You may have heard about the screaming deals that some taxpayers have been able to take advantage of to resolve their tax liabilities with the IRS during the COVID era. Like just about everyone, COVID knocked the IRS on its heels. This along with loosened collection procedures has created an environment where indebted taxpayers have been able to get exceptional terms for the settlement or resolution of their tax debts. The burning question for those who have yet to resolve their tax debts is: is it too late to get in on the deal-making?
The short answer is that there are still ample opportunities to achieve outstanding results. The fact is that there have been numerous times where the pandemic has helped me to negotiate results that may not have been possible before the endless quarantines, shutdowns, and recommendations to keep the public healthy. What follows are a few examples of how the pandemic has paved the way for several of my real-life clients to achieve extraordinary results, and why I think it’s not too late to get in on the action.
In March 2020, the country largely shut down, in an effort to stop the spread of the COVID virus. This initial shutdown has mutated into a patchwork of work-from-home, low staffing levels, and slow processing at the taxing authorities. The IRS and most states are still not back to their normal operations over two years later. Of course, the situation has caused endless headaches for most of us who deal with the taxing authorities for a living, but it has also opened up opportunities to resolve our clients’ cases in ways that would have been impossible in February 2020.
One strategy for resolving a tax debt that has been particularly effective during the COVID era has been the Offer in Compromise (tax settlement). Although we expect to wait at least a few months longer than normal for a response, we have been able to negotiate approval of a number of Offers in the past couple of years. There are two accepted Offers for my clients that stand out; one business Offer, and the other a personal one.
We filed an In-Business Offer in Compromise (OIC) for one of my clients in late 2019. I always advise my clients to be prepared to wait up to six months for a response to an IRS Offer, so we did not expect to hear from anybody until about February or March of 2020. We received our first notice from the IRS about the case being assigned to an Offer Specialist in February 2020, and then, before we received any further communication, the IRS went to remote work-from-home for most of its employees. We eventually heard from the Offer specialist again in May 2020. She was working from home, and it did not sound like she had much to say about the Offer.
The IRS always tries to find a technicality it can use to reject or return every Offer they get, before they invest much time in reviewing the Offer on its merits (minimizing the chances of this is a very good reason to have a tax relief professional prepare and negotiate the OIC on your behalf). True to form, the Offer Specialist’s first substantive contact with us was to inform us that the client was not filing current returns, and the Offer would have to be returned for lack of current compliance.
We quickly realized that the “delinquent” returns were the most recent 941 and 940, both of which had been filed timely, but had not been processed, due to the shutdown. It was at about this time that reports began to surface of huge volumes of unopened mail sitting in semi-truck trailers at IRS Service Centers around the country. We simply provided copies of the returns that my client had filed, and we moved into the more substantive negotiations on the Offer.
After clearing this initial hurdle, two things became apparent. First, the Offer Specialist was intent on finding a reason to reject the Offer, and second, the Offer Specialist did not have much other work to do. The initial calculations we received from the Offer Specialist misrepresented and misinterpreted my client’s financial statements so badly that she calculated they had the ability to pay more than twice the approximately $300k they owed the IRS. Based on her flawed calculations, inclusion of real estate equity, and disallowance of legitimate business expenses, the Offer Specialist was set to reject the Offer.
My client and I pored over the financials, identified all the Offer Specialist’s mistakes, and submitted a response that addressed each of the Offer Specialist’s reasons for rejection with an undeniable counterargument. The Offer Specialist persisted on a few of her misinterpretations, but I was ultimately able to knock down each obstacle she presented, and the Offer was accepted in July for about ten percent of the originally assessed balance. The client paid the $30k Offer amount sooner than was required, the IRS released their liens, and the entire liability was resolved by September.
Another client of mine owed nearly $1 million to the IRS for personal income tax. He had been very successful in an industry that has since basically ceased to exist, and he missed a couple of opportunities to change taxation strategies due to an incompetent accountant. When he finally hired Fortress Tax Relief, this client had already filed five previous Offers in Compromise, with various other representatives, but had not been successful at settling his liabilities.
As I filed power of attorney and began investigating the case, I discovered that an IRS Appeals Officer had actually been willing to accept his last Offer, but he had missed the deadline to respond. I tried to get Appeals to extend the deadline, and move forward with acceptance, but was unsuccessful. That settlement would have wiped away his $1,000,000 liability for about $35,000.
We set about preparing and filing a new Offer in Compromise for the client in early 2021. By this time, my client had been unemployed for about three years. It was clear to us that he would never be able to find work in his old industry again, due to his age, and the severe contraction of the industry he knew how to work in. We filed a lowball Offer, knowing that he would be using his available savings before the IRS responded to the Offer. This meant that my client was not required to make a large down payment or send periodic monthly payments while the Offer was pending. Between filing the Offer, and receiving a response from the IRS, my client’s savings ran out, and he was forced to apply for several government assistance programs in order to maintain his basic life necessities.
Nearly a year after filing the Offer, it was finally assigned to an IRS Offer Specialist. As is typical for the IRS, the initial calculations by the Offer Specialist showed that my client should be able to pay more than the amount we originally offered. Even with the IRS’s inflated numbers, the Offer Specialist could only justify a request to increase the Offer to about $30,000, which was still less than Appeals had been willing to accept when the client first hired Fortress.
We responded to the Offer Specialist with updated financial information, showing that my client’s financial situation had deteriorated since we filed the Offer over a year before. Our response left the Offer Specialist with nothing else to argue about, and the Offer is currently being processed for acceptance at $5000. That’s $5000 to resolve a debt of nearly $1 million! There are certainly still aspects of my client’s life that are difficult, but, very soon, the IRS will not be one of them.
In addition to securing very favorable results on these two tax settlements (and several others) during the COVID/Post-COVID era, I’ve found other ways to leverage the post-COVID IRS rules and operating environment to my clients’ favor. Other clients have used changes to the Federal Tax Rules, and measures introduced during COVID to reduce or eliminate their debts to the IRS.
One client of mine has a high-paying job for a company that frequently experienced net operating losses. In 2015, he filed a personal income tax return with a very big balance due. This did not concern him, as he planned to use anticipated business losses from the next year to offset those gains, and to address his balance due. Unfortunately for him, before he could file his 2016 tax return, the IRS changed the rules, and no longer allowed carry back losses to be applied against taxes due from previous years. He hired me, and we set about negotiating with the IRS to resolve his tax debt. Luckily for him, and partially because of my involvement, the IRS did not move very fast on his case. Before the Collections case got too serious, the IRS changed the rules again in 2021, to once again allow those carry back losses. My client quickly worked with his accountant to prepare amended 1040s, to use this rule change to resolve his tax debt.
COVID has meant long processing times at the IRS, but my client’s case was assigned to a Revenue Officer at about the same time as the rule change. The correct returns were filed over a year ago, but I was able to explain to the Revenue Officer how the new rules would allow the amended returns to resolve my client’s tax debt. Now, instead of collecting from my client, we have a Revenue Officer monitoring the processing of the amended returns, contacting me in real-time if there is an issue with processing, and generally working on the inside to ensure that my client’s debt is erased.
The Federal Government also authorized and enacted several measures to act as a stimulus to businesses during the pandemic, which have been very helpful to my clients. The Paycheck Protection Program (PPP) allowed employers to take a loan for an amount equal to two quarters of payroll for the previous year, in the hopes that those employers would retain their employees, thereby reducing the number of people laid off and unemployed due to COVID. If the loan proceeds from the PPP were used for payroll, then the loan was automatically forgiven, and the employer had contributed to the stimulus by keeping workers employed. If PPP funds were not used for payroll, the employer is required to pay the loan back at a very low interest rate.
Several of my business clients took PPP loans and used them to pay off IRS debts. By doing so, they resolved their IRS Collections cases, and only have to pay the low PPP interest rate, instead of all of the penalties and the high interest rate associated with resolving an IRS debt over time with an Installment Agreement. The government got their money, and my clients no longer have to worry about ridiculous penalty and interest accruals on their debts, as they repay private lenders who facilitated the PPP program, instead of making payments directly to the IRS.
Another boon to business taxpayers enacted in response to the pandemic was the authorization of Employee Retention Credits for employers. The main idea is that employers are entitled to Employment Tax credits, to the extent that they retained employees throughout the lockdowns and remote working requirements caused by the pandemic. I have now had two clients successfully amend their 941s from 2020 and 2021 to claim the ERCs. In both of those cases, the clients were entitled to enough credits to resolve fairly significant business debts to the IRS.
In general, the IRS and the Federal Government have been very favorable to taxpayers in the past two years. Beyond specific government programs aimed at rewarding employers for retaining employees, and the availability of easy loans and stimulus, the IRS has generally softened its requirements for considering a Collections case resolved. I have negotiated countless Partial Payment Installment Agreements and Currently not Collectible determinations for my clients, due to the increased flexibility from the IRS regarding financial analysis during Installment Agreement negotiations.
Many of the pandemic programs are still available to taxpayers, and the IRS currently continues with its more flexible financial analyses. Even though we would all like to think that the pandemic is over, there are still many policies in place that make this an outstanding time to resolve your debt to the taxing authorities. I, along with the other attorneys here at Fortress, have been obtaining outstanding results for our clients for many years, but the climate has never been better. They say “all good things come to an end,” so if you have a tax debt, right now would be the time to take advantage of the favorable tax relief climate.
If you or your business have a tax liability and are curious whether you may be eligible for a favorable tax relief program, pick up the phone and give us a call. We have caring and knowledgeable professionals on staff who would be happy to evaluate your tax scenario and outline a solution for you at no charge.