If you’ve accrued a debt to the taxing authorities, your first inclination may be to handle it yourself. If you make that choice, beware that there are a number of frustrations involved in trying to communicate with the taxing authorities. Unless your case has been assigned to a Revenue Officer in the “field,” you will likely have to wait a very long time (sometimes over an hour) on hold to talk to a representative each time you call the IRS. Then, when they tell you to call back, you will wait forever again, you will likely have to explain your entire situation to the next representative all over again, and the next representative may tell you something totally different than the last person with whom you spoke. You may respond by trying to communicate through the mail or over the fax. Those attempts may be met with still more interminable delays in responses, and inconsistent instructions and requests.
Eventually, you may be contacted by a Collection Agent, who may bombard you with confusing demands and deadlines, misinterpretations of information that you provide, and excessive pressure to over-commit to an installment agreement or other resolution strategy. When you resist those outrageous demands, you can be levied or garnished for being uncooperative. Perhaps, at some point in this seemingly endless trip through the bureaucratic rabbit-hole, you will decide that it is smarter to hire somebody else to handle the drudgery for you.
Aside from the frustration and aggravation you are likely to experience, representing yourself before the taxing authorities could, and often does, lead to results that are inferior to those that could have been procured by a skilled professional. For example, you could wind up repaying the entire tax liability plus penalties and interest when a professional could have settled your liability for a fraction of what you owe. Perhaps you do, in fact, succeed in negotiating a settlement on your own. While this might feel like a huge success, the settlement you negotiated could be thousands or even tens of thousands of dollars higher than a skilled professional could have secured. By representing yourself as opposed to seeking professional representation, you may increase the risk of failing to resolve your tax liability. Failing to resolve your tax liability could result in aggressive enforced collections, such as wage garnishments and bank levies. These actions can have a devastating effect on your ability to meet the basic necessities for yourself and your family.
To be clear, I do not advocate for everyone with a tax liability to hire a professional. If you have a straightforward case, are not a good candidate for a settlement or a reduction in penalties, and are eligible for a streamlined installment agreement, there may be no need to spend money on a professional. The problem is that most taxpayers have no idea whether they are a good candidate for a settlement or reduction in penalties, or whether they qualify for a streamlined agreement. For these reasons, it may be prudent to at least consult with a professional or two prior to deciding whether the benefits of a professional outweigh the costs.
A good representative, first and foremost, should be someone you feel comfortable with. However, your comfort level is but one factor. There are plenty of really nice people who don’t make good representatives when your financial life or your business is on the line. Keep in mind that most tax professionals, such as C.P.A.s and enrolled agents, make their bread and butter preparing tax returns, and often have very little experience negotiating with the Collection Division of the IRS or with your state’s tax collection division. Check to make sure your representative is knowledgeable and possesses considerable experience handling tax collection cases. It might be a good idea to read another of the articles on the Fortress website, and then quiz a potential representative on the topic.
When you do hire a pro, he or she should file power of attorney as soon as possible, quickly assess your situation, and then be able to explain it to you clearly. It is imperative, at the outset of representation, that your representative take action to protect you from levies and garnishments, and communicate to you exactly what is being done, and how it helps your case. You should be able to expect clear, concise, understandable instructions and requests.
If you have a setback, your representative should be able to explain what effect the setback will have, and develop a plan to respond and get the case back on track. You should receive regular updates regarding the status of negotiations on your case, and any additional actions needed from you to keep things progressing. If a certain strategy is not working, you should be able to expect your representative to work with you to develop an alternate strategy for negotiations. Above all, you want somebody who is responsive, competent, and zealous in their focus on your best interests.
Tax Professional Representation for a Taxpayer in Collections
There are three types of professionals who are legally authorized to represent a taxpayer in collections: C.P.A.s, enrolled agents, and attorneys. The key is to find both the type of professional and the right person within that type that will be best suited to your needs.
C.P.A.s can make good representatives, particularly if your primary need is to get returns prepared and filed or if you are being audited, and you do not anticipate a problem repaying your tax liability promptly. They can usually prepare and file returns on your behalf, which can be a big help if you have major filing problems and delinquent tax returns. Accountants tend to know the law and the rules surrounding tax compliance better than a bookkeeper or a lay-person. They can prepare profit and loss statements, balance sheets, and other financial information that is essential to a negotiation on a collections case, if you provide the necessary information and documentation.
C.P.A.s also tend to be better at basic accounting than most collection agents, though accounting skills may have little to do with success depending upon your circumstances. Many C.P.A.s handle tax collection cases very rarely, if ever, so they may not be polished and knowledgeable in the particulars of resolving tax liabilities. Some won’t even represent taxpayers in collection cases, either because they know that it is beyond their area of expertise or because they simply don’t want to.
C.P.A.s are typically extremely busy around filing and extension deadlines, so they may not be available at important junctures in your case. Some don’t have the staff and resources to free up a sufficient amount of time for all of the follow-up and other time-consuming aspects of a collection case. They may become paralyzed by a need to ensure that every detail presented to the authorities is vetted, which also may delay, or over-complicate the negotiation. That additional time spent can also make a C.P.A. very expensive at an hourly billing rate. It is certainly never a bad idea to have a good C.P.A. or accountant, especially if a business is involved. However, unless the C.P.A. has extensive experience in resolving back tax liabilities with the Collection Division, and unless the C.P.A. is a talented negotiator, he may not be the best person to represent you in a tax liability negotiation.
You can also consider hiring an enrolled agent. Enrolled agents are individuals who have passed a test, and met other qualifications, in order to be certified as competent to represent taxpayers before the authorities. Many enrolled agents are skilled at preparing tax returns, but charge less than a C.P.A. because they generally do not possess the same level of education or expertise. Like C.P.A.s, many enrolled agents do not possess significant experience dealing with tax collection cases. Their bread and butter is often return preparation.
One potential concern with enrolled agents is that there is no educational requirement aside from passing a tax test. An enrolled agent could be a high school dropout whose last job was working at a fast food restaurant. Thus, if you feel that it is important that your representative be highly educated and intelligent enough to have succeeded in college or graduate school, you may wish to go with a C.P.A. or attorney.
There are some enrolled agents out there who were previously employed by the IRS. This experience has some potential pros and cons. On the pro side, the E.A. might have a lot of experience handling collection cases, particularly if the E.A. was once employed by the Collection Division of the IRS. A potential con is that, due to this E.A.’s previous life as a tax collection agent, she might identify more with the government than she will with you. That could result in just as much pressure to bow to unrealistic demands as you would receive directly from the collector. Further, few people would argue that the pool of employees at the IRS are the “best and brightest.” That is not to say that there aren’t some very intelligent and talented current and former IRS employees. Rather, it is a caution not to overestimate someone’s abilities simply because that person was hired by the IRS at some point in his or her life.
The third common option is to hire an attorney. This option also comes with its share of advantages and disadvantages. The main advantages to hiring an attorney are that he or she is likely to be better skilled at negotiation and persuasion than an E.A. or a C.P.A., and is typically going to be far more comfortable in the role of an advocate than an E.A. or C.P.A. Resolving a back tax liability usually has very little to do with accounting. Instead, the successful resolution of a tax liability often hinges on the ability of the representative to effectively negotiate and persuade–both verbally and in writing. Therefore, strong advocacy skills can be a significant advantage.
Unfortunately, very few attorneys build a practice around representing taxpayers who are in collections with the IRS or a state. Even tax attorneys frequently have little experience in this particular niche. While the advocacy skills of attorneys might sound appealing, particularly if you are in a situation where the stakes are high (such as a business with a large tax liability), exercise caution before deciding on an attorney. Experience handling tax collection cases remains a critically important factor. You could find the greatest all around tax attorney in the country. However, if she rarely handles tax collection cases, you might be better served with someone else. Ask the attorney what percentage of her practice involves representing taxpayers who are in collections with the IRS or a state. If the percentage is low, you may wish to continue your search.
Finally, consider the cost of representation. Taxpayers who are in collections often have limited resources. Therefore, getting the most bang for the buck can be extremely important. Although professionals in any category charge a variety of rates, generally speaking, an E.A. will tend to have the lowest rates, an attorney will have the highest rates, and a C.P.A. will be in the middle. Thus, if you find a well-qualified C.P.A. or attorney who will take your case for about the same price as an E.A., you might have found a better value. Conversely, if you find an E.A. who is charging about the same as a well-qualified attorney, you might question why the E.A. charges an attorney-like rate without having attorney qualifications.
Although I do not believe that it is always necessary to bring in a professional to assist in resolving an unpaid tax obligation, there are many benefits to consider. Most importantly, a good professional can alleviate your frustration, minimize the chances of enforcement, and maximize the chances of an optimal result. Larger tax liabilities (e.g. $10,000 or more) tend to have higher stakes and more room for negotiation. In many larger liability cases, the professional will save the taxpayer more money than he will charge in fees, making the relationship a win-win. Therefore, it is a wise move for people or businesses with larger liabilities to at least consult with a tax pro or two, even if they decide not to hire them.
If you decide to hire a professional, hire someone you trust, someone you are comfortable working with, and who you like. Above all, hire someone who has extensive experience handling tax collection cases and who is reputable. As a rule of thumb, if your representative has been doing this kind of work for at least 7 years and has an “A” or better rating with the Better Business Bureau, you should be in decent hands. You will be going through a lot of stress and trouble with your representative, and the right person in your corner can make a huge difference.