Tax resolution is a process that is highly stressful and capable of derailing growth. Yes, tax debt is a very serious issue, but so is the risk to your company's operations and growth. So, how can firms make tax resolution for business owners as structured as possible?
We can’t spend half of each day fixated on labyrinthine rules and processes, nor can we allow ourselves, as business owners, to speculate on potential outcomes when those outcomes are not yet clear. That being said, immediate action is critical. The Internal Revenue Service (IRS) does not need a court order to issue liens and levies. That puts them ahead of other collection agencies on the priority list. This article will explain the resolution process and outline strategies to help you navigate it. As a CPA, I can assist you with this. My process includes:
- Tax Debt Assessment and Analysis
- Compliance Restoration
- Resolution Strategy Development
- Negotiation and Implementation
- Maintenance and Future Planning
Phase 1: Assess the problem, verify the numbers, and prepare documentation.
You can’t develop a solution until you understand the full scope of the problem.
In Phase 1, I review all notices, determine the amount you owe, and evaluate your current financial situation. This includes checking for errors on your tax statements. The IRS is not infallible and often makes mistakes that could cost you significantly more than you owe.
Conduct a thorough review of tax history, returns, and outstanding collections.
First, we start with a review of your tax history, identify missing returns, and analyze collection status. I can provide context for your tax situation and spot issues that enrolled agents or basic tax preparation services might miss, like misapplied payments or incorrect penalty assessments. My expertise as a CPA is invaluable in this phase because I know where and what to look for.
Work with the business owner to provide the necessary documentation.
During this phase, I’ll need you to provide all tax notices, financial records, and income documentation for the tax periods I’m analyzing. The success of the resolution strategy is dependent upon the accuracy of the information you provide, so please be thorough.
Phase 2: Restore filing and deposit compliance before entering into negotiations with the IRS.
The IRS won’t negotiate or set up a payment plan if you’re non-compliant. That means filing all required tax returns and ensuring current tax payments are up to date. Business owners must make all their required payroll tax deposits. I’ll know after Phase 1 whether these conditions are met, and I can help you get back on track.
Advice for the future: Preparing accurate returns can minimize future complications.
Modern bookkeeping and accounting software, like QuickBooks or FreshBooks, can help. In the second phase of every tax resolution process for business owners, we’ll analyze your current technology stack and help you modernize it to comply with IRS standards. These tools record all transactions, estimate quarterly tax deposits, and run financial reports.
Employers must make electronic tax deposits to cover withholdings. I can show you how to make Federal tax deposits and electronically file using Form 941 for payroll taxes or Form 940 for unemployment taxes. These actions are critical for long-term business success.
Phase 3: Develop a tax resolution strategy that fits your financial position.
The first two phases are preparation steps. I’ll work with you to figure out how much you owe and resolve any compliance issues you might have. Phase 3 is about developing a strategy to resolve your tax debt. There are several ways you can do that:
- Installment Agreements: The IRS will allow you to pay off your tax debt with affordable monthly payments based on your income, but there are limits to its flexibility. As a CPA, I can negotiate a payment agreement on your behalf.
- Offer in Compromise: Tax debt accumulates quickly when it goes unpaid. The IRS charges interest and penalties that can often compound into an unpayable bill. An Offer in Compromise is an agreement to pay less than you owe. Call me to learn more.
- Currently Not Collectible Status: Doing a thorough analysis in Phase 1 doesn’t just tell you what you owe. It can also help you understand what you can afford. The “not collectible” status is an IRS designation that freezes all collection activity.
- Penalty Abatement: Non-compliance may not be intentional. As your CPA, I can help you prepare documentation to demonstrate reasonable cause for non-compliance. In certain circumstances, the IRS may remove the penalties.
- Innocent Spouse Relief: Spouses or former spouses may be exempt from penalties and fees assessed for improper reporting or omissions. If you’re in this situation, you may qualify for relief from the tax debt.
Phase 4: Pursue negotiation based on a sound strategy.
Once we agree on a strategy, I can handle the negotiations for you. That includes preparing the proper paperwork, submitting it to the IRS, and responding to inquiries for additional information. As a CPA, you can authorize me to speak on your behalf. A tax preparation service or an enrolled agent may be unable to do that for you, which is one of many reasons why tax resolution for business owners requires another standard of service.
While you can access documents related to the resolution strategy on the IRS’s website, you shouldn’t.
The documents needed for each option in Phase 3 are available on the IRS website. That doesn’t mean you should do this on your own. The process can be lengthy, complex, and confusing for anyone unfamiliar with tax regulations.
It is the best option in this circumstance to leave documentation to professionals who understand bureaucratic processes and terminology used by tax officials.
Remember that unpaid payroll taxes come with severe penalties.
One of the business issues we can look at in this phase is negotiating trust fund recovery penalties for unpaid payroll taxes. These penalties can be particularly severe, as they allow the IRS to pursue business owners personally for unpaid employment taxes.
Phase 5: Maintain compliance with improved internal controls in accounting and bookkeeping.
My work doesn’t end when we secure a resolution. The next step is to ensure you remain compliant. I’ll help you develop a plan to make your payments on time, budget for unforeseen expenses, and prevent future tax problems. We can also discuss how you can implement better bookkeeping practices and new technology.
Get a plan for future tax obligations.
W2 employees need to file their returns on time. Freelancers receiving a Form 1099 at the end of the year are supposed to make quarterly deposits, but many do not. Business owners may have payroll and corporate tax obligations. I have experience in all these scenarios.
Schedule a discovery call for tax resolution.
Tax resolution isn't a one-size-fits-all process. It requires careful analysis, strategic planning, and expert negotiation. Schedule a discovery call, and let’s start the process as soon as possible.
Sincerely,
Jeremy A. Johnson, CPA
