Jeffrey: Hi. I’m Jeffrey Schneider, and I am enrolled agent and this is We’ve Got Your Back…Taxes. I welcome back a previous guest, Steven Klitzner. He’s an attorney here in South Florida who deals with alternative collection issues and IRS problems. So he’s the type of person you go to when you have real issues.
In our last segment, we just talked about the different statute of limitations and the three years, six years and so on. We mentioned substitute for returns. We talked about how the IRS, if they have information returns, they’ll file a return for you. But why is that really so bad, other than cost base as we mention about stocks? Why is that really bad?
Steven: Well, it’s bad because they don’t give you any of your real expenses. A lot of people have itemized deductions. They have business expenses. They have a family where they get a better tax break if they file the return. The IRS, they’re not good at filing returns. They’re good at filing returns for them, and they just take the bare basics.
The lesson here is they give people an opportunity to file a correct return. They will send letters. Don’t ignore those letters. You’ve got to get help early and often and you’ll be all right.
Jeffrey: At least open them and read them.
Steven: That’s right. Take a look at the letters. Now, in fairness to some folks, they’ve moved. They haven’t filed a tax return in years. They’ve moved. There’s no forwarding address. They have no idea anything has happened until the IRS finally finds them and sends them collection letters. But the idea is once you find out there’s a problem or could be a problem, immediately get some help, prepare correct returns, and a lot of times that solves the whole problem.
Jeffrey: And you haven’t filed returns in years, even though we mentioned in our last segment you had clients that had issues from ’99 and 2000. I have a client now I’m dealing with. He hasn’t filed a return in 22 years.
Now, he came to me and said, “Oh my god, do you have a program that can file a return for 22 years ago?” I said, “No, don’t worry about it.” The Internal Revenue Manual, which is what we call the IRS’ own Bible or their own playbook, requires, not requires but suggests they only want to go back six years because they don’t have the personnel to do that. So don’t go crazy.
Steven: Occasionally they ask for more. But if they don’t ask, the last six years is fine.
Jeffrey: It’s fine. That’s what they start with and then they open it up. If they think it’s fraud, they may go back for more.
Steven: But usually that’s pretty good. Sometimes we get certain times they want you to fill in the blanks and do more. But basically, you go back six years, you should be good.
I just had a lady in a couple of weeks ago, a young lady, and she hadn’t filed returns in years. She came in so afraid. She got a refund every year. She didn’t even know it. She was just afraid. You can’t be afraid. You’ve got to get help.
Jeffrey: Now let’s talk about what happens if you owe money. This is the real crux of what enrolled agents do in representation and attorneys like Steve. There are basically I would say four ways to deal with collections. One of them you pay it.
Jeffrey: Well then, what happens if you can’t? There are three things. One is called currently non-collectible, CNC. Then there are IAs or installment agreements. And then the big one, offers in compromise.
So let’s start with currently non-collectible. What does that mean?
Steven: It basically means that you convinced the IRS that there’s no way they’re ever going to get the money from you, at least at the present time. So we see that a lot with people unemployed, people that don’t have a lot of income, people that have a lot of expenses. They can be really put in non-collectible. We even have businesses we represent where we show the IRS, “Look, we’re filing all our tax returns now. We’re paying all our taxes now. We’re just not making a profit. Leave us alone for now.”
That can be a permanent fix. Sometimes it’s a temporary fix until the person starts working or the business makes money. But it is a solution. The good news about that, because we talked about statute of limitations last time, 10-year statute of limitations keeps on running. You keep getting toward the end.
Jeffrey: Now, when we talk about CNC, it’s not an end all. You said they look at it again. Now I have a client that’s been in CNC status because his income stayed in the low 40s for the last six years. They do look at it. So all of a sudden if his W-2 this year went up to 105, they’re going to come back and say, “Now, you can pay.”
Jeffrey: So they’ll remove you. So it’s not an end all.
Steven: Yeah. When they put you in non-collectible status — sometimes I call it uncollectible status — when they put you there, they put a code into the transcript saying when the person makes over whatever number they put in, we’re going to look at this again. The IRS is very underfunded now. Sometimes they miss it, but that’s their policy is to come back and say, “Maybe it’s time to start paying us some money.”
Jeffrey: All right. Now let’s look at the next step. Now you say, “Okay. I have a little bit of extra money.” This little bit of extra money has to do with not what you think is a little bit of extra money. There are standards and things we’re not going to get into here, because we could spend hours four hours, which we have. Steve teaches classes, as I said in my last segment, which I’ve attended, and we’ve done four hours just on this.
But let’s just talk about now installment agreements. Now, there are two types. There’s what we call a full pay installment and a partial pay. Please explain that.
Steven: Well, a full pay installment agreement, it’s really like paying off a car. You owe the IRS x-number of dollars. You’re going to pay them x-number or I’ll call it y-number of dollars for the next z-number of years — see how I did that, XYZ — and ultimately the IRS is going to get all their money. Penalties keep going up. Interest keeps going up, but ultimately they’re going to get their money.
Now, some people, let’s give an example. Somebody owes $25,000. They pay $400 a month. In six years, it will all get paid off.
Some people come in, maybe they only have $100 left over. They’re going to pay $100 a month. They’re never going to pay the $25,000. Statute of limitations is ultimately going to run. So that’s a partial pay installment agreement, a little like an offer in compromise, because you’re not going to pay everything off. You’re just going to pay what you can afford every month.
Jeffrey: Now, we’ve all heard and there are all these big box companies say under the fresh start initiative. All that means is that the IRS allows you to do things a little quicker based on certain amounts of money. If you owe, you heard, under $10,000, you don’t need us. You fill out a form. You hand it in. You pay it over 72 months and you’re done.
But what are those other amounts? When do people really have to worry about these types of programs?
Steven: Well, everybody has got a different situation. I have some people that owe $20,000, and it might as well be $1 million. I have other people that owe $200,000 or $300,000. They say, “Look, just buy me a couple of weeks, a couple of months. I’m going to pay the whole thing off.” So everybody’s got a different situation for this.
So it’s tough. The bottom line is this. There are things people can do themselves. They come in and see me. I give a free consultation to folks. Sometimes I just say, “Do this and you’re done with it.” But other times they need us, even on the small stuff. If there’s a lien, we can get the lien withdrawn at the end of the case. If there’s some penalty, we may be able to get some or all of the penalty removed. So there are some things we can do.
But there are folks that you’re right. They make a phone call. They work out a quick payment plan. They owe the IRS $10,000. They pay $200 a month. They don’t need any help, and they get the thing done.
Jeffrey: All right. Now, let’s talk about offer in compromise. That is the big thing. Everybody thinks, “We can get you pennies on the dollar.”
Steven: Oh, you can’t say that anymore.
Jeffrey: And I say it depends on how many pennies.
Steven: You can say that. That’s right.
Jeffrey: It depends upon how many pennies. I had a client that I did 10 pennies on the dollar. We worked on that case I talked about. I have somebody that I did $0.33 on the dollar. I have somebody that’s going to be $1.05 on the dollar, which means he can’t do it. Explain what an offer in compromise is.
Steven: The whole thing behind the offer in compromise is this. You have to convince the IRS they’re never going to get all their money. You have to offer them all of the money they’re ever going to get. That could be $100. That could be $10,000.
So here’s the formula. The formula is quite simple. The application is a little more difficult. The IRS wants 80% of the value of all of your property.
Jeffrey: Unless you’re dead.
Steven: Yes. Some people are upside down. They don’t own the house. That’s not a problem. But if you have equity in your house, that’s got to be part of the picture, because you’re offering them everything they’re ever going to get.
The second thing is they want, for the most part, all your money — your cash, your savings, your IRAs, your 401(k)s. We’re not talking about a couple grand in the bank. We’re talking about a lot of money.
Finally, they want to know how much money you have left over every month. They’ll take that number and multiply it by 12. When we do the numbers, some people don’t qualify and other people, we get them settled for $100. Last year we did two. We settled for $1 each. I’m not going to do it anymore. I want to keep the streak alive, but 2 and 0 on a dollar. So the lowest we go is $100. If that’s all they can pay, that’s it. The IRS will take it.
Jeffrey: Basically, it’s not based on your income and expenses. It’s your income, but then the IRS tells you what your expenses are, based on where you live, and those are called national standards.
Steven: Right. You want to make a deal, you’ve got to live by our standards. Here are our standards. If you can make the deal, fine. But if you’ve got a $4,000 or $5,000 rent and utilities, they’re just not going to allow that. They’re going to have their standards that they’re going to allow. We still get a lot of people that qualify for it and we can make some great deals for them.
Jeffrey: That being said, in the last segment, it’s not all black and white either. There are some negotiations at play in all of this. There are some things you can manipulate, so to speak.
Steven: Right. A lot of people say, “Just call them and see if they’ll take this.” No, it doesn’t work that way. Everything is very formal. But sure, there’s some advocacy. That’s one of the things. It’s very difficult for an individual to do is an offer in compromise on themselves, too many variables.
Jeffrey: Okay. In our last part, please tell everybody where they can get in contact with you.
Steven: All right. Good. I’m Steve Klitzner. I’m a tax attorney in the North Miami area and Aventura area, and I practice all around the state. My number is 305-682-1118. My website is FloridaTaxSolvers.com. The email is help@FloridaTaxSolvers.com. Everybody gets a free consultation in person, on the telephone. If I can help you, I’ll tell you I can help you. If I can’t, I’ll just tell you what you need to do and I’ll send you on your way.
Jeffrey: It’s very important for our listeners to understand that it is a very complex issue, these alternative collections. You should not do it alone. Even if you’re doing a basic, you need to talk to somebody, even for the free consultation, just to get your information.
I really appreciate you telling us about all this and helping us. I hope you come back again.
Again, my name is Jeffrey Schneider. I am an enrolled agent, and this is We’ve Got Your Back… Taxes. Until next time, see you.