Set Sail on a Getaway That Keeps Things Simple
Resolving disputes with the IRS can drag on for what seems like forever. One such cliffhanger was recently resolved after the agency kept my client in suspense for four years. My client was a self-employed businessman who installed ATM machines nationwide using unorthodox staffing methods: As he moved from city to city, he went to Walmarts and other places where people hung out looking for work or panhandling and asked, “Hey, do you want to work? I’ll pay you a couple hundred dollars to help me install ATM machines.” He paid each worker in cash at the end of the day and moved on to the next job. A 4-YEAR CLIFFHANGER ENDS IN VICTORY Toph’s Tax Triumphs
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The IRS, however, didn’t like my client’s modus operandi (MO) and disallowed nearly all the deductions he tried to take.
My client’s MO might have been unusual, but he wasn’t doing anything wrong. He paid workers less than $600 a year, so he wasn’t obligated to file 1099s for them. The fact that he hadn’t kept a log of whom he paid or how much was a problem, though. Lacking a paper trail, the IRS hit my client with a $700,000 tax bill. A Unique Turn After taking stock of my client’s finances, I made an offer in compromise to pay $37,000, based on what he could afford to pay. The IRS rejected the offer, so we appealed. At this point, the case took a unique turn. The appeals department agreed that my client couldn’t afford to pay $700,000 and added that he should be able to handle a $100,000 payment. The problem was that they didn’t give my client the option of paying $100,000. They simply sustained the agency’s earlier rejection of our $37,000 offer. This was the first time I’d encountered a situation like this. We escalated our case to federal tax court, where my client filed a pro se petition on his own behalf, claiming that rather than rejecting our offer outright, the appeals department should have given him the opportunity to pay $100,000. Nearly two years later, the tax court finally agreed that the appeals department hadn’t followed protocol. Meanwhile, I had been working on alternate strategies. We came back with another counteroffer to the appeals department, giving reasons why my client should only be required to pay $67,000. Recently, more than four years into this case, the IRS agreed and we settled for less than 10% of the agency’s original bill.
My client was hugely relieved, not only at the reduced debt, but that the stress and worry of his four-year IRS ordeal was finally over.
–Toph Sheldon
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