Repetition is the key to memorization, so let’s repeat that headline: “Gifts to Children are…
The greatest country on the planet has a serious problem when our tax regulatory agency has become completely dysfunctional. It has become virtually impossible without extraordinary efforts to resolve even the simplest of issues with the IRS. Many reading this article have tried to call the IRS only to get a message that says, “We are overwhelmed with calls right now; call back later (click).” No matter how many times or time of day people call, they get the same message.
As a CPA I have a special hotline I can call to try and resolve an issue for clients called the Tax Preparer Hotline. A couple of years ago, the longest wait to reach a representative on the Tax Preparer Hotline was a half hour or so. I learned a trick: that by calling exactly when they open at 7 am, I could get someone almost immediately. Today, when I call exactly when they open at 7 am, I get the following message: “We are overwhelmed with calls right now; call back later (click).” Are they really overwhelmed with calls at 7 am – the very second they open? If so, then it is a sad statement of how bad the situation is. If the calls are not overwhelming, but there are fewer agents to answer even a few calls, then that is an even more sad situation.
When doctors and nurses and many other professions were required to go to the frontlines and risk covid, many government workers were not required to come to the office and keep the wheels of their agency running. At no other agency is this starker than at the IRS. Think of the millions of documents the IRS receives daily and how they piled up for months on end, waiting for the workers to return. Even when they did return, there were limited staff, of course, to keep them safe. The rest of the world was doing a great job keeping up and at the same time protecting their teams. The dysfunction the IRS is experiencing today is a direct result of failed government response to the pandemic.
Now more than ever, clients need financial advisors that are income tax-savvy. Advisors who can guide clients not only to reduce tax, but also to serve as intermediaries with the IRS. Could you imagine the bill one would receive from a tax accountant for their time to rectify an issue with the IRS? In today’s dysfunction, it may require bringing in tax lawyers to try and resolve what should be a simple issue. Let me give you a current real-life situation.
After client’s mother passed away, the client inherited her home, and they sold the home in the next five months. The client did not realize the title company issued a 1099-Sales Proceed (1099-S) for the selling price of the home. The 1099-S alerted the IRS that the client must report the selling proceeds on their tax return showing the cost basis and if a taxable gain or loss was realized. If someone fails to report the 1099-S, then the IRS sends out a deficiency notice assuming all the proceeds were taxable and at the highest income tax rate. This client’s notice was for over $150,000 tax owed. The reality is that the client owed zero tax, as their cost basis was the same or higher than the sales proceeds.
Watch how the dysfunction operates: the IRS claimed they sent a notice in 2020, but the client has no record of receiving a deficiency letter. Between the post office and the IRS, who knows what happened. In 2021, the client received a second notice of request for information from the IRS. The client notified us, and we gave them simple instructions to respond. The client sent all the necessary information to prove no tax was owed in May 2021. The IRS sent another threatening letter in Spring 2022 stating that the client owes well over $150,000 now with penalties and interest. The client notified us again to help rectify the situation. I spent two days trying to get through to the IRS to no avail. On the third day, I was on hold for a total of 4 hours and was transferred to three different people . The last agent that spoke to administered an inane questionnaire to determine how to resolve the issues, and I knew the resolution they came back with was going to be a disaster.
I called a tax attorney friend who gave me a sound path to resolve the issue, but it was a nuclear option requesting an offer in compromise that would assign me a real agent who could resolve the issue sometime in the next year or two. I tried the next morning to get a knowledgeable agent, only to be greeted with the message at 7 am that says, “We are overwhelmed; call back later (click).” I tried one more time the following morning and got an agent in 18 minutes who was very kind but could not help. They transferred me to the Underreporting department, and I was able to talk with an agent immediately who gave me a Reconsideration Unit fax number who could resolve the situation. I faxed that off and now must call back in two weeks to see that they have the fax. Most companies would be able to do that in an hour, but the IRS needs two weeks to confirm that they received a fax for a specific social security number. I am still holding onto the offer in compromise, but I feel this Reconsideration Unit Fax has high probability of both holding back the collection and resolving the issue.
If I were unable to come up with a solution quickly, the IRS would begin seizing all the assets of the client within the next 12 months. You are going to start hearing stories of people’s assets being compromised by the IRS, even though the issues could be very simply rectified with the help of someone who understands how to weave through the IRS matrix.
Congress needs to be attentive, because the integrity for the tax revenue agency is the backbone of the nation. The message to our readers is to find someone who knows how to navigate the tax laws first, and then when necessary, how to navigate through the tax agency matrix. The average person pays far too much to their financial advisor for doing very little. A professional financial advisor should be tax-savvy as well as investment-savvy.
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