How do you deal with collections issues for high-net-worth clients?
High-net-worth clients present several challenges from dealing with things from an IRS perspective. The first challenge that you are going to have is that high-net-worth clients do not fall within the IRS's usual guidelines for ordinary and necessary expenses. Take, for example, San Diego. For a single person living in San Diego, the local housing and utility standard is about $2,500 a month.
For high-net-worth clients, this presents a big problem because you are dealing with income levels that are way above the IRS's ordinary standards. The fact of the matter is, is you may have somebody with an $8,000 mortgage or a $10,000 mortgage or $25,000 mortgage. Just because the IRS disallows that $25,000 mortgage or at least a large chunk of it, it does not mean the taxpayer is not actually paying that much for their mortgage.
There are a variety of complicated issues like that that go into representing a high-net-worth client. The trick with high-net-worth clients is being practical about the fact that they could probably pay the IRS liability in full if they are asked to. They may just be running into a temporary cash-flow situation or they may need long-term help to spread out their liability, however large it is, over a period of time.
This is a relatively simple math equation. It is just about managing cash flow and convincing the government to take less based on certain lifestyle choices. That is not a hugely complicated problem. Although depending on the income level of the person we are dealing with, it does get a little technical.
The harder part of the problem is factoring the human equation because a lot of times you are dealing with a revenue officer or with another IRS employee who makes less than $100,000 a year and living in California.
When you are dealing with somebody who makes under $100,000 a year and you are dealing with somebody who makes $100,000 or more a month, the income inequality and the wealth discrimination that occurs become really challenging.
The IRS agent may say, "This person makes more in a month than I do in a whole year. Why are they unable to pay their taxes?" The reality is that it is slightly insensitive to the particular person's situation.
In my experience, when a client has more money, their situation is more complicated. They have more moving pieces. They have more investments. They have more businesses.
From an IRS perspective, this creates a big challenge. The biggest issue for high-net-worth clients is protection. You want to protect a client and their assets against the imposition of the government or prevent the government from coming in and trying to kill the goose that lays the golden eggs.
A lot of government agents have not run businesses before. They do not have real estate investments. They do not have partnerships. They do not have a variety of things that high-net-worth clients have.
From their perspective, when they see large liabilities, when they see large amounts of income, the tendency is, "Well, why are they not able to pay us and pay us biw?" The biggest part of what we do at our firm is help translate the situation between the client and the IRS in terms the IRS can understand.
That is the challenge with high-net-worth clients. If you are a high-net-worth person, and a high-net-worth person can basically be described as anybody who has an income of $20,000 a month or more. If you fall within that category, then we are going to have to do some a little bit of complex defense when it comes to your collections matter. If not, the IRS will come in.
The IRS will mandate terms that there is no way that you can accept, and then there will not be an agreement between the solution that you propose and the solution the government proposes.
I would encourage you to sit down with either me or another tax attorney, address the situation, and try and find common ground. It does not have to be complicated.
It does not necessarily have to be expensive. By putting a plan in place and executing it, it is going to lead you on the path to better success and then navigating through your tax issue.
If I owe money to the IRS, how do they look at credit cards?
The IRS takes the position that they are not a bank, so if you owe tax debt they consider themselves to be the superior creditor. Anything that is an unsecured debt, including a credit card debt, the IRS considers itself to be more of a priority than that debt.
When negotiating an IRS payment plan, they will not allow you to write off your credit card expenses. This is a big shock for taxpayers because when going through income minus necessary expenses, a lot of people will list their credit card debt.
Unless that credit card debt was incurred for business expenses or for something else that the IRS considers necessary, they will not write in minimum credit card payments and will require you to pay a monthly installment agreement payment that is much higher because they are not including the credit card debt in that.
Just keep in mind that the credit card debt is not a saving grace. If you have a substantial amount of credit card debt and it is affecting your cash flow, you are going to want to speak with your attorney or qualified representative to help you.
If I owe money to the IRS, how will the IRS look at expenses for college-age children and private educational expenses?
Here is the bad news. When factoring in an IRS payment plan or when negotiating a collection resolution, the IRS does not include any expenses that you have for your college-age children or any private educational expenses.
The reason for this is that the government views those expenses as luxury items, even though most taxpayers in that situation would disagree. A lot of the pushback that we get from taxpayers is, "Well, if it is a choice between paying for taxes and sending my kids to college, I am going to send my kids to college."
While I understand that sentiment as a parent myself, you have to understand that the IRS employees that you are going to negotiate with often make a salary that is a lot less than yours, so you are dealing with somebody who would also view that expense as a luxury item.
This is particularly true for kids who are over the age of 18. The IRS considers those children to be adults and therefore kicks them out of the nest. Now, with that said, it does not mean that you cannot get an allowance for educational expenses or for supporting college-age children.
There are some tricks and tips for doing that. You are going to have to be very careful about how you list those expenses in the financial statement. Rather than go into that, what I recommend that you do is contact a qualified representative or a tax attorney and have us walk you through how to best include those expenses and how to get the resolution that you are ultimately seeking.
Will the IRS take my car?
The IRS had a long history of doing really nasty things to people in the early-to-mid '90s. One of the things that they would do to people is call them in for meetings and then, they would take their cars while they were in the meetings. They would tow and impound them.
Congress responded and implemented the IRS Reform and Restructuring Act, which does not say that the IRS cannot take your car, but generally speaking, there are protocols in place. The IRS is not just going to come by and sweep your car off the street. However, the IRS does view your car as a physical asset.
If there is value there, the IRS is going to want you to borrow against the car, or they are going to want you to sell that asset, but it is not like they are wandering around in tow trucks and they are just going to lift the car off, or out of your driveway. In addition, for a lot of people, their car is a necessary expense for them or a necessary asset, because it drives them to work.
Generally speaking, IRS agents look at cars as reasonable and ordinary living expenses, because they view them as a part of essential transportation. Yes, the IRS can technically take your car, but no, they are probably not going to.
While every IRS case is unique, many of them have common threads. That is why I included this chapter with some of the most frequently-asked questions and my responses. I hope that it provided you with the information you need to address your particular situation.
If your question was not answered here, give me a call. There is not much that I have not heard, but I am here to help you get to the bottom of what is going on and to find a viable solution.