state taxing authorities:
- The temporary grace period for non-enforcement due to COVID-19 ended on July 15th, 2020;
- The government needs money, perhaps now more than ever, due to trillion dollar relief programs (and a new relief spending package expected soon);
- After operating with a skeleton staff for a large chunk of the year, the IRS is still playing catch-up. In other words, they’re slammed.
Why do these factors increase the chances of aggressive enforcement and what can be done to stop it?
Well, July 15th has come and gone, the grace period is over, and the government desperately needs to fill its coffers. The taxing authorities have resumed filing liens and pursuing aggressive enforced collections such as bank levies, wage garnishments, and asset seizures. And they are only getting started. There is no question that they will continue initiating enforcement action against taxpayers who have yet to resolve their tax debts.
To mitigate the risk of enforcement, start the process of negotiating a tax relief agreement now. Once an agreement is approved, the threat of enforcement will be eliminated. You can also seek the assistance of a tax resolution professional who can very often reduce or eliminate the threat of enforcement while working through the process of reaching an agreement.
Why do these factors present special opportunities?
As I said, the taxing authorities are slammed with work right now. This, however, does not mean that they are allowed cut corners and disregard their requirements for approving tax relief agreements. On the other hand, it likely does mean that they are motivated to close cases and approve tax relief agreements—if you give them everything they need to say “yes.” Like anyone else slammed with work, tax collectors want to get things off their desks.
Now is the time to have an experienced tax relief attorney assemble exactly what the taxing authorities need in order to make it easy for them to give you the “yes” you need on a very favorable tax relief agreement (think settlement for a fraction of what you owe, a big reduction in penalties, a very affordable monthly payment or even Currently Not Collectible status where you won’t have to pay a dime for the time being).
Fortress Tax Relief has caring and knowledgeable professionals on staff who would be happy to evaluate your unique tax situation and outline a solution for you at no charge. Chances are good that, with the right assistance, your tax liability is a lot more manageable than you think. Please give us a call.