Going To Miss The October 15th Deadline? Follow This 6-Step Process...

People don't actually know this, but sometimes the IRS will actually go on taxpayer social media accounts if they're public, and they could actually identify assets through there.

I had a client, this is about 10 years ago, and the IRS was going after them hard. And he had called, trying to get help to fight the irs. And I'm like, I don't know. Let's see what we've got here. I think we did an engagement letter, sent in some money, and we started having a couple conversations. But I was only into this maybe a couple weeks, just kind of assessing the situation. All of a sudden, the IRS CID started following me on my Instagram.

Oh, my gosh.

I know. And I was like, holy crap. Welcome, everybody, to the Main Street Business Podcast. My name is Mark Kohler. My regular co host, Matt Sorenson is out of pocket. So I was able to invite, and I'm honored to have Farah Salah here, a CPA specializing in IRS res, join me today for our show. Farrah, thanks for being here.

Thank you so much for having me. This is such an important topic, and I'm so glad we're going to be able to address it.

Oh, I know so many people need to hear this. And of course, those here listening via podcast or on YouTube have seen the title what to do if you owe the irs. Now, we've got six steps we're going to cover here together. But first and foremost, I want to give you some encouragement, some love. My heart goes out to you. I vote the IRS before I don't think you can be a business owner. And I've been around for 30 years in business, and I've been on a payment plan with the irs, and it's. It's very emotionally draining and scary to think that the IRS is out there and you owe them. So I want to let you know you're not alone. It's okay. This, too will pass, and I'm just grateful that you're listening today. I'm sure fair. You give gosh, pep talks to so many clients in your practice. This is. This is what you do every day. What do you tell people right out of the gate? Before we get into some practical steps

here, I know the situation seems catastrophic at the moment, but I'm telling you, I have seen and been exposed to so many types of situations. There are always solutions. And you're going to be okay. You just have to address the problem now before it really spins out of control.

I love it. We are going to get to tip number two. We're going to get to that, I. I saw what you were planning there. Well, let's go with our six steps here and hopefully give many of you a road map and some help and some clear, true answers on what you can do. We just. Bear and I were talking before the show and just both of us pissed off about how many scam artists are out there making it sound easy to settle with the IRS and taking these big fees up front. It's an ugly industry out there, and I want you all to know we are not selling any of that today. We're giving real, cutting edge, truthful content of what your options are. But any forewarning there, too fair. Gosh, I want to get to my six steps, but that's another major point, is watch out for the wolves and sheep's clothing. Did I say that right?

Yeah, you. You really hit the nail on the head there. So there are so many of these major national tax relief companies that capitalize on people that are in these vulnerable situations that really try to sell something like the offer and compromise, because they can make thousands and thousands of dollars on each offer. But the reality of it is that trying to get accepted for an offer in compromise, it has an acceptance rate of about less than 45%. So if you're going to a resolution company that's trying to sell you it right off the bat and they don't know your entire situation and it's in its entire scope, then I would just be wary about proceeding with them.

Good, Good advice. All right, so number one tip, and we're going to just riff here. Matt Sorenson and I like to call it that, where we just kind of see where we go and how the spirit moves us. Number one, this has been something I was actually surprised by as a new accountant. I never knew this. Many of you may think, oh, they teach you this in your master's program or when you take the CPA exam? No, they don't. You have to get out there and figure this out as a practitioner. But everybody buckle up. Did you know the penalty is 10 times worse for not filing than not paying? Is that weird? Why do you think they do that, Farrah?

I think they just want to encourage taxpayers to be compliant and do voluntary compliance. But, yeah, I was surprised by that myself when I first learned that.

Yeah, my take is, is that the IRS just doesn't want to be in the dark. If you owe us, at least tell us. But if you don't even file, we're freaking gonna hit you over the head. And I mean, everybody we have practical life experience from this. When you go on that first date and you tell that, you know, possible court, you know, I'm gonna call you back. And then you ghost that girl or guy, that's when you get your car keyed. So let's just, you know, we're not going to ghost the irs. We're not going to ghost that first date. Never goes well. Never goes well. We don't need the irs, you know, key in your car. So let's keep the IRS informed. So number one tip with all joking aside, we're looking right now when we're recording this video, October 15th is four or five days away. 20 million Americans filed an extension. And typically around that number every year I file an extension, I think I file my taxes on October 14th. Every frickin year you actually reduce your chances of an audit by filing later in the year. That's not a problem. But if you don't file by October 15th, that's when all hell breaks loose. So the penalty is 5% of what you owe per month for up to five months. When you don't file, the penalty for not paying is a half a percent every month. So if you owe 10 grand and I don't even file with the IRS, my penalty is going to be 500amonth. But if I file and say yay, I'm sorry, hey, I owe you 10 grand, but I can't pay you, the penalty is $50 a month. Just letting them know so people don't be afraid to let the IRS know going on, what's going on, it's going to actually help you so much more down the road. Fair. You've told me before too, that good faith and showing the IRS what's going on actually buys you more mercy in the back end or at least in negotiations. What will you explain to me about that?

Yeah. So even if you're in a situation where you don't have like a resolution set up, such as a payment plan or otherwise, but you're still making some type of voluntary payment, the IRS loves it when taxpayers make a good faith effort in trying to really handle their, their tax that responsibly so it can actually help your case in the end if you are trying to apply for some type of resolution.

Oh, thank you. So, word of warning. And this brings us to point number two. Immediate communication. Do not put your head in the sand. And this goes back to something we said at the very beginning. We know this can be emotionally devastating, scary. If you're in a marriage and your Spouse. Either spouse could be mad at the other for what's happened and blame. The blame game starts. It can destroy families and marriages and IRS debt. But the, the putting your head in the sand doesn't make it better. What type so far? When the IRS gives us a phone call, what should we do?

Don't answer. The IRS doesn't call or email.

See, I set that up for you. See, like that, that was like I was trying to throw you a softball. So hold it. You're just saying to me, the IRS will never call you on the phone.

No, it's a scam. Don't do it. They're. They're getting really created, these scammers. So try not to, try not to go down that road.

Okay, so when they email me. But when they're going to email me, right?

No. No, they're not. Don't ever fall for that.

Okay, so the irs, I want to say this very clearly for the IRS will not call you and will not email me. So. Or call or email you, but they're going to send us a letter and I should probably get a shoebox, put the letter in there, and then shove that shoebox into the back of my closet and ignore it because the problem will go away, right?

Exactly.

Oh, no. I know some of you are not thinking this is funny because you've done this, but, but we see this all the time. What is immediate communication look like? And maybe let's go to step three, which is this 30 to 60 day abatement, or not abatement, but kind of like collection hold. Tell us what you would do in the first 30 days.

Yeah, great question. So if you owe the IRS money and the case is currently sitting with collections, you can literally just call the IRS and ask for a 30 to 60 day collection hold period. And what this does is it stops collection efforts for that time. And I like to think of this time as kind of like coming up with a game plan. How do you intend on paying your tax bill? Whether it's through a payment plan or other means, it's just buying you time to come up with a strategy.

I think it's so important, and I want to restate the three steps we're going through. Because these three steps, I would argue almost 80% of taxpayers don't even do these three steps. And it only makes it worse. First one, file. Even if you freaking owe the IRS, file your tax return. Number two, don't ignore any letters or mail that comes from the irs. Get help immediately and not from an online radio AM radio ad asking for thousands of dollars, offering you some sort of settlement strategy that's going to, you know, give you pennies on the dollar or you can pay for pennies on the dollar. We'll share. Ferris contact information here. A real CPA in a local office is going to be your typical best bet because they're not going to have this sweatshop national presence where I just have never seen it turn out well. So we're going to get help. We're going to file, and then number three, we're going to immediately call ourselves or have our representative call and say, we need to hold for 30 to 60 days. Let's breathe and realize there are solutions. And you can just do that by calling the main number, is that right?

Yeah. You would want to call the IRS collections and get a hold of them and make the request through there.

Yeah. And when you call up the 1040 number, whatever, 1, 800, I'm going to guess, is it 1-800-829-1040.

Yeah, I'm pretty sure that. I think that's right.

And by the way, I want to tell everybody the on hold music has not changed since 1993. Can I just tell you that it literally, it's not. Are you right, Farah? Right.

I. I wasn't alive at that time, so that's embarrassing.

Okay, I'll just tell you. But it hasn't changed during your lifetime, right?

I don't think so. No.

That they're gonna kill us with that on hold music. I think they're trying to, you know, discourage a phone call. All right, so now during this 30 to 60 day period where you get a time to breathe, get some emotional support, go to the animal shelter and get an emotional support animal to help you through this. But in all seriousness, I'm going to call step four, looking at your creative options. Before we even pay this, before we get on an installment plan, let's pause and look at a variety of ideas. And I'm just going to throw out a couple. This is maybe where you decide to fight the bill. You're like, I really don't owe this. Look at it constructively. You may say, oh, I could do a partial pay. I could maybe do an offer in compromise and have someone that's not trying to sell me a package. Okay. Now, if we don't find anything creative on getting out of the debt, or maybe the offer is not going to work now, we're going to get into some, maybe some creative ways to pay it. What are your thoughts there?

That's a. That's a really good question. So I think a lot of taxpayers assume that it's either payment plan or bus. It's not so black and white. So say you're in a situation where you owe, like, $75,000, for example, and you don't want to deal with the current sitting interest rate with the IRS at 8%, you could actually pay that balance down to $50,000 to avoid the notice of federal tax lien determination and then get the remaining amount on a payment plan. Or some of my clients have in the past used a HELOC to pay off the tax that. Because, again, they want to avoid that 8% interest rate. And the HELOC rates are a little bit more favorable in certain situations. That's also an option. I also have clients that have actually borrowed against their 401k to pay off their IRS tax debt. So there is a lot of creativity you could do in this situation. It really just depends on what your preferences are and what your financial situation looks like.

Oh, Farrah, I love those. And, you know, the one that I just sometimes tell clients is, do you have crap you could sell? You know, is that RV sitting on the side of the house? Do you have raw land somewhere? Do you have a lot somewhere that's just sitting there? What is your. What assets do you have? And it's kind of funny where you have a client that's all freaked out about the irs owing them 15,000, and they've got 15,000 sitting somewhere else, and they're going through all this mess and turmoil when the answer's right in front of him. I don't know. Do you have any example or experience like that, too, where you just kind of got the client to wake up?

So I actually have this client at the moment. He owes the IRS about half a million dollars, and he has a boat that's just sitting there, and he doesn't want to sell the boat, and he just wants to have his cake and eat it, too. And it just doesn't work that way. And people don't actually know this, but sometimes the IRS will actually go on taxpayer social media accounts, if they're public, and they could actually identify assets through there. They actually. There was a story where they actually levied a girl's, like, Land Rover that she was posing with on Instagram so they could actually do things like that. Don't think that you're not susceptible to something of that sort of nature.

Wow. You know, I've got an interesting story. This just came to mind. For me, Farrah, I had a client. This is about 10 years ago, and the IRS was going after them hard. And I think there was some other agencies for some criminal things going on, gambling and a few other things. And this was not an ongoing client of mine. He had called, trying to get help to fight the irs. And I'm like, I don't know. Let's see what we got here. And so he was reaching, you know, and you get those calls where someone's just looking for this magic pill.

Yeah.

And so I had this call with the client, and I think we did an engagement letter, sent him a. You know, he sent in some money, and we started having a couple of conversations. But I was only into this maybe a couple of weeks, just kind of assessing the situation. All of a sudden, the IRS CID started following me on my Instagram.

Oh, my gosh.

I know. I was like, holy crap. Are they, like, bugging this guy's phone or what's going on? And I was like, unbelievable. And I was like, this guy has, like, got a lot of problems. And if the IRS now, cid, everybody is a criminal investigation division. These IRS agents carry guns. And I was like, if they're starting to follow me. All of a sudden, out of the blue on my Instagram, I'm like. So I. And. And we really didn't have a good solution for him anyway. But I was like, this. This is way too hot in the kitchen. So I said, hey, here's a return of your engage, you know, retainer for the couple hours I'd already tried to help him. And I said, we're gonna. We're disengaging. I kid you not. Within 48 hours, they dropped off by social media.

Oh, my gosh. That's crazy.

Isn't that nuts? It was crazy. So. And there's cases out there now where the IRS is going after influencers for not reporting the gifts they're getting and the packages are opening. Very common. Yeah. So don't put it past the IRS to think they're in a cave somewhere. They want to know what your assets are. So, gosh, great example with the boat. Good luck with that. So let's review here. Everybody always file immediately. Communicate with the irs. Don't throw everything in a drawer. Ask for that initial 30, 60 days and get with a two or three opinions if you need. But find that right advisor that can guide you with honesty and get. You're going to pay them. You're going to pay them, people. And number four, look at those options. You know, that Might be creative. Maybe I can do an offer. Maybe I need to question the liability, deal with an audit and go back at the IRS and go, hell no, I don't owe you this money. A lot of times if you owe the irs, half of the time is coming from an audit that you didn't want to deal with and now you owe the IRS and you ignored them maybe too long. Number five is find the money, get creative. Maybe it's time to sell the boat, borrow against your 401k, pay interest back yourself. Nothing wrong with that. Not something Dave Ramsey would recommend, but we'll throw it out there. It's better than owning an irs, maybe. And then number six, the final one is, after all these efforts fail, it's like, all right, I'll get on a payment plan with the irs. An installment agreement. What are your thoughts about that? Are they, I guess the interest rate sucks, but they're not the end of the world either. What's your feeling about installment agreements?

So those do tend to be a more common resolution type. And there are several types of payment plan options that you can consider. So it really just depends on the nature of how much you owe, if you're able to pay anything down, and if you're trying to avoid a lien filing, there are more conducive options to that than others. So it really just depends on your. On your preference and your ability at that point.

Yeah, I alluded to it at the beginning. I'll be honest, folks. I had. It was years ago, but I was definitely early on in my practice. We, we didn't make the deposits we should have. And I was just a few thousand behind. And I was like, I'm going to just get on a payment plan and it's not that hard to get accepted is what I have seen. You just have to stick with your payments. You blow the payments, it doesn't go well. What happens if I blow my payments on an installment agreement?

So if you default on your installment agreement, then the IRS will just blow up continued collection efforts against you. What I see a lot of times happening is a taxpayer will now owe for 2023, so they'll just stop making payments on their payment plan that was established for their 2022 plan because they get confused. All you need to do is just revise it and reinstate it. So it's not a big deal usually with that.

But again, it sounds like communication, transparency, communicating with your advisor and the IRS and staying on top of it. If you just start not paying here or there, because one of the deals with the installment agreement, if I'm correct, is I've got this installment agreement, but if I get behind on my current tax bill, they can blow the old one out because that's part of the deal. I got to stay current on my current taxes.

Yes, compliance is key. I think that's super important to note with just about any resolution you're considering. The IRS will very rarely, if ever even consider a resolution until you're compliant. And compliance under IRS policy statement P5133 states that the last six years of tax returns must be filed. And if you have an estimated tax payment obligation, making sure that you're up to date with those, or if you're a business taxpayer, you're up to date with your federal tax deposit.

Wow. Crazy. A couple other thoughts I wanted to ask. Now, let's say some people want to know doomsday option. And we have these clients, they can't. They owe the IRS and they just put their head in the sand, take the ostrich approach. Don't answer to the IRS letters, don't go get help. They're tell me if I'm right or wrong about. They should probably going to start seeing their assets get leaned within four months, five months, give or take. And those collection notices are going to get pretty serious. Certified mail, stuff like that. Would that be level? That's kind of first when the heat really starts picking up. Would you say about four months, five months.

It's usually a little bit earlier where the IRS will send that like the notice of the federal tax lien, and then the taxpayer gets a chance to dispute it if, if they could. And, but it's. Yeah, I would say it's like three to five. Bit sooner than that.

Yeah, three to five months. Okay, now how many months until they're going to levy my bank account? On average, no one rely on this. This is like, oh, Farah said, I have this long. No, we're just saying, you know, if you do nothing, they're probably going to start levying your bank account. And you're like, what happened to my bank account? It's a zero. What the hell? When do you think that would start happening?

So just a little brief reminder. Levy is the actual taking of the asset and the lien is just the, the IRS securing their interest in your assets. But if you file your tax return and you owe a balance, IRS will start with a CP14, then the 501, then the 503, then the 504, then. So there's about five notices. But it starts with CP14. They're about eight weeks apart, I want to say between like 32 to 40 plus weeks because there's also that time to appeal as well that you would want to take into consideration. But that does not dismiss the fact that there is still an urgency with it. You don't want to wait until the, the final letter 1058 or letter 11 to address it.

Wow, interesting. So anywhere as early as 30 weeks to 50 weeks, you could see your bank account go to zero per se. And that's what the levy is about. The IRS is going to levy. Have you ever seen them then start to try to exercise their lien and see assets get liquidated? Now they're like, ah, the bank account's not cutting it. We've got this lien over here on this property. Lien on this property, that property. Will the IRS go to that level and start just forcing the sale of property?

They certainly can. It's not as common. Like the more common types of levies are going to be the bank levy, which is kind of the one that they like to use to get the taxpayers attention. And then the more continuous levies would be something like the payroll garnishments, which a lot of taxpayers don't like those because now their employer is informed of the fact that they're experiencing a tax issue or even a Social Security garnishment. But the, the liquidation of the assets, that doesn't happen as common as the other ones that I mentioned. And as I, as I mentioned before, if you're in a situation like this, you're going to want to convince the government wise, in their best interest not to do something like that to just seize your assets. And you're going to want to try to come up with a resolution as soon as possible.

Yeah. In a situation where you owe the IRS for your debt, are you going to jail, do you think? I mean, at what point are you going to go to jail? We've got the Wesley Snipe story. It's famous, but it's. I, I don't think anyone should feel like they're going to go to jail, but they would have the IRS looming over them for a long, long time. What are your thoughts on that?

I get this question so often where terrify. Oh my God, all the time. We're like, I haven't filed in five years, am I going to jail? I mean, very slim chances of it. Those that are prone to actually getting in prison are the ones that are trying to commit tax evasion. Or cheating the system or coming up with some type of scheme. If you're just a delinquent taxpayer, the odds of that happening are quite low. But I don't, again, I don't want to. I want to. Compliance. Yeah, exactly.

The times I've seen people go to jail, literally some clients that have had a consultation with me and I'm like, dude, you are screwed. Not a fun conversation is when people have absconded payroll withholdings, which we call trust funds in the industry, because you're trusted as an employer by the IRS to collect their payroll withholdings and give it to the irs. It's not your money. You're withholding it from the employee to give to the irs. And those are sacred. And I've seen several consultations with clients where they could not come up with that money and they ended up in jail. Maybe you could add another way of saying that when it comes to these, how important payroll money is.

Yeah, that's, that's actually a really good point. So going back to the trust fund taxes, this is the employee's portion of taxes that the employer is responsible for remitting to the government. But sometimes businesses will experience some type of cash flow issues and they'll use the employees portion of trust fund taxes to just pay their bills. And then the IRS can come back around and assess this trust fund recovery penalty. It is by far one of the most serious types of penalties that could be assessed against the taxpayer because it's individually assessed. And even someone such as a bookkeeper could be personally assessed for the trust fund recovery penalty on behalf of the business if the IRS deems them to be what's known as a responsible party. So these are not taken lightly and these situations could clearly spin out of control and I highly advise against it.

Wow, great advice. And so tax evasion, not good. But if I can't pay my taxes, just communicate, you know, let the IRS know that you're. They're better off with allowing you to work and make payments. And the IRS just wants their money back. And again, I like how you said it. Throwing you in jail is not in their best interest. They don't get their money back when you're in jail. Now another, a couple final tips. Now, the irs, many of you think they're evil and la la, la, the states are so much nicer, right? Like if I owe the state, they're going to work with me a lot more easier, easily.

Absolutely not. The states are way more aggressive in my experience.

I made you pause. You were Like, Mark, are you trying to be serious?

No way. Oh, my gosh. I mean, especially if you're in a state like Wisconsin, California, New York, those are not my favorite states to deal with. They're very aggressive and they honestly don't show as much like, I would rather deal with the federal government at that point. They don't show as much mercy.

Yeah, no. And I was being facetious, of course, and I kind of threw you off. But I want to remind everybody listening, when I have a client walk in and they owe the state and the irs, I tell them absolutely, pay the state first. Because all of these benefits and strategies of working out, working out a plan with the IRS states, sometimes they won't even talk to you. It's, it's game over. And they're terrible. So that's been kind of my take out of the Is that terrible advice that I'm giving out there? I mean, that's just in general, everybody's situation's a little different. But I think you take the state debt even a little more serious, too.

A lot of the times I do. Because another thing that like taxpayers don't consider is just because there's a relief option available at the federal level, it doesn't mean that it's also available at the state level. So just because an offering compromise may be available at the federal level, it may not be available at the state level. So there is that. There are minor disconnects between the two. So if the state is becoming more aggressive, then I will want to settle that before I go to the federal level. But most of the time I would rather deal with the irs.

Well, Farrah, thank you again. We wish you the best and good luck. I know you have a home in Florida right now with the hurricanes. Can't say this enough, people. If you too live in one of these seven states, Farah, I'm going to have you list them off real quickly. And you've got need tax relief due to the hurricane. There are some additional options. Do you want to mention those states and just a couple words on this, Farrah?

Yeah, absolutely. So if you live in one of the states that have been impacted by the hurricane, specifically Alabama, Georgia, North Carolina, South Carolina, parts of Florida, Tennessee, and Virginia, you're going to want to look up your county on the IRS's website to see if you qualify for additional filing and or payment relief.

Okay. And we have a separate little video Farah and I shot on this. It'll be down in the description below. So get over there, folks. If you're in the one of those states, and so you kind of know some of the options and facts there. Wow. Well, excellent advice, Farrah. We are so lucky to have you here. And I've got to throw out your website for anybody watching. It's down below in the description, whatever platform you're watching. Lumen Tax Resolution Dot com. You'll do consultations with clients around the country, but primarily you have offices in what two states?

Michigan and Florida. But we operate all over the globe, so.

Okay, well, you're just so pleasant and I'd rather talk to you than an IRS agent, so I, I, I highly, I highly. You probably get that compliment all the time. Now, one last question before I let you go. You got to tell me your favorite IRS or tax accountant movie. Your favorite, you know, like, in Hollywood where you're like, they nailed it. You could go with, you know, Ghostbusters, even Rick Morales. That Moran. Yeah. They had his party down the hall from Sigourney Weber. I mean, that could qualify, but I mean, what's your favorite accountant or tax movie?

What's that movie that came out not too long ago? It's like Everything Everywhere all at Once or something like that where there were, like, IRS references. I, I thought it was like, pretty funny, but this is my producer.

You've got the title. What is it, Dana? Everything Everywhere all at Once. I have not watched that. Mine is Stranger Than Fiction. I love Will Ferrell in He's an IRS agent that knows he's going to die, and it's just so crazy. Have you seen that one, Stranger Than Fiction?

No, I want, I'm going to add it to my list.

Yeah, you got to see it. And then, of course, we're all a fan of Ben Affleck and the Accountant. I mean, how can you not want to, you know, carry a high powered rifle around and be an assassin when needed? All right, well, Farah, thank you again. We hope to have you back and truly appreciate. I'm going to try to talk you into a YouTube live one of these days where we can help people and answer questions as well. You're so delightful and thank you again for being here.

Thank you so much for having me. It was such a pleasure.

Thanks. Thanks, everyone for listening and watching another Main street business podcast. We'll be back next week trying to help you better live the American dream. Save taxes, protect your assets, and leave the legacy that you've always dreamed of. Thanks.