Read The Transcript Below:

Steven:

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals Edition. I’m your host, Steven Jarvis, CPA, and this week on the show with me, I have Kristine Stevenson, who is an enrolled agent specializing in tax resolution. Kristine, you and I had the opportunity to meet at FinCon last fall. I came to a great session you did, and I’m excited to have you on the podcast. So welcome.

Kristine:

Hey, thank you Steven. Glad to be here. Thanks for inviting me on.

Steven:

Of course, between the two of us, we could go in so many different directions, but as we were getting started, one thing that really stood out to me is I want to kind of start this with a discussion around helping our audience members, helping financial advisors who are working with our clients understand what to look for as a strong indication that maybe DIY isn’t the answer anymore. So when you’re working with clients before, when you did tax preparation more so than what you do now, I mean for you, what are some of those things where you just start pushing people to say, Hey, you need professional help?

Kristine:

Oh gosh, how much time do we have on this podcast?

Steven:

30 minutes.

Kristine:

30 minutes, okay, condensing this down here. Some of the things that are no longer appropriate for the do-it-yourselfers, and just for full disclosure, I am a do-it-yourselfer, so I understand that frame of reference. I’m all about that, but when an individual or a business even gets into being more of a business and they really need to get some help is when their income is getting into the six-figure range. A lot of businesses that I see that come to me, they’re in the six-figure range and they’ve gotten into some trouble because they haven’t done basic things. And so as a financial advisor, now, let me ask you this. Are most of your clients, are they more individuals or are they individuals with businesses? Let me ask you that.

Steven:

Yeah, so it’s definitely a combination of the two and within our audience, we definitely have people serving both. So you can talk about ’em one after the other or the things that overlap, but either direction is going to be valuable.

Kristine:

Okay, good. So again, do it yourself first. If you have your sole proprietor, let’s say, and you want to now form an LLC, or maybe they want to form an LLC with an S-corp election, those switching from the LLC to having the S-Corp election, you need professional help I think for that because I see too many people or talk to too many people that they hear osmosis or this tribal knowledge floating around that, oh, form an S corp and you’ll save taxes. Well, maybe, I mean you’re a CPA, maybe people come to you with that same kind of thing, but that’s an indicator. Yes, go get some professional help. Or maybe I just had a conversation earlier with someone today, a family of four, and they’re all doing different things with different businesses. This is teenagers and adults, and she was talking about, well, let’s form a series, an LLC series.

She goes, that might be a really good idea. And I said, well, that’s not my bailiwick, but first of all, you need to make sure that you can do that in your state. Not all states allow that. I know here in Texas they do, but I can’t speak necessarily for other states. That’s the time to go get help from a professional. I want people to see it as, oh, it’s not just another bill, but investing in yourself with your money. Pay the professional because if you don’t, later on, you’re going to end up really having to pay. If you think it’s expensive now wait until you do it wrong through it’s unintentionally done wrong, and then you have to pay someone to help you get unstuck from the issues that you’ve caused for yourself unintentionally. Then bring in a lawyer too if need be, because lots of people need business legal help in addition to tax help or any kind of finance help.

Steven:

Yeah, it’s definitely a lot more expensive to fix problems as opposed to avoiding problems. I’m definitely right there with you. The thing I would add in that conversation about especially business entity type, I think you’re alluding to this with hiring an attorney and with making sure it’s specific to your state. People talk about entity selection I think more often as a tax decision, but it’s really a legal decision first, you have to understand how this applies in your state. You have to understand the current vision and future vision of your company. Looks like. Are you going to have partners? Is it always just going to be you? Do you plan to exit someday? There’s all these different questions that go beyond just how am I going to get taxed in an individual year that needs to be considered as well. Quite often when I get asked this question of, Hey, when is it time to stop being to stop dabbling in DIY and move on to professional help when it comes to taxes, if you’re to the point in your life that you have complexity enough to work with a financial advisor personally, I think you should probably be working with a tax professional as well, whether that’s a CPA or an enrolled agent.

You have enough going on that you want that extra set of eyes, and I’ll have people push back and tell me, well, I just have a W2. It’s not that complicated. Well, it’s not that complicated right now. Life changes in a hurry. Tax rules change in a hurry. You want someone who does this all the time. In my non-tax DIY experience, I’ve done different home projects over the years, and one that I have a really strong aversion to now is anything plumbing-related. Even if it feels simple to me, I hire a professional every time now because again, paying to fix things that went wrong is much more expensive and much more painful than just doing it right the first time around.

Kristine:

Yes, and I would add, it’s not just a matter of the cost of the dollars, it’s the time. It’s the time involved. Your time is very valuable, and so hiring a plumber to come in, okay, so maybe they charge you $185 for the one hour that they’re there fixing a leaky faucet or something. Well, they’ve got all the plumbing parts in their truck and they’re not running to Home Depot to get the little washer or the little nut or whatever it is that you need. So it’s time and it’s money, both of which are very valuable commodities, and I don’t want to make a comment about your, oh, it’s just a W2. I don’t know how many people’s tax returns I’ve seen where it was just a W2 and they haven’t had something simple. Haven’t had enough withholding tax come out, high-income earners in the three, $400,000 range, and they’ve only got maybe 30 or 40 grand that’s come out of their paychecks all year. So now they’ve got $30,000 they owe to the IRS and they don’t have 30,000 sitting around in their account because they haven’t set money aside to pay the IRS. So even the simple stuff, basic tax planning, there’s a huge need for that. So hire someone, go buy even just a couple hours of a CPA’s time.

Steven:

Absolutely. Now, Kristine, at this point you focus on tax resolution, which for our listeners who aren’t familiar, and I don’t do tax resolution personally, so you can amend my description here, but tax resolution gets more into, there’s already a problem that we need to try to go fix with the IRS. This is, we’ve gotten to the pain point and now you’re coming in to help. So maybe talk a little bit more about what being a tax resolution specialist encompasses, and then if you could share a couple of things as to how you most commonly see people end up in a situation where they need a tax resolution specialist. Because ideally, we all go our whole lives without ever needing your help, even though a lot of people will.

Kristine:

Sure. No, great question. And I have many stories I could share. So tax resolution specifically is what we call representation work, and most tax professionals, whether they’re an EA, a CPA or even a tax attorney, do not do this specialty kind of work. There’s maybe like 5% of the whole that’s doing this kind of work. So what this is is when you have a large tax bill, maybe it’s a one-off situation or it’s a combination of many years of I haven’t filed or I filed but I didn’t pay the tax that was due. Now you have a chunk of money due to the IRS and you don’t have any money set aside to pay them, or you’ve got lots of bills and you have lots of money, but you also owe the IRS, and figuring out what is reasonable to pay the IRS if anything, and maybe that ends up being $5 or on a monthly payment plan, something like that.

Or maybe it’s you really don’t have extra money to pay the IRS, so you might need to get into something called a currently not collectible status. I have a plumber, he’s making 250, 300,000 gross receipts. He does not have any money at the end of the month to pay the IRS and he owes, actually, I talked about him as one of my examples in my presentation. He has no money, extra money to pay the IRS every month. It’s just the way his business is going as a plumber. And so he’s in this currently not collectible status, and that’s just one option of several. Sometimes people can pay, but they can’t pay very much, and the IRS says, well, you could pay a lot more than you say you can. And so you have to prove to the IRS on their forms in their language, using their standards that no, I really don’t have a thousand dollars to pay every month.

I can only afford to pay $500 a month. That’s what representation is. It’s negotiation. It’s really about negotiation. For many people who owe the IRS, one of their first thoughts is, oh, can I get it reduced? A logical question, can I get my tax reduced? In most cases, the answer is no. And sadly, sorry, but what they’re referring to is the offer and compromise program. That’s what you hear advertised on the radio. In tv. If you owe the IRS x amount of dollars, there’s a new program to help you pay less, maybe, maybe not. And again, for most people, that’s the offer and compromise and the statistics. The reality is that most people don’t qualify, and I can give you some examples. I have a lady, she owes just over $200,000 and she doesn’t have very much money to pay monthly, but she has an art collection.

She has a 1965 Mustang kind of a collectible. She doesn’t drive it very often, but before the IRS would negotiate some kind of deal with her, she’s going to have to sell that Mustang. That’s an asset. And the IRS, their expectation is that you sell your assets, you liquidate your 401k, and pay the bill that’s due. So there’s this whole big negotiation process and maybe you have extenuating circumstances, so you really need your 401k, you’re 75 years old and you’re drawing money down. Maybe you moved it to an IRA and so that’s your source of income, maybe a little bit of social security. So there are facts and circumstances to everybody’s case. That depends how you can negotiate a deal, and that’s what resolution is. That’s that process. So it takes a little while to go through. It’s not quick. You didn’t get into it quickly, you won’t get out of it quickly.

Steven:

That’s a good reminder there. If you didn’t get into it quickly, you won’t get out of it quickly. And even dealing with the IRS on simple matters, at least what I think of as relatively simple matters, take multiple years to resolve the IRS. It’s such a quagmire of trying to get any kind of response and then when you do get a response, it’s Well wait, which one of your communications are they actually responding to? And did their departments really even talk to each other? Had a situation I was dealing with last year with a client where partway through the process, we just suddenly started getting letters from a different IRS office that clearly hadn’t talked to the first people. And so we ended up with almost this audit trail that we have to send in every time of, here’s all the things we’ve already talked to you about and here’s what the next step is. And it can be a very time-consuming, very drawn out, and very frustrating process.

Kristine:

Absolutely. I spent seven years at the IRS in Austin. I was an examiner for a while. I was an analyst for a while also, and some of the things I learned internally is that the departments don’t necessarily talk to one another in a clear, concise, easy manner. The left arm doesn’t know what the right arm is doing, and it’s a huge monolith. It just kind of keeps slowly moving forward and what one department is doing, another department might see, but they can’t do anything about it because this other department has control of the case. For instance, I have a client who has an exam going for some prior year tax returns, and some of his other returns are in the collections department. So two different departments are controlling two different aspects of one account. And so you’re trying to juggle and make sure the other department knows what’s going on and how do you work with the department.

It’s a mess. And oftentimes even the simple stuff, as you were saying, no human being at the IRS can put eyes on an actual taxpayer problem, just marches forward slowly, and a human being may never see the actual problem and it’s a cycle. The IRS works in a cycle like any business, they work in a billing cycle. You don’t pay your bill on time, well, you get a second notice and then maybe you don’t pay your utility bill. And then what does the city do? They send you a notice. We’re shutting your water off in 10 days. You better take some action. The IRS is similar, although it works in a longer cycle. And so eventually you don’t pay that bill. You get another notice. They get more aggressive in tone. And some people, a lot of people hide their heads in the sand. They don’t know what to do.

I got an IRS letter and they ignored it, which is the worst thing to do, which it’s counterintuitive to call the IRS and try to talk to them. And then they end up in these situations where they need a specialist because it’s just so voluminous. It’s so outside the scope of what they know and handle and who has time to spend hours on the phone on hold waiting and making sure the person on the other end of the phone knows how to deal with the situation. The IRS hires new people all the time and they don’t have the breadth and depth of knowledge that someone who’s been working there 10 or 15 does. So maybe the person you’re talking to on the phone is brand new, fresh out of class. You’ve got a huge complicated situation and they may or may not be able to guide you and help you. So there’s limitations all the way around.

Steven:

I’ve only ever been on this side of the desk. I’ve never worked for the IRS. And so I’m curious to get your perspective on a couple of things because my impression has always been that when on the rare occasion where I convinced myself that calling the IRS is the right answer and not just sending letters because calling, even just getting through to someone is a challenge. Yes. But once you get on the phone with someone, kind of that first line of defense that you actually can talk to, it does usually feel like it’s someone brand new who has some kind of handbook in front of them. I’m sure it’s electronic, but you ask your question and they say, well, can I put you on a brief six-and-a-half-minute hold? And then they’re going to go through and see if they can find a scripted answer.

And if they can super, they’re going to give it to you. And if they can’t, they’re going to come back on and say, thank you for waiting. Can I put you on a brief 11-minute hold and I’m going to keep looking into this. And then maybe they have something they can go escalate to, maybe they don’t, but it really just feels like either they’ve got an answer in these FAQs or they don’t, they’re not even given permission, let alone have the experience to critically think or evaluate the situation to give you some kind of discerning answer.

Kristine:

That’s a pretty good summation. So here’s kind of the inside scoop from when I was there, and it hasn’t really changed. I still have friends who work at the IRS. Each department has its own, and you probably know some of this, their own internal revenue manual that is easily a thousand pages if it were a hard copy. And they have moved to…

Steven:

Per department?

Kristine:

Per department, exactly. And so in the old days, it was literally flipping to the page to figure out the error code or the message the person is calling in about, well, now they have the electronic version and so that goes a lot faster, but the person on the other end of the phone may literally just be fresh out of training, as you said. And people that are on the phone, part of their metrics is how many calls they can take per hour. Each department has its own metric system, some way that more heavily than others time spent on the phone. But when I was there, in an ideal world, it was about 12 to 15 minutes per person that you got on the phone, which is nothing. I mean, that’s nothing to help a human being that’s on the other end. That’s stressful. They don’t know.

So you’re trying to help them out. And again, each department varies, but yes, it’s a giant if then chart if this, then that. And they have to go look up the information and put the person on hold and their department requires them ideally to come back every five or six minutes, take the person off hold, “thanks for holding, I still need to do some more research”. Do you mind holding for another six or seven minutes while I go do some research? And so they have to go do more research and the less time they’ve had at the IRS dealing with issues in their department, the more research time that they do need. Many people at the IRS, they don’t know tax law, basic tax law. They know how to go look stuff up in the IRM, which is great, but they don’t know the underlying rule or what’s causing it. Like someone like a CPA or an enrolled agent, someone that’s a tax professional does. So they don’t have that advantage of understanding the tax law. They just know where to go find it in their manual. So it’s a lot of hold time.

Steven:

And not to get too philosophical here for just a second, but I feel like it is important to remind people that when we’re dealing with taxes, I mean we’re starting with a mess to begin with because you have rules that are made by Congress, which is a bunch of non-accountants. Then it’s given to the IRS to try to write into actual guidelines and manuals and all of these things of how it’s going to get implemented and then handed to usually rather undertrained and poorly supported human beings who then have to execute on all of this. And so anytime before, again, I try to avoid calling the IRS as often as possible, but when I do Kristine, I kid you not, I have a little pep talk I have to go through with myself to remind myself, okay, whoever answers the phone, they didn’t make the tax rule, they didn’t create this situation. It is not that person’s fault. So that when Susie on the other side picks up, I don’t start yelling at her. I’m trying to be as helpful as I possibly can and really I take the same approach even when I’m writing to the IRS. It’s like getting pulled over. If you’re speeding, you have no cards to play. The other person has all of the authority. All you can do is play as nice as you can, and be direct and specific and stick to facts.

Kristine:

That’s very true. I read about this in my book, the IRS person might be sick. They might wish to be on vacation and they didn’t get it, so now they’re mad they had bad days. They have to deal with unhappy people all the time.

Steven:

Always. Yeah.

Kristine:

Most people calling the IRS are not happy. So that’s who they deal with.

Steven:

I tell people all the time that almost no one grows up dreaming of being a CPA someday. A lot of us get into this profession for very practical reasons or because we have an affinity for numbers. So if we can all agree that most people don’t grow up dreaming of being a CPA, I promise there is no one growing up dreaming of someday working at the IRS. And so even on their best day, you’re not catching someone who’s living out their dream career as they’re answering the phone with the IRS.

Kristine:

Yeah, I was desperate. And that’s when I got my job at the IRS and I had some tax knowledge and I needed a job. Oh, you want me to work 4:00 PM to midnight? Great, no problem. So happy to drive 75 miles one way to work at the agency. I did like my time at the IRS I have to say.

Steven:

I’m sure it’s an incredibly valuable learning experience.

Kristine:

Absolutely.

Steven:

To pivot just a little bit, make sure we’re giving people actionable things that they can do and not just hearing our thoughts on the IRS itself. Let’s talk a little bit more about the prevention side of this because that’s really where I try to spend my time and why I focus so much on helping taxpayers do what seemed like the little things right year in and year out. Because like you said, these problems usually are created over time, especially if we’re ignoring just the blatant fraud that goes on because I don’t want to work with those people anyway. But a lot of times people get themselves into trouble because it’s a little bit at a time that they don’t have good enough holdings. They misunderstand a tax rule and get themselves into hot water. And so this prevention side of it is so critical.

Kristine:

Absolutely. So prevention would be okay, let’s say in this particular year you owe more than a thousand dollars of tax because that’s kind of the yardstick by which things really start to happen. So you owed more than a thousand. Okay, what do you need to do prevention-wise at the beginning of the year? Start now it’s January 16th today, you can forecast with some degree of accuracy even with the most simplest of tools, the estimator tool on the IRS website. It’s not perfect, but it’s great.

Forecast now or go see your CPA sit down before they get busy. Get on their calendar now and sit down and do some forecast work. Okay? So that’s one thing. If you’re a business and you’re self-employed, maybe a sole proprietor and you’re in the unfortunate position of owing tax now and having to make estimated tax payments as the year goes by and you’re trying to cashflow your business, you’ve got to sit down and again, make some projections with the help of your accountant hopefully, and look at what money do I need to be saving to pay the tax bills that are coming up throughout the year and what money do I need to make available now to pay the tax that’s going to be due on April 15th? And so maybe you’re diving into a prevent a saving mode. That’s your prevention at the beginning of the year.

You’ve got to save money because you know you’re going to be paying out taxes now and into the future. And I would say if you have a combination of self-employment and wage, you really need to sit down and carefully look again at the beginning of the year what withholding might come out of the paycheck versus what kind of estimated tax payments can we make, which is going to work better for your personal pocketbook as well as your business pocketbook. Look at your lifestyle. Maybe you have to reduce some of your lifestyle right now, possibly at the beginning of the year in order to make things work more smoothly throughout the rest of the year or yourself. Those are basic things and people don’t even do the basic things. Even the financial advisors, you help their own personal stuff that they’re doing.

Steven:

That is definitely true. At the RTS summit this last year, that was one of the sessions we did- how advisors themselves can improve their tax planning. That’s the topic we’ll cover again this fall in September when we’re back in Phoenix for the second annual conference. That’s September 25th through 27th, so be sure that’s marked on your calendar. Go to retirementtaxservices.com/summit to go ahead and book that. But yeah, Kristine, you’re not wrong. There are advisors who need to do it themselves. Certainly, something we need to help our clients with. But I love that you’re focusing on this needs to start now. It can be easy to think, oh, well the tax deadline’s not until April, the end of the year is not until December. You’ve got to get ahead of this stuff or it can start consuming your life. So really appreciate the thoughts there. Kristine, for any advisors listening, hopefully it’s not them personally that are in these situations that they have clients who end up in these situations. Tell us a little bit how they can find about you and your services and then questions they should be asking if they’re vetting a tax resolution specialist in general.

Kristine:

Okay, we’ll work in reverse order. So if you have a client that owes a large balance to the IRS, here’s some questions that you can ask them. Number one, have they filed their tax returns for the last six years? That’s pretty much what the IRS wants. If they’re self-employed, are they making quarterly estimated tax payments? They have to be making those payments. They have to show the IRS. Oh, I know I messed up, but now I’m taking steps to proactively correct that. Those are two big things, kind. What kind of taxes is due if they have a business? Oftentimes there’s payroll issues. Ask, have you filed your 941s? Are you working with an accountant? No, you’re not. Maybe you need to to work with a payroll service. Here’s a do-yourselfer thing we were talking about earlier. They want to do their own payroll because it costs too much to hire someone to do this service for them.

Well, again, if you think it costs a lot, now, wait until you mess up your 941s and now the IRS is coming after you with penalties for not filing your 941s in addition to the money that didn’t get in the federal tax deposits. So these are some questions you can ask. These are all the things that I ask people, but the main thing really is are those tax returns filed all of them for the last six years and for the last eight quarters. So those are questions you can ask and find out you’re helping your client get organized to possibly go see someone for either tax help in general or resolution work specifically. And then I guess the other question would be is helping them figure out do you have any money at the end of the month to pay the IRS?

Literally, it’s almost a budgeting process. What’s left over? And if you have to pay the IRS something, can you cut out what expenses can you cut out? Dining out Americans love to eat out, maybe you’re going to have to cut out some expenses to pay what you owe. So those are questions you could ask your clients to help them get organized and go see the tax specialists that they need to. So in terms of contacting me, I am mostly on LinkedIn. I did take my website down because it’s being retooled, so I’m not going to give my website out right now and that’s okay. Mostly my referrals are word of mouth, so I’m not too concerned about my website, but my email is kristine@kristinestevensonea.com. I’m sure you’ll put that in the show notes. You can text me. It’s 737 234 0196 or call me. You’ll go to voicemail immediately and I will get back in touch with you and I send people my calendar link. That’s how it happens. We always start with a conversation. I get the facts and circumstances of what’s going on, and then I can say, yeah, you need to hire a resolution specialist like me or No, no, you don’t need a specialist, but do these things. Do A, B, and C, or talk to your CPA. If you’re already working with them, they can help you out. You’re good to go. You don’t need the more costly services of a specialist such as myself.

Steven:

Well, Kristine, thank you for sharing both that perspective and then that contact information for you directly. I always hope that people won’t need these types of services, but it’s so important to have a good resource when you do. The other thing I’ll tag onto this list of action items we’ve been talking about is you need to be getting your client’s tax returns every single year because especially when we get into these problem areas, you want the real data. Don’t take your client’s word for it. Taxes are complicated. It’s not an honesty or integrity issue. These are complicated things that unless you see it on their return, I would not take your client’s word for what actually happened. So Kristine, thank you so much for being here. I really appreciate you coming on the podcast. 

Kristine:

Thank you, Steven. It’s great to be here and I want all your listeners to go to your conference in September.

Steven:

I appreciate that. It’s going to be a good one. For everyone listening until next time. Good luck out there. And remember to tip your server, not the IRS!