Case Study: IRS Filed Substitute Tax Returns for Client
Case Summary: IRS Filed Substitute Tax Returns for Client that would have cost them $190,000 if left unchecked.
Client Location: Georgia
Client Age: 50’s
Total Tax Debt with IRS: $200,0000
Case Details: Had unfiled tax returns from 2004 forward.
Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems. I’d like to share with you another client case study from the 1,000’s of tax clients we’ve represented.
A confused, married couple in their mid-50’s from Georgia called our firm after receiving several letters from the Internal Revenue Service saying they owed almost $200,000 for two older tax years! The husband was out of work due to an accident and the wife lost her job because she took time off to care for her husband. They were extremely worried because in addition to owing over $200,000 in tax debt for two older years, they had not filed any original tax returns since 2004. They had no idea what do to first. They told us that the IRS said they owed more than they had ever made in a two year period.
Our first step was to obtain a signed Forms 2848 and 8821 which allowed us to represent them before the Internal Revenue Service and to help them figure their situation out.
We called the IRS to obtain the client’s Account Transcripts which confirmed that the IRS had already prepared substitute tax returns for 2005 and 2006 and that the IRS was in the process of preparing several more substitute returns. The current tax debt on the 2005 and 2006 substitute tax returns was over $160,000 not including the interest and penalties which pushed the debt to the $200,000 level. “Substitute” tax returns are tax returns the IRS files on your behalf if you fail to file your own tax returns. These type of tax returns will almost always leave you owing much more in taxes than you would owe if you prepared and filed your own tax return because the IRS doesn’t give you credit for some things that could lower your tax amount.
We also requested and received from the IRS the clients’ wage and income transcripts for tax years 2005 forward to learn what types of income the clients had for those years. This review enabled us to guide these clients as they gathered their tax records so we could prepare their tax returns.
We prepared their 2005 and 2006 tax returns first because these tax years represented the bulk of the IRS tax debt already on the books. Once we had included all of their expenses, their total correct tax liability for these years was less than $3,000. Immediately, the clients saved over $195,000 in tax, interest in penalties. This was great news.
We continue to prepare this client’s tax returns as they locate their records. It appears that they may owe the IRS less than $10,000 when all of the returns have been filed and processed.
What a happy outcome. These clients came to us owing almost $200,000 and when their case is complete, they will owe the IRS less than $10,000. When all the tax returns have been filed we’ll start the next step of gathering the client’s financial information so we can understand which collection solutions they’ll qualify for, for example an Offer in Compromise to settle their tax debt for less than they owe, or some other option.
What’s the moral of this story? If you haven’t filed your tax returns for years and IRS comes calling, don’t panic. Contact a tax professional to help you through the process of becoming current and compliant with the IRS. This process is a lot less scary if you take a trained tax professional along with you.
I hope this important client case study has helped you understand the IRS a little better and how tax problems are solved. Chances are you have questions or concerns about your own particular tax problem. I encourage you to pick up the phone and call me. I can answer your questions. Over the past 20 years I’ve represented clients in all 50 states and 29 foreign countries, and I welcome your call. I’m Jeff Fouts and thanks so much for watching. Have a wonderful day.