Dangers of Self Representation before the IRS

A small business client of mine came in yesterday and showed me the paperwork about an agreement he had negotiated with the IRS Revenue Officer at the Bethlehem, PA IRS office regarding his past due Trust Fund and other employer taxes for 2007. He had paid a total of over $22000 including interest and penalties to settle the matter of not paying the taxes in time. I prepared 941 forms for this client to file and had offered to represent him before the IRS in the mater. However, he had decided to deal himself with the collections division of the IRS. His opinion was that he rather pay the same amount of money to the IRS in interest and penalties as he would pay to a tax practitioner in fees, and deal with the matter himself. To make a long story short, he told me that he paid about $2,000 in interest and penalties for the whole year for late payment of his 941 taxes. I being an anal accountant, pulled up his four 941 forms and added up the taxes he was due. It turned out that he had paid nearly $5,000 in interest and penalties over and above what he should have paid. He was really upset at hearing this.
Interestingly, this Easton, PA area businessman had good reasons for not paying his employment based taxes on time and had, in my opinion, good cause to get his interest and penalties abated by the IRS. In order to do that he needed an accountant familiar in dealing with the IRS about such problems. My fees for this service would certainly be less than half of what he paid to the IRS in taxes. Or he could have used any other Enrolled Agent or any other licensed professional, admitted to practice before the IRS and achieved a better result. There are many very smart professionals who do this kind of work in the Lehigh Valley.
His is just one of many stories, where people avoid hiring competent help to represent them before the IRS and end up paying much more than they should have or even worse they hire these firms which advertise on the TV and claim to solve peoples IRS problems. These firms are extremely expensive and their track record is not as good, as far as I have seen. On top of that, since they are so expensive many taxpayers in trouble are unable to pay them after a while, and their cases are abandoned as a result. There is no alternative to local representation by a trained, caring professional.

The Curse of Late Filing of Tax Returns

Today I met one more prospective client from northern Northampton county area, who wanted to talk to me and explore the possibility of using my services because she was upset with her present accountant. When I asked that why did she wish to switch, she said that she was annoyed that her accountant had filed an extension to file her annual tax return again this year and she hated that. I added her to my personal list of prospects who are annoyed because their accountants don’t file their tax returns in time. It appears that a disproportionately large number of accountants working with small business owners follow this practice of not filing the annual tax returns on time and file for extensions. It not only increases stress for the clients but also makes them look for other accountants.
Almost inevitably the small business people who are upset at late filing of their annual tax returns are those who do not get a monthly service from their accountants. They do not get their financial statements monthly from their accountants, and do not have any regular consultations. They provide their numbers to their accountant at the end of the year and expect the tax return to be done in time. Since it is a lot of work to do and the accountants have a number of other clients who need the same service at the same time, inevitably many go on extension every year. This is one more reason to complete bookkeeping for small businesses on a monthly basis, create financial statements and analyze the numbers so when the end of the year comes, the ground work is already done to file the tax return on time and make everyone happy.

Shopping for The Highest Refund "Bidder"

A "potential client" walked in today to get his 2007 tax returns filed. All his data was entered into the tax software and it came out that his refund would be a few hundred dollars. He had already been advised about the tax preparation fee in the beginning of the process and he seemed happy with the preparation fee. He however, got very upset when he was told that his refund would be a few hundred dollars. He was expecting a few thousand.
I tried to explain to him that how the refund had been calculated. He said, "Well this happened last year as well. H&R block had said that I would get a few hundred dollars and I did not let them file my return and I went to his other place and they got me three thousand dollars." He then began to leave saying that he would go somewhere else to see if he could get a bigger refund. When he was leaving I said to him that if no one gave him more than that, he may want to return to me for filing his return since I had already put in so much time into it. He said, "Yes, I am going to give the business to the highest bidder."
Although, I was upset at having to do work for which I would not be paid, his highest "bidder" concept did make me smile.
Joys of being a tax professional!

Find Answers to Your Tax Related Questions Free

From now till the end of Tax season in mid April 08 I will be answering tax related questions for free at my office every Saturday. The office is located at 101 Northampton St, (Next to Easton/Phillipsburg free bridge) Easton, PA 18042. Feel free to come in and ask those questions for free!

Time to do tax planning is now!

With the year end just a few days away and everyone in the spirit of holidays many people are not realizing that time is fast running out for doing their tax planning and saving big on their taxes. Once December 31 passes many of the tools and techniques available for legally saving on federal and state taxes will be gone forever. The time to plan and effectively reduce the taxes is now, before the year ends. After the New Year starts, regardless of how good one has kept their records, many of the opportunities to reduce or defer taxes will not available. The world’s best accountants (of which yours truly is one) will not be able to help at that time.
These opportunities include, but are not limited to, adjusting contributions to retirement savings, taking care of short term losses and gains in securities trading accounts, making charitable contributions, adjusting compensation of small business owners etc.