Yes, the IRS is cutting you a break during this pandemic, but if you’re not careful, you can still lose money.

5 minute read

With thousands getting sick every day, who worries about their taxes?

Mitch doesn’t – and he owes the IRS $350,000. Mitch runs his own business just outside of Atlanta. His tax problems date back 15 years.

“In 2006, I sold a company for almost $1 million and invested almost all of it in real estate,” he says. “I found out it was a scam, and they took all my money – but it still left me with capital gains.”

In other words, Mitch lost everything but still owed the IRS for those losses.

“My world was kind of over,” Mitch says. “I didn’t have a lot to live for, quite frankly. But I’m a man of faith, and I chose to believe things get better.”

Mitch is also a man of action. Instead of ignoring the problem – which the IRS says is all too common – Mitch consulted multiple tax pros before settling on one to help him out.

“I realized I was in a lot of trouble and I needed some professional help,” he says. “They saved me almost $200,000 with the IRS and $33,000 with the state.”

They turned out to be Community Tax, a national tax-relief firm that turns 10 this year.

“They saved my financial life,” Mitch says. But he has a warning for all those like him who aren’t seeking help: “The IRS doesn’t go away during a pandemic.”

Death and taxes

Mitch isn’t a rare case. The IRS says in 2018, 14 million Americans owed $130 billion in back taxes. And that was two years before the pandemic.

The pandemic has created two problems, says Sarah Nieschalk, an assistant vice president at Community Tax, the tax-relief firm where Mitch ended up. One problem is financial, and the other is psychological.

“As a tax professional, I see countless cases of folks whose tax issues have snowballed until the problem seems too large to handle,” she says. “At the end of the day, these folks simply want a fair solution to the problem, but they often don’t even know where to start.”

And for many others, they don’t want to start. Ignoring the problem is as common as death and taxes.

Until last week, those delinquent taxpayers had a little less to worry about. Because of the pandemic, the IRS suspended seizing property under liens and levies from April 1 through July 15. That date was also significant for taxpayers who were working with the IRS, either paying their back taxes a little every month (under what’s known as an “installment agreement”) or paying less than what they owed (called an “offer in compromise”).

If you had an installment agreement before the COVID-19 shutdown, your payments were suspended from April through last Wednesday. Same went for Offers in Compromise (OIC), with the added benefit taxpayers had until July 15 to provide details the IRS requested for a pending OIC. The IRS also didn’t close any pending OIC request before that date without taxpayer consent.

It was called the People’s First Initiative, and many struggling taxpayers and political pundits were hoping – and frankly, expecting – the IRS to extend the program.[1] After all,the pandemic and its economic shockwaves haven’t eased up, they’ve only gotten worse.

Unfortunately, less than a week after Treasury Secretary Steven Mnuchin publicly mused that extending those pandemic delays was “something we may consider,” he announced the IRS was ending the program.[2]

If you couldn’t pay your current taxes by July 15 – which the IRS had moved from the traditional April 15 – you could easily get an extension to Oct. 15. But that only extends your deadline to file, not your deadline to pay. In other words, the clock on all penalties and interest has already restarted after 2 ½ months in suspended animation.

Now the problems really start, Nieschalk says.

The pandemic tax panic

“We predict we’ll see an uptick in tax issues during and even after the COVID-19 pandemic,” Nieschalk says. “We saw this in the years following the Great Recession as well.”

What exactly did she see? Massive delays followed by massive action.

“During times of widespread financial strife, the IRS can fall significantly behind,” Nieschalk says. She’s read reports that the Treasury Department, which oversees the IRS, has “semi-trailers full of unprocessed client correspondence.”

That’s because their own employees were sheltering at home and getting sick.

“It’s going to take the IRS several months — if not more than a year — to dig out of the backlog created by limited staffing conditions,” she says. And that might lead some cash-strapped Americans to pay other bills before they pay Uncle Sam.

Even in the best of times, “the IRS doesn’t have the resources to micromanage every taxpayer,” Nieschalk says. “The U.S. tax system heavily relies on voluntary compliance.”

You might have heard the expression, “the wheels of justice turn slowly but grind exceedingly fine.” When it comes to taxes, the wheels of the IRS spin even slower – but when they roll over you, you’ll get crushed under paperwork.

“Once the IRS does catch up, taxpayers end up looking at a mountain of work to resolve the problem — and extraordinary penalties and interest charges on top of it all,” Nieschalk says. “Most of our clients have ignored the problem longer than they should. It is easy to choose to not file a return with a big balance on it because you’re scared about how to resolve that balance when you cannot afford to pay.”

There’s that psychology at play again. But another pandemic-related problem is looming.

Many unemployed Americans who have collected unemployment during the shutdown did so for the first time in their lives. They don’t know what Nieschalk does: “Unemployment income is still taxable, and many taxpayers don’t know they need to withhold.”

She predicts, “Despite Congress opening some avenues for relief, we’ll still see folks make tough choices regarding paying their taxes or paying their immediate costs of living simply because they can’t afford both.”

When the pandemic inevitably ends, the tax problems for millions of Americans will just be starting.

How to get ahead of your tax problems

Remember Mitch, who went from millionaire to flat broke in a matter of months? He’s on an IRS installment agreement. His advice to anyone caught in a dire situation like his: “You tackle this head on.”

Nieschalk wholeheartedly agrees.

“Everyone’s facts and circumstances are unique, and Mitch is no exception,” she says. “The number one thing I want folks to learn from his situation is that they are not alone. They don’t need to face the IRS alone.”

And they shouldn’t. The IRS estimated, back in 2014, that 80 million individual tax returns were handled by paid preparers.[3] That’s more than half. So it follows that if most Americans don’t do their own taxes, they can’t deftly handle negotiating with the IRS when they fall behind on their taxes.

“Tax issues are intimidating because tax law is extraordinarily complex, and the IRS can be incredibly intrusive,” Nieschalk says. “Clients are forced to put a lot of trust into whoever they hire to help them.”

Problem is, there are a lot of untrustworthy firms preying upon confused and desperate people. Telling the difference between a legitimate tax-relief agency and a scam can be difficult.

Mitch didn’t panic and engaged several other tax-relief firms before settling on Community Tax. There was one big reason for that.

“They don’t take payment until they do something,” Mitch says. Other firms charged him fees for not actually solving his problem. “Everyone else I talked to, they’re in the letter-writing stage or in the due-process stage – they’re always in some kind of stage. You know what stage they’re really in? The take-your-money stage.”

Mitch also trusted Community Tax because the firm explained what was happening instead of hiding behind the complexity. As Nieschalk explains, “We don’t just offer a band-aid to provide a quick fix to the immediate problem. Along the way, we educate our clients so that they don’t unintentionally fall into the same situation again.”

Thus, knowledge isn’t only power, it’s money in your pocket. To learn more, Debt.com compiled this report: Back Taxes: End Your Challenges with Unpaid Tax Debt.

The most compelling reason to stop ignoring your taxes and seek a trustworthy professional is summed up by Mitch’s life now.

“I was haunted with this dark cloud above me,” Mitch says.  “Now I don’t even have to think about taxes.” Quite a feat for someone who owes the IRS six figures. On the July 15 IRS deadline, when many Americans were panicking about their taxes, know what Mitch was doing? “My wife and I are house-shopping.”

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About the Author

Hope Dean

Hope Dean

Hope Dean is a senior studying journalism at the University of Florida. She works as the enterprise editor at the Independent Florida Alligator and previously worked at the Florida Atlantic University student-run newspaper the University Press as the news, features and managing editor.

Published by Debt.com, LLC