[0:01] Welcome to Tax Problems Explained from the perspective of an attorney, a CPA, and a former
[0:06] IRS agent.
[0:09] Welcome to Tax Problems Explained from the perspective of an attorney, a CPA, and a
[0:14] former IRS agent, all in one, with Lawrence T. Ullmann.
[0:20] With decades of experience inside the IRS and in private practice, Lawrence helps individuals
[0:26] and businesses understand how the tax system really works and how to resolve serious tax
[0:33] issues.
[0:34] I'm LeAnn Lyon, and today we are talking about what can happen when someone delays
[0:41] addressing a tax issue and why waiting often leads to more complicated outcomes.
[0:48] Hello, Lawrence.
[0:49] It's great to see you again.
[0:50] Great to see you too, LeAnn.
[0:51] Lawrence, what tends to lead people to delay dealing with a tax issue in the first
[0:57] place?
[0:58] Well, there are several things that can happen.
[1:00] One, just the overwhelm of life.
[1:04] People get so tied up in what they're doing.
[1:08] They put it aside and say, I will get to it later.
[1:12] Another reason is embarrassment.
[1:15] Sometimes taxpayers are embarrassed that they don't have a good set of books and records
[1:20] or whatever the problem is, so that can also do it.
[1:26] And then the third is procrastination.
[1:29] A lot of times people say, well, I'll get to it tomorrow, and then tomorrow never comes
[1:35] and the problems start to result.
[1:37] It will be very tongue-in-cheek and say, wow, I can't imagine any of those.
[1:43] When someone chooses not to respond right away, how does the situation typically begin to
[1:49] evolve with the IRS?
[1:50] Well, it starts slowly with the IRS.
[1:53] They'll normally send out a notice for whatever the reason is.
[1:59] And if that doesn't get responded to, they'll send out another notice.
[2:03] And then the third, and they'll start to get a little bit more urgent in the language.
[2:10] Then if the taxpayer still doesn't respond, it can escalate from there.
[2:17] It can go to automated collection services and go to a revenue officer, I mean, it can
[2:25] definitely get more complicated.
[2:27] So how does the IRS's approach tend to change when a tax issue is left unaddressed over time?
[2:34] Well, if the taxpayer doesn't respond, what could have been maybe a simple solution becomes
[2:46] more difficult?
[2:47] Lots of things can happen.
[2:49] First of all, as I mentioned a moment ago, the case can go from just the regular computer
[2:56] notices to ACS, which is automated collection services.
[3:01] This makes it more serious.
[3:03] If it doesn't get resolved at ACS, then it can go into the hands of a revenue officer.
[3:12] This can get very serious because now we're dealing with a human who is able to go down
[3:20] to where the taxpayer lives, knock on the door, talk with neighbors, things of that nature.
[3:26] So it can definitely escalate.
[3:29] The other problem that can happen is some of the things that may be available to resolve
[3:35] the issue, such as going to appeals or things of that nature, have time limits.
[3:42] And if the taxpayer hasn't responded within that time limit, these choices are no longer
[3:51] choices, they're not available.
[3:54] When do penalties and interests start to kick in when a tax issue is being delayed?
[4:00] Well, what happens is there's the failure to file penalty, failure to pay penalty.
[4:07] These go month to month or fraction thereof, and the interest goes on top of that.
[4:17] So penalties, if one waits long enough, sometimes the penalties and interest can be two, three
[4:25] times what the deficiency is.
[4:28] So definitely waiting can cost a lot of money when it comes to penalties and interest.
[4:36] Can you walk through a general example of someone who delayed addressing a tax issue and
[4:42] how that decision affected the outcome?
[4:45] Well, let's take payroll taxes because payroll taxes can really be a problem it's complicated
[4:53] et cetera.
[4:54] Let's say an individual misses filing a 941 gets a notice.
[5:01] At that time, if the taxpayer responds gets the tax return in, there may be a small penalty
[5:12] for one month or whatever the time period is, but it can be resolved.
[5:17] However, what happens in many cases is, again, the taxpayer either through embarrassment or
[5:24] the overwhelm of life or what have you, it doesn't respond.
[5:29] So these penalties start to add up.
[5:33] And if the taxpayer hasn't, if the notice that was originally sent out had to do with the
[5:40] tax return and the taxpayer hasn't responded, the internal revenue service will take what
[5:45] information it has and prepare a return called the substitute for return.
[5:50] It will assess the tax and now if the taxpayer responds at this late date, we have to try
[5:59] to undo what the IRS is not, it becomes much more complicated.
[6:04] And then finally, if there's still no response, it can go into enforce collection and that's
[6:12] going to create a problem.
[6:13] And that's where it becomes more and more difficult to solve, correct?
[6:17] Definitely.
[6:18] Okay.
[6:19] What misunderstandings do people often have about trying to wait things out with the IRS?
[6:26] Is there any such thing?
[6:27] Well, a lot of times taxpayers will think, well, I'm small, maybe the IRS will just forget
[6:34] about it.
[6:35] Or if I don't respond, they'll just go after someone else.
[6:40] The IRS doesn't forget.
[6:43] It may take a while before it gets to really enforcement tactics, but it doesn't forget.
[6:53] The other thing is, a lot of times again, the taxpayer just feels, well, I'll get to
[6:58] a tomorrow and procrastinate.
[7:01] These, all of these become very problematic if the taxpayer doesn't respond.
[7:08] When somebody realizes that they really have waited longer than they should have, what should
[7:14] they take into account before deciding how to move forward?
[7:19] Well, the first thing they should do is look at the problem, the issue and say to themselves,
[7:27] do I have the records that are necessary to prove this or not?
[7:31] Also, take a look and see where they are as far as how long they have procrastinated.
[7:39] Because again, certain things may not be available because time limits have come and gone.
[7:48] The third thing they need to do is determine whether or not this is something that is complicated
[7:56] enough to where they need a professional, someone that's going to be able to know exactly
[8:02] what to do.
[8:04] The other thing, another thing that they should also be aware of is, is it just one year or
[8:09] is it multiple years?
[8:12] These are just some of the factors that should go into the taxpayer trying to determine
[8:18] how to get out of the mess that the taxpayer got him or herself into in the first place.
[8:24] One more question about this.
[8:27] Is it different between when a business is behind or when an individual is behind with the
[8:33] IRS?
[8:34] Not really.
[8:36] The business may be more complicated because again, business returns are normally more complicated
[8:46] than an individual.
[8:48] But as far as what the IRS does, as far as how the IRS escalates in a situation where someone
[8:58] is not responding, it doesn't matter whether it's an individual or a corporation.
[9:04] Or any type of taxpayer.
[9:09] As we wrap up today's episode, what's one thing you would like to tell someone who knows
[9:13] they're a little behind or maybe even a lot behind what should they know?
[9:18] Well, if they're behind, it's not like a red wine, it's not going to get better with age.
[9:24] It's more like a bogey-lae wine, you have to take care of it and drink it real quickly.
[9:31] The important thing is to definitely respond because the internal revenue service is not
[9:41] going to forget, they're not going to move on to another taxpayer and the penalties and
[9:48] interest and all the other problems are just going to keep multiplying.
[9:54] So that would be the best advice I could give to some.
[9:57] So much for that 2009 bogey-lae I found at the garage, so I guess we'll have to go.
[10:02] But we'll jump on those tax situations right away.
[10:05] Well, thank you.
[10:06] That is it for today's episode of tax problems explained from the perspective of an attorney,
[10:12] a CPA, and a former IRS agent, all in one.
[10:17] If you are dealing with a tax issue and are unsure how to move forward, you can visit LawrenceTUllmann.com
[10:26] and thanks for listening.
[10:27] Be sure to like, leave a review, and share this episode with someone who might need it.
[10:33] Thank you, Lawrence.
[10:34] Thank you, Leanne.
[10:35] Have a great day.
[10:36] You too.
[10:41] Thanks for watching.
[10:42] Be sure to hit that like and subscribe button and leave us a review in the comments.
[0:06] IRS agent.
[0:09] Welcome to Tax Problems Explained from the perspective of an attorney, a CPA, and a
[0:14] former IRS agent, all in one, with Lawrence T. Ullmann.
[0:20] With decades of experience inside the IRS and in private practice, Lawrence helps individuals
[0:26] and businesses understand how the tax system really works and how to resolve serious tax
[0:33] issues.
[0:34] I'm LeAnn Lyon, and today we are talking about what can happen when someone delays
[0:41] addressing a tax issue and why waiting often leads to more complicated outcomes.
[0:48] Hello, Lawrence.
[0:49] It's great to see you again.
[0:50] Great to see you too, LeAnn.
[0:51] Lawrence, what tends to lead people to delay dealing with a tax issue in the first
[0:57] place?
[0:58] Well, there are several things that can happen.
[1:00] One, just the overwhelm of life.
[1:04] People get so tied up in what they're doing.
[1:08] They put it aside and say, I will get to it later.
[1:12] Another reason is embarrassment.
[1:15] Sometimes taxpayers are embarrassed that they don't have a good set of books and records
[1:20] or whatever the problem is, so that can also do it.
[1:26] And then the third is procrastination.
[1:29] A lot of times people say, well, I'll get to it tomorrow, and then tomorrow never comes
[1:35] and the problems start to result.
[1:37] It will be very tongue-in-cheek and say, wow, I can't imagine any of those.
[1:43] When someone chooses not to respond right away, how does the situation typically begin to
[1:49] evolve with the IRS?
[1:50] Well, it starts slowly with the IRS.
[1:53] They'll normally send out a notice for whatever the reason is.
[1:59] And if that doesn't get responded to, they'll send out another notice.
[2:03] And then the third, and they'll start to get a little bit more urgent in the language.
[2:10] Then if the taxpayer still doesn't respond, it can escalate from there.
[2:17] It can go to automated collection services and go to a revenue officer, I mean, it can
[2:25] definitely get more complicated.
[2:27] So how does the IRS's approach tend to change when a tax issue is left unaddressed over time?
[2:34] Well, if the taxpayer doesn't respond, what could have been maybe a simple solution becomes
[2:46] more difficult?
[2:47] Lots of things can happen.
[2:49] First of all, as I mentioned a moment ago, the case can go from just the regular computer
[2:56] notices to ACS, which is automated collection services.
[3:01] This makes it more serious.
[3:03] If it doesn't get resolved at ACS, then it can go into the hands of a revenue officer.
[3:12] This can get very serious because now we're dealing with a human who is able to go down
[3:20] to where the taxpayer lives, knock on the door, talk with neighbors, things of that nature.
[3:26] So it can definitely escalate.
[3:29] The other problem that can happen is some of the things that may be available to resolve
[3:35] the issue, such as going to appeals or things of that nature, have time limits.
[3:42] And if the taxpayer hasn't responded within that time limit, these choices are no longer
[3:51] choices, they're not available.
[3:54] When do penalties and interests start to kick in when a tax issue is being delayed?
[4:00] Well, what happens is there's the failure to file penalty, failure to pay penalty.
[4:07] These go month to month or fraction thereof, and the interest goes on top of that.
[4:17] So penalties, if one waits long enough, sometimes the penalties and interest can be two, three
[4:25] times what the deficiency is.
[4:28] So definitely waiting can cost a lot of money when it comes to penalties and interest.
[4:36] Can you walk through a general example of someone who delayed addressing a tax issue and
[4:42] how that decision affected the outcome?
[4:45] Well, let's take payroll taxes because payroll taxes can really be a problem it's complicated
[4:53] et cetera.
[4:54] Let's say an individual misses filing a 941 gets a notice.
[5:01] At that time, if the taxpayer responds gets the tax return in, there may be a small penalty
[5:12] for one month or whatever the time period is, but it can be resolved.
[5:17] However, what happens in many cases is, again, the taxpayer either through embarrassment or
[5:24] the overwhelm of life or what have you, it doesn't respond.
[5:29] So these penalties start to add up.
[5:33] And if the taxpayer hasn't, if the notice that was originally sent out had to do with the
[5:40] tax return and the taxpayer hasn't responded, the internal revenue service will take what
[5:45] information it has and prepare a return called the substitute for return.
[5:50] It will assess the tax and now if the taxpayer responds at this late date, we have to try
[5:59] to undo what the IRS is not, it becomes much more complicated.
[6:04] And then finally, if there's still no response, it can go into enforce collection and that's
[6:12] going to create a problem.
[6:13] And that's where it becomes more and more difficult to solve, correct?
[6:17] Definitely.
[6:18] Okay.
[6:19] What misunderstandings do people often have about trying to wait things out with the IRS?
[6:26] Is there any such thing?
[6:27] Well, a lot of times taxpayers will think, well, I'm small, maybe the IRS will just forget
[6:34] about it.
[6:35] Or if I don't respond, they'll just go after someone else.
[6:40] The IRS doesn't forget.
[6:43] It may take a while before it gets to really enforcement tactics, but it doesn't forget.
[6:53] The other thing is, a lot of times again, the taxpayer just feels, well, I'll get to
[6:58] a tomorrow and procrastinate.
[7:01] These, all of these become very problematic if the taxpayer doesn't respond.
[7:08] When somebody realizes that they really have waited longer than they should have, what should
[7:14] they take into account before deciding how to move forward?
[7:19] Well, the first thing they should do is look at the problem, the issue and say to themselves,
[7:27] do I have the records that are necessary to prove this or not?
[7:31] Also, take a look and see where they are as far as how long they have procrastinated.
[7:39] Because again, certain things may not be available because time limits have come and gone.
[7:48] The third thing they need to do is determine whether or not this is something that is complicated
[7:56] enough to where they need a professional, someone that's going to be able to know exactly
[8:02] what to do.
[8:04] The other thing, another thing that they should also be aware of is, is it just one year or
[8:09] is it multiple years?
[8:12] These are just some of the factors that should go into the taxpayer trying to determine
[8:18] how to get out of the mess that the taxpayer got him or herself into in the first place.
[8:24] One more question about this.
[8:27] Is it different between when a business is behind or when an individual is behind with the
[8:33] IRS?
[8:34] Not really.
[8:36] The business may be more complicated because again, business returns are normally more complicated
[8:46] than an individual.
[8:48] But as far as what the IRS does, as far as how the IRS escalates in a situation where someone
[8:58] is not responding, it doesn't matter whether it's an individual or a corporation.
[9:04] Or any type of taxpayer.
[9:09] As we wrap up today's episode, what's one thing you would like to tell someone who knows
[9:13] they're a little behind or maybe even a lot behind what should they know?
[9:18] Well, if they're behind, it's not like a red wine, it's not going to get better with age.
[9:24] It's more like a bogey-lae wine, you have to take care of it and drink it real quickly.
[9:31] The important thing is to definitely respond because the internal revenue service is not
[9:41] going to forget, they're not going to move on to another taxpayer and the penalties and
[9:48] interest and all the other problems are just going to keep multiplying.
[9:54] So that would be the best advice I could give to some.
[9:57] So much for that 2009 bogey-lae I found at the garage, so I guess we'll have to go.
[10:02] But we'll jump on those tax situations right away.
[10:05] Well, thank you.
[10:06] That is it for today's episode of tax problems explained from the perspective of an attorney,
[10:12] a CPA, and a former IRS agent, all in one.
[10:17] If you are dealing with a tax issue and are unsure how to move forward, you can visit LawrenceTUllmann.com
[10:26] and thanks for listening.
[10:27] Be sure to like, leave a review, and share this episode with someone who might need it.
[10:33] Thank you, Lawrence.
[10:34] Thank you, Leanne.
[10:35] Have a great day.
[10:36] You too.
[10:41] Thanks for watching.
[10:42] Be sure to hit that like and subscribe button and leave us a review in the comments.
