Taxation & Estate Planning

Trust Fund Recovery Penalty - an impersonal experience?

By Darrin Mish

Here is another story sent in by a loyal reader:

I ran a company for two years back about half a decade ago.  As a part of getting the business established I signed a personal guarantee for our tax liability.  Unbeknownst to me at the time, our bookkeeper wasn't following instructions, and as a result stopped making our tax payments to the IRS.  The business eventually went bankrupt, and the IRS came after me to the tune of $90,000.  I suffered a lien on my property, my assets were frozen, and I started receiving threatening letters and automated phone calls from various IRS agents.   Arguably the worst part of the whole experience was the lack of human contact-the sense of isolation is profound, and it seems that their forms are generated by computers rather than people.  Nobody knows who the correct person to speak to is, you wind up in IVR hell, and have little to no choice but to keep playing the transfer game without ever speaking to someone who can give you a cohesive view of what's going on.

I decided that discretion may have been the better part of valor, and retained a tax attorney for the sum of $10,000.  Over a period of months, he braved the IRS warren and negotiated a settlement for approximately $45,000, payable over a period of three years.

RESPONSE:

This person made a great observation.  A lot of the forms people receive are generated by computers.  The IRS has tens of thousands of employees, and knowing to whom you should speak can actually be very difficult.  When taxpayers try to deal with the IRS on their own, their situation almost always gets worse.  There have even been times when IRS representatives have stated that they had authority to discuss a case when in fact they did not.  The only thing they were hoping to accomplish was to get the taxpayer to give up valuable rights by wasting time or unknowingly waiving their rights.  There may be hesitation by some people when they realize they will have to pay a professional to help them get out of trouble with the IRS.  However, after things get really bad (and expensive), people realize that they will save much more money in the "long run" by getting professional help.

Full post as published by IRS Problem Solver Blog on February 26, 2009 (boomark / email).