I got a call from a man named Charles Bryan from Joplin, MO. today. Charles is a truck driver and he ironically goes by the nickname “CB.” CB called me after finding Honest Tax on the internet and told me that he felt duped by the IRS. I asked him to elaborate. He told me that in 2016 he went from being a company driver to being an owner/operator. He explained that he didn’t anticipate the tax implications of getting paid on 1099. CB said he only owed for the year of 2016, and the amount was right around $12,000. He explained that when he got his first letter from the IRS he simply called them up and tried to work something out. CB told me it was then that he felt like he was misled and taken advantage of.
I had a good idea of what CB was going to say, but it is always interesting to hear how the IRS takes advantage of each taxpayer so I asked him to explain further. CB told me that the IRS agent he spoke to asked him a series of questions over the phone. He said that she asked him about his income, his expenses, his equity, etc. CB said that after giving all of that information to the agent, the agent asked, “Well how much do you think you can pay?” CB said he told the agent he could pay around $350 a month. He told me that the agent seemed to be very accommodating and said she would accept that amount. So, he didn’t think anything of it when the agent told CB that she was going to send him a financial disclosure form for him to fill out, and as long as the numbers made sense, the payment amount will be fine. CB again said he didn’t think anything of it. He received the form in the mail about two weeks later and returned it to the IRS without a second thought. Looking back at it now, CB felt like this was the place where he was manipulated.
I knew exactly what happened here without CB going any further. I said, “Let me guess, you got a letter saying that, based on the financial information that you provided, the IRS wanted more?” CB quickly responded, “Man, I knew it. I was tricked. They want $950 a month now. And if you know about this, I must be right about it.” He asked, “So they told me they would accept $325 because they just wanted me to give them my financials, huh?” I replied, “Unfortunately, yes.” See, I get calls like this to my office all the time. The IRS pulled a bait and switch on CB. They lead him to believe that they would accept his proposed payment amount because their only true objective was to get him to disclose his financials. And he did so willingly.
As I explained to CB, the IRS has a limit on expenses that taxpayers can pay each month if they owe. This limit is called the national standard. And according to where you live and how many dependents you claim, the amount you can expense in each category is limited. This is because the cost of living varies all over the country. Now, if you don’t owe taxes, it doesn’t matter what you pay in expenses. But in CB’s case, he was paying over what his allocation was in a few expense categories. For instance, he had a mortgage of $1800 a month. However, his allowed allocation for mortgage/rent was $1400. So right there, the IRS is saying that CB is living above his means. He was also “over budget” with his personal vehicle. CB asked me, “Are they saying they don’t want me to pay my mortgage?” I replied, “Pretty much, they want to get paid first and they don’t care about your other financial obligations.” Needless to say, CB wasn’t happy.
Now, ideally, CB would have never given over his financials to the IRS. So, when he asked if I could help him, I explained that doing so was like playing a poker hand with your cards turned over. The IRS already knows what CB is holding. However, he wasn’t dead in the water. And, quite frankly, in many cases it’s not the message, it’s the messenger. As in CB’s case, I often have clients who are not looking for a reduction in their liability. They have been through the system and they just want a payment plan that they can afford. It’s much different when you have someone like an experienced Tax Attorney, CPA, or an EA negotiating on your behalf. We can get expenses pushed through that the IRS would not normally accept directly from the taxpayer. That is exactly what we were able to do in the case of CB.
CB hired Honest that week and after filing the power of attorney and getting a financial questionnaire back from him, we went to work. In CB’s case specifically, the IRS had declined a lot of his business expenses which they often do with truck drivers. Almost everything for OTR (Over the Road) drivers is an expense. Every time they pay to take a shower at the truck stop, do laundry, get a haircut, buy a meal, it is a valid expense. Basically every time he is idle and he incurs a work related expense, it is a write off. By re-positioning his monthly income and getting the IRS to accept these expenses, we were able to get CB on a $400 a month plan. And although it wasn’t the $350 he initially proposed, he was very happy with the result.
Just because we were able to get CB on a better plan, didn’t mean that his tax issues were over. In fact, to the contrary, this was the crucial time to make changes so that he did not incur more liability going forward. This meant he needed to make some changes in his business practices. I explained to CB that, first off, he needed to start paying estimated taxes. I instructed CB that every quarter he needs to pay a percentage of his income to taxes so he doesn’t have a large tax bill at the end of the year. In addition to paying estimated, I suggested that he needs to hire a tax preparer that specializes in driver’s returns. He is not doing himself any favors having someone file his taxes who has no idea what expenses beyond the norm that drivers can take. I explained this will really help cut down on his yearly tax bill. Finally, since CB was now grossing over $250,000 a year, I also suggested that he incorporate his business. For one, it reduces personal liability but more importantly his return is looked at with less scrutiny when he is incorporated. CB agreed to all of this and is now on a great path of reduced yearly tax liability. I check in with him from time to time to see how things are going. The last time we spoke, CB told me that he has almost paid off his outstanding debt and that he has grown his business to two trucks.
Look, I understand that it’s not easy owing taxes to anyone. And I also understand that because the IRS is a government agency there is an assumption that they will be impartial and try to be helpful and work with you. In some cases this may be true, but for the most part, it’s important not to forget they are a collection agency. In fact, they are the largest collection agency in the world. They have been around the block a few times and they know how to collect. So even though their bait and switch tactics seem dirty, they are successful. Bottom line is this, if a taxpayer makes more than about $3,000 a month, they should tread very lightly when speaking to the IRS. They should consider not trying to handle their issue on their own and hire an experienced professional to help them. It’s very hard to undo the mistake of giving full financial disclosure, even if you are trying to do the right thing. With the IRS, do good’ers get taken advantage of. If you owe the IRS and are not on a payment arrangement or are wondering if you may qualify for a recognized reduction program, give us a call ☎ 833-3HONEST or send us an email here.
– Mitchell Agnew