Case Study: $180,000 Tax Liabilities Reduced to $9,600

In speaking with potential clients, we have always held a firm line when it comes to promising results. Many people want promises and guarantees of a substantial reduction of their tax liabilities right away when they contact us. In essence, they just want to be sold on false promises. 

But if you as a tax expert have any ethics or integrity, you realize that making any guarantees immediately is an impossible thing to do. Many tax relief companies out there have no problem putting a salesperson on the phone to make huge false promises. Without knowing the facts of a case, doing that is simply unfair to the potential client. This would be the same as a doctor diagnosing somebody without examining them or a mechanic diagnosing issues without opening the vehicle’s hood.

We have had too many conversations with clients where they tell us one thing, but when we get their file from the IRS, it provides a whole different picture. Sometimes, people outright lie about their situation, but that is not always the case. Sometimes, people simply do not know everything that is going on and how serious their situation is. 

Additionally, when a person does not understand how IRS programs work, they may exaggerate their situation. Or sometimes an individual is just so bad at managing their money that their view of their financial situation is entirely different than the IRS’. 

These are just some of the many reasons why it is so important for us to put in some heavy lifting in the beginning and figure out what is truly going on with a person’s tax liabilities and financial situation. Then we can predict a resolution based on an educated approach. We also stress to every potential client that this is a long process and the facts will eventually be revealed, so from the start, they need to be 100% honest with us at Innovative Tax Relief.

Mr. E Contacts Us For Some Help

One particular case comes to mind that always reminds us to stress to potential clients the importance of being 100% honest and forthright with us. This client was as nice as it gets and we do not want to imply that he ever intentionally lied to us. 

Owing the IRS a little bit of money can be scary enough, but this elderly man came in thinking that he owed close to $100,000. At the time, he had a good income, but he was 75 years old and needed to retire. He felt he owed the IRS more at one point, but thought a lot of the older tax liabilities had been included in a bankruptcy judgment. He had tried many different payment arrangements directly with the IRS, but without having somebody knowledgeable of his rights to negotiate with the IRS on his behalf, the payments were never affordable for him. 

A Tax Investigation: Getting the Facts First

Just like every case that we take on, we started the process with a Tax Investigation. Within a few days, the IRS sent us his information. The information we received from the IRS was much different than what Mr. E had shared with us during his original consultation and is a prime example of why these investigations are so necessary. 

The biggest difference was the liabilities amount. He owed the IRS $180,000, not $100,000 as he believed, from as far back as 2002. The IRS records did show a record of his bankruptcy, but none of the IRS liabilities was included in it. The bankruptcy did affect the tax liabilities, though – it put a hold on his expiration dates, giving the IRS longer to collect on the liabilities. The transcripts also showed that in 2016 the client had filed tax returns for many previous years and that the IRS had done substitute returns on a few of those years. This timeline of events is especially important to the tax resolution because the processing of the filings, NOT the tax year, is what sets the final expiration date of tax liabilities.

Once we had this information from the IRS and did our initial discovery, we were back on the phone with this client ready to go over everything. We thoroughly educated him on his situation with the IRS and then began getting more in-depth information from him about his financial situation. At that time, he was employed in the oil drilling industry and his 1099’s showed a good income. Most of his income though went to cover his expenses. 

He told us that he had a little money in savings and that he owned nothing except an old truck. After a thorough conversation, based on what he was telling us, it was determined that he could qualify for a long-term settlement on the liabilities. But, because of his high income, he would still be required to pay back a large portion of that liabilities.

A client in this situation has the right to pay his cost-of-living expenses and the cost of doing business expenses prior to paying the IRS. In his case, he still had a large net disposable income, or in other words, a lot of money left over after expenses.

Mr. E was 75 at this time and had been needing to retire for a few years but had continued to work because he had this large tax liabilities hanging over his head. Now that he knew his rights as a taxpayer, we started discussing the resolution that could be obtained based on the income he would have if he retired. As long as everything matched up with what he was telling us, he was a sure fit for one of the many hardship programs available with the IRS. He decided that he would retire and we would pursue one of these hardship programs for him. 

With the lack of savings and assets, we began the process for an Offer in Compromise. This is a program where the IRS will accept a lump sum that is less than the amount owed and completely forgive the remainder of the liabilities.

The Situation Was Much Worse Than Expected

It is so important that we as a tax relief firm know everything about a client’s situation and that the client is completely honest and forthright with us. We do not think that Mr. E was trying to be outright dishonest with us, however more facts did come out during the process. 

Many times clients think they can hide things from us or the IRS in order to achieve a better result. They must remember that this is the IRS we are dealing with. About six months into the process, the IRS found a property that was owned outright by Mr. E. This changed everything in terms of what he would qualify for and what he would not. A major disqualifier for the Offer in Compromise is the ownership of property. 

This made things extremely difficult. Not only did our agents have to completely change course on the determined resolution but they also had done a months’ worth of work toward a program that Mr. E did not qualify for. This work, of course, had to be paid for and we had to start from the beginning on a new resolution for him. Unfortunately, the cost of Mr. E’s case almost doubled because he failed to disclose this detail to us. This was not to penalize him, it was to simply pay for the work that had already been done by our team and the work that now needed to be done to get him into the resolution that he qualified for.  

The IRS program we then began focusing on would provide nearly the same type of savings to the client, but just would not be the lump sum that he had initially hoped for. If he had just been forthright from the beginning, we would not only have obtained a resolution for him much sooner, but he would have saved himself a lot of money.

Again, we want to stress that Mr. E was not a bad or dishonest person. These situations can be very scary, and when people are backed into a corner with the IRS, they sometimes make bad decisions. Luckily in this situation, our agents were able to change course very quickly and kept a good working relationship with the IRS, so they did not move forward with any collection actions like garnishments or levies. 

A $180,000 Tax Liability Becomes $9,600

Even though he owned his property outright, our agents were still able to show his inability to pay the full tax liabilities. They were able to prove, based on his current income, that all he could afford to pay was $100 a month. With this resolution, Mr. E would ultimately be responsible to pay back only $9,600 on his $180,000 tax liabilities. He would be completely out of liabilities with the IRS in less than ten years if he remained compliant moving forward.

From here we further educated him on tax planning based on his new financial situation. We made sure he had the correct withholdings on his retirement income so that he would not owe the IRS again or get defaulted out of his plan. After a case like this and still being able to achieve such great results, the last thing we would want to see is our client lose this great tax liabilities resolution.

Mr. E was very thankful that we stuck with him throughout the process. He told us that he thought he was done learning at his age, but that he definitely learned a lot from our process. He acknowledged he should have been more honest from the beginning and wishes he had contacted us years sooner. 

He was now finally in a place where he could retire, which he should have done years ago, and could afford to pay the IRS back, but on his terms.