This is a big tough situation.
It would have been so much more easy to handle if
tax returns had been filed all along.
And with some of the new laws Congress recently passed,
this will be a harder issue to resolve. There used to be
quicker, easier, more optimistic ways to deal with this;
but not anymore.
You have several different things happening here,
each handled by different type of professionals:
1) You have to have 8 years worth of tax returns prepared.
2) Once you know the balance due, you must have someone intercede with IRS
on a payment plan, or to negotiate a reduction.
3) The option of filing bankruptcy is probably no longer available
since the tax debt won't be 'ripe' before October 2005 when the
new bankruptcy laws kick in...but, you never know.
The folks and firms who deal with collections issues are often
former IRS collections officers (Revenue Officers). Most of those
guys can barely read a tax return, much less prepare one.
Yes, some of them who have been separated from IRS and in their own
practice for several years ARE capable of tax prep - but, that's
perhaps a third of that population. So, ASK before you decide.
So, you need someone to prepare the tax return. And that person
who's preparing the tax return must work with the person who will
ultimately handle your payment strategy. There are different ways to
prepare a return depending on whether you expect to pay the balance
in full, or if you're going to bankrupt it or qualify for an Offer.
(I will not go into the strategy here - that's why the pros get
paid the serious money. They spend years learning and building
What can you expect to pay?
1) Tax preparation for 8 years's returns - expect to pay a minimum
of $250 per return, depending on complexity.
* If you have a lot of stock sales and the preparer has to
spend time working with you toresearch costs, it will cost more.
* If you have a business and the preparer has to do bookkeeping,
it will cost more.
* If you have rental properties or an office in home, or any
complications that involve more time and research, expect
to pay for it.
* If you're missing W-2 or 1099 information and the preparer has
to contact IRS to get copies, expect to pay more.
* If you aren't responsive and the preparer has to keep chasing
you down, know that they will be charging you for the time.
So - typically, expect to pay between $250 - $500 per year.
If anyone in California charges you less?
Be careful, that would be very unusual, and it would be
an indication of someone who is inexperienced.
You won't be getting a bargain.
2) The collections issues. Look for an Enrolled Agent, Tax Attorney,
or a CPA who has experience dealing with IRS and FTB (California)
collections issues. Be sure to ask how much experience they have and
what they realistically expect your results to be, once you know
how much the tax balance due is.
Cost? Expect to spend about $3,000.
Why? You'll be paying for time.
a) The forms are very time-consuming to fill out since they
require a lot of back-up documentation to be attached. You can
keep your costs low by getting everything you're asked for, without
fighting your tax professional. You don't think you'd do that, but
you'd be surprised at how many people kick and scream at every request.
b)Once the forms are filled out, assembled and sent off, there's a
lot time involved staying on top of the application, following up
QUICKLY when additional information is requested, and resolving issues
with the IRS collections officer assigned to the case.
Essentially, if you have any assets (house, investments, retirement
funds, insurance), IRS will not cut a deal with you to have you pay
less without insisting that you tap into those resources.
True, IRS might not be permitted to tap into certain of your retirement
or pension funds without your permission, but...as long as you have them,
IRS won't reduce your balance due.
You can get a pretty good idea of what kind of deal you can expect by
looking at the Form 656 Offer in Compromise booklet that IRS puts out,
with the forms. It has a worksheet to compute the offer.
3) Tax Bankruptcy. An iffy option.
Cost? Under the present bankruptcy laws, expect to pay about $3,000.
Surprise! Yes, it's cheaper than going for an offer incompromise.
However, under the new laws, since you'll have to go through the
Chapter 13 reorganization...it may cost more like $5,000.
Your attorney will have to spend more time working out a payment
plan. And you may have to pay a trustee to handle the assets of your
bankruptcy estate. (Everyone loses on this one.)
If it's completely unreasonable to expect IRS to accept
an offer from you, wait a couple of years and try to file a
tax bankruptcy. That will require the help of an experienced
tax attorney. Most are NOT familiar with how tax bankruptcy
works. In fact, many attorneys still don't believe you can
discharge taxes in bankruptcy.
AND with the new bankruptcy laws in effect by then, you may
still not qualify for anything but reorganization. So, you
may not be able to discharge all the taxes at all. But you
might be able to get the court to order the balance due to
Expect that this whole experience will take you about
3-10 years to resolve, unless you have enough money to
pay it off at once.
How can you find a good person?
You ask: Are there objective ways available to the public to evaluate and
compare these professionals?
The best way is by recommendation.
There's no way, in less than about three hours of writing,
that I could tell you all the things to ask and watch out for.
Perhaps one day I will create a series of checklists on how
to find the best tax professional in a variety of specialties.
But no one will sit still long enough, without being paid for
their time, for an interview that much in depth.
Expect to get about a half hour of someone's time in an initial
exploratory interview. Then, expect to pay for the time.
Find someone you know who's gone through this and is happy
with the person who handled it. If you don't know anyone, and
you need a recommendation, let me know. I know lots of people
in the Southern California area who handle these kinds of cases.
Just tell me where you are.
I used to, but am no longer taking on new clients - so I can
point you to the people to whom I refer my recent referrals.
Or, you can visit the National Association for Enrolled Agents website
www.naea.org and look up a professional by specialty and zip code.
You can check with the CPAs http://www.aicpa.org/index.htm
Or the Bar Association - http://www.abanet.org/index.cfm
Incidentally, once all the tax returns are filed, and the payment
plan or other option is all in place, you're not done. There's still
the potential of an audit. After the returns are filed, IRS may still
open then up anytime during the next three years and audit them - and
issue new assessments that are not covered by your negotiated plan.
That's one more reason to make sure the person you hire knows what they
are doing. In about 25 years of working with prior year returns, I've
only ever had about 5 or less opened up for audit (unless they were
assigned to an auditor when I met the client - before the returns were
ever prepared). That's the kind of track record you want in the person
I hope this gives you an idea of the scope of the experience and the cost.
This sounds so daunting. I know.
Don't be disheartened. Find the right person and they'll make this
experience a pleasant one. Really. They will.