Many tax lawyers believe the most powerful weapon the IRS has is fear. Last week we looked at fear that arises during an audit, when some IRS agents may deliberately and consciously use fear to force us into a settlement we believe is abusive. So today we are going to talk about other ways in which fear of the IRS may impact our lives:
1. Marital Fears
Many couples divorce while owing taxes. They are often reluctant to remarry for fear that their new spouse could get hit with their old tax liability – that the IRS may pursue the new spouse’s income and assets to pay for their old taxes.
The truth is this is a solvable problem if properly handled. The federal and state laws governing community property have been modified and can now prevent this very thing from happening even for a common law marriage. But you need to act as soon as possible, as far in advance as you can.
So don’t be afraid to remarry, just plan around the tax issues in advance.
2. Business Fears
If you owe taxes you cannot pay, the IRS has the power to sell essentially all of your assets and can close your business. Cases in which it has done so are commonplace.
However, few IRS agents like doing this. It is time consuming, expensive, and the IRS rarely gets fair value at an auction. More importantly, senior IRS collection agents are well aware that we have a terrible economy and our inability to pay is often not our fault.
The solution to this is to find a way to reorganize our businesses and to refinance its assets so that the equity can be paid to the Service. There are some good IRS agents that will help accomplish a good plan that pays the IRS yet keep workers employed and paying taxes. There is an arsenal of choices whose success depends on your creativity, honesty, and effort in obtaining that equity. The Service can and often times will help – I have even seen it withdraw federal tax liens, suspend collection for extended periods, abate penalties, etc. So don’t be afraid of owing business taxes – there are often many ways to resolve them and keep your business.
3. Reopening Old Audits
I have had a number of cases where a new client asks how they can work out a plan for payment of taxes they agreed to in an audit. They are often looking for an installment agreement or a compromise.
I always ask them if they actually owe the taxes, was the audit fair and did it get the right result. Many say they were forced into agreeing to a settlement because of fear – they didn’t have the “right” documents and the auditor was abusive or threatening.
There are a couple of things to consider here. Audits can often be reopened even if you signed a settlement agreement. If you think you were pushed into an unfair result – reopen and challenge the audit. But before you do, go to a tax representative that handles IRS conflicts – not an accountant or enrolled agent. The issues in a reopened audit are often legal and not procedural.
Folks the IRS can seize your business, sell the assets, and close its doors. So don’t wait for that to happen. Be proactive now – get a good tax representative and consider alternative resolutions. You’ve heard the expression “we’ve seen the enemy and it is us”. The enemy in a tax case is fear – the solution is to become proactive and face the problem with creative solutions. And most all do so without fear.