The IRS made headlines three years ago when they threatened to go "beast mode." While that might sound dramatic, it's not far from the truth. The IRS went on a hiring spree, rapidly increasing its workforce to ramp up enforcement activities. This has led to some improvements in customer service — fewer "courtesy disconnects" after long hold times — but the more critical development is the return of aggressive collections tactics.
For the past few years, the IRS has rarely issued levies, which are actions like wage garnishments, bank account seizures or asset seizures. But that leniency is over. We're now seeing a flood of "Final Notice of Intent to Levy" letters, which are not to be taken lightly. If you receive one of these notices, you have just 30 days to file an appeal, or the IRS could seize your wages, bank accounts and even personal assets like boats or RVs. Act quickly and avoid the common mistake of asking for a 30-day extension, which does not stop the appeal deadline and may increase your risk of a levy.
In addition to these final notices, the IRS is also sending new letters to those with pre-pandemic balances, warning them to contact the IRS immediately or face the resumption of collections. These letters often come with a 10-day deadline, and because the usual 30-day appeal window has long passed, your options are limited. If you receive one of these notices, time is of the essence — seek professional help immediately to avoid severe financial consequences.
Key Challenges Faced by Small Business Owners
The end of the pandemic may seem like a relief, but for many small business owners, the financial struggles are far from over. While the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) offered some respite, those funds have dried up, and the loans taken out during the pandemic are now coming due. This means that, on top of ongoing operational challenges, many business owners are now facing significant debt repayments.
For those who barely survived the pandemic, this additional financial pressure can be overwhelming. And to make matters worse, the IRS is now coming after back taxes with renewed vigor. The combination of maturing loans and aggressive tax collections is creating a perfect storm for small business owners in the construction and trades industries.
Professional Assistance & Preparing for Future IRS Enforcement
Navigating IRS collections is complex, and the stakes are high. If your situation is straightforward and you can afford to pay the IRS, you may be able to resolve your issues on your own. However, seeking professional assistance is wise if your case is more complicated.
When choosing a professional, it’s crucial to ensure they are licensed and experienced in tax resolution. Avoid high-pressure salespeople more interested in commissions than finding the right solution for you. Instead, look for a licensed professional who is also a certified tax resolution specialist. They can review your IRS file, assess your financial situation, and help you choose the best course of action.
The IRS is only getting bigger and more aggressive, with plans to increase audits and collections efforts to historic levels. The best way to protect yourself is to act now before the IRS starts levying your assets. Don’t wait until your business is thriving to address your IRS issues. The worse your financial situation, the better the terms you might be able to negotiate with the IRS. Taking proactive steps with the guidance of a qualified professional can help you secure a more favorable outcome and protect your assets before the IRS intensifies its enforcement.
3 Strategies to Navigate IRS Challenges
Facing IRS challenges can be daunting, especially with the agency's increased post-pandemic enforcement. Here are three key strategies to help you manage your tax situation effectively and protect your business from severe penalties.
1. Offer In Compromise (OIC)
An offer in compromise (OIC) is a powerful tool for those in dire financial straits. If you can demonstrate that your ability to pay is severely limited and you have few assets, you may be able to settle your IRS debt for less than the full amount owed. This isn't just a quick fix — it's a chance to wipe the slate clean and start over.
If you're struggling financially, don't wait to get back on your feet before seeking help. The worse your situation, the more likely the IRS is to accept an OIC. Act now while your financial situation is at its lowest point.
2. Uncollectible Status
If you have some assets but lack the cash flow to pay off your IRS debt, you might consider requesting "uncollectible status." This status temporarily halts IRS collections, giving you time to recover financially. Additionally, if your debt is close to expiring under the Collection Statute Expiration Date (CSED), uncollectible status can help you avoid paying the debt altogether.
Uncollectible status is an excellent option if you're struggling with cash flow but have assets that could disqualify you from an OIC. It can buy you time and potentially eliminate your IRS debt if the CSED expires.
3. Installment Agreements
For those who don't qualify for an OIC or uncollectible status, an installment agreement may be the best option. This allows you to set up a payment plan with the IRS, making manageable monthly payments until the debt is paid off or the CSED expires.
Installment agreements are a viable solution if you have the means to make regular payments. Ensure the payment amount aligns with your business cash flow to avoid defaulting.
Dealing with the IRS can be daunting, but with the right strategies, you can navigate these challenges and protect your business. Whether it's pursuing an OIC, requesting uncollectible status, or setting up an installment agreement, the key is to act quickly and seek professional guidance. The IRS isn't going away, but with the right approach, you can mitigate the impact on your business and secure a more stable financial future.
