Last week we discussed how one taxpayer ended up paying a retainer fee that was almost as large as the tax she owed and her case has not yet been settled.  She will likely end up making payments to the IRS and also making payments to the firm that said they would help with her IRS problems.  (see  Her total cost when all is said and done will be double what her original bill was.

Our firm, and many like us, adopt a pay-as-you-go approach whenever possible which helps those on a tight budget and avoids the large retainer fees.

In most cases, IRS problems can be split up into tasks that can be billed on an hourly basis and the work is completed over 30-90 days. The time allowed to complete a tax problem resolution is generally fixed by either the IRS or the client’s ability to pay or both.  If the IRS allows, and usually they do, we can split the work into tasks performed over 30-90 days and take payments as we go.  (This may not be the case if the client is already being garnished.  In that case, the work pace is accelerated along with fee collections).

I know you’re thinking that this is just taking the same amount of money over time as the people charging the large retainer fees.  Actually that’s not true for a couple of reasons;

  • The large tax resolution companies have huge marketing costs and sales staffs that have to be paid for.  Our marketing costs are minimal.
  • The larger companies also typically charge in the $200-$250 per hour range for tax work and perhaps half that for support work.  Many firms charge a minimum of $400 per tax return.  Our fees are $75 per hour for tax work and $45 per hour for bookkeeping.  Our tax preparation fees are usually less than 1’3 of what the big firms charge.

So lets walk through a typical engagement so you understand the process and the tasks involved.

  • Lets say Bob and Jane haven’t filed tax returns in 7 years and they are now getting threatening letters from the IRS.  They contact our office and setup an appointment for a free 30 minute consultation.
  • We discuss the problem and see what Bob and Jane are looking for.  We determine that it is a matter that we can handle (we typically work with clients that owe $25,000 or less and make the client aware that we can’t represent them in court or before the IRS).
  • If Bob and Jane are satisfied with our fees and approach, we will prepare an engagement letter describing our fee structure and what we are being hired to do.  We both sign off on that.
  • In virtually all cases, transcripts must be ordered and a discussion with the IRS needs to occur to ensure that all problems are uncovered before problem resolution work begins. During this time, we let the iRS know that the clients are working to settle their issue and request that any collections efforts be halted.  It is usually no problem to get at least 30 daystforbearance..
  • Transcripts must be reviewed will be used, along with available client records, to prepare any unfiled returns..
  • At this point, we are aware of exactly what is owed by the client (this may or may not match any bills received from the IRS.  They often make mistakes or, if they have prepared your returns for you, they will be lacking in many credits and deductions you may be allowed).
  • Options are presented to the client.  We use the offer-in-compromise (OIC)  pre-qualifier tool to determine if the client may be eligible for the OIC. Since this is the plan most favorable to the client, we can look to see what hurdles there are to eligibility and how they might be overcome.    However, you should be aware that less than 1% of IRS collection cases meet the requirements to have an OIC accepted.  Other possibilities are full and immediate payment, an IRS installment plan, an IRS partial payment plan or a determination that client should be placed in temporarily uncollectible status.  Prepared returns must be submitted to IRS before they will consider anything other than full payment.
  • In all but the full payment plan, the IRS will request a financial determination (Form 433) to determine what payment programs the client is qualified for.  We use our knowledge of IRS processes and procedures to get the best plan possible for the client.
  • Client signs off on agreement and remains in compliance until tax debts are paid.

This article is already quite long so I will finish up with a couple examples of great outcomes:

  • Tom came to us after he had paid a $5000 retainer fee to a tax resolution firm.  He was a self-employed truckdriver and made 2 trips a week to CA where he picked up a load to return.  They had ordered the transcripts from the IRS and prepared 8 years of missing returns.  According to their analysis, he owed $160,000 to the IRS but said they thought they could get it lowered to some unknown amount but would need another $5000.  He told us he had never paid more than $1-$2000 in any given year and that the firm never asked him for his business expenses.  Tom had excellent business records and we were able to complete his books for all 8 years and filed all of the tax returns for less than $1400.  He actually owed less than $13000 for those 8 years.
  • Beth came to us owing $15000 because of a mistake she made with an IRA withdrawal she used to buy a house.  She really had very little income other than social security and a medium paying job that she was hoping to retire from soon.  In her case, we were able to use an offer in compromise and the IRS settled on that debt for $250.  Our fees were about $750 for that work.  We were happy and she was happy.

Bottom line, if you owe money to the IRS, you are not alone.  The latest number I have seen indicated that about 14 million taxpayers were in the IRS collections process.  So, check around before you pay tons of money to take care of IRS problems.  It doesn’t have to be that expensive.