“Tim,” she exclaimed. “The IRS just went into my bank account and took $8,000 dollars!”
That call came from a client yesterday morning - early. We’ll call her Cheryl.
You can see how quickly she got my attention. She didn’t have a clue why this happened so we arranged for a Power of Attorney. This allowed me to talk to the IRS on her behalf.
As we investigated the problem, it turned out Cheryl had a payroll tax problem dating back to 2007. For some reason Cheryl had paid her employees, withheld taxes, and didn’t send the money to the IRS. This is a definite no-no.
Now, I know better than to mess with the IRS, but even I was surprised at the rapid action. I mean, this was a 2007 tax problem, and they came down on her like that in 2008. In my experience, that is pretty rapid action. I will give some tips on how to avoid this later. But first another related story.
Another client called about a month ago - we’ll call him Bert.
The IRS swooped into his account and took $2,000. Unlike Cheryl, I wasn’t surprised at Bert’s situation. Let’s just say Bert had been a little lax in paying payroll and business income taxes. He had debts going back to 2000. Rather than use a tax professional or call the IRS, Bert ignored the situation. This is like begging the IRS to get you.
Other than the difference in sex of the clients, the amounts snatched, and the type of tax involved, what are the lessons to learn? Let’s look at them:
1. Aggressive IRS Collection Efforts
It is reasonable to expect that when the Federal government is giving away the ship with billion dollar bailouts, they will also step up collections by the IRS. This is a logical and I think necessary progression. The IRS estimates that there is a $345 billion tax gap. Expect the IRS to become more aggressive in approaching those “in the gap.” I believe that is why Cheryl had 2007 payroll taxes snatched in 2008. In my experience that is a pretty fast turnaround for the IRS. I expect this to remain true in the short term -especially with payroll tax. The IRS does not mess around with payroll taxes due. Our free newsletter shows how to avoid IRS collection efforts.
Once a tax bill goes over $10,000, our friends at the Service become very interested. Be mindful of your profit (for income tax) or your payroll tax due above the $10,000 level. Expect IRS interest above the $10,000 level.
3. Responsiveness to IRS
Sounds simple, but this may be the most important issue. Cheryl and Bert were not responsive to IRS letters. If I had $1 for every unopened IRS letter brought in to me, I’d be a millionaire! The longer it takes you to contact the IRS, the more they will “have their way” with you.
So what’s a taxpayer to do when a letter from Uncle Sam is received?
I suggest opening it to see what is involved. If you don’t understand the letter, seek a tax professional to help you. Our free newsletter will also provide help for you.
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