As 1040 work wanes, there’s more money in tax resolution every year.
By Eric Green
The demand for tax resolution has exploded in the last several years, and our current situation is only going to increase that demand.
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There’s never been a better time to get into doing this work, and there is a shortage of CPAs who can do this work really well.
As an introduction, here are six tax resolution services that are money-makers for firms with CPAs and EAs that can deliver results to taxpayers with these problems.
1) Payroll Taxes
Payroll taxes are the easiest loans for small business owners to take and the hardest to pay back. The Cares Act lets business owners defer payroll tax payments, with the assumption that the business would come back healthy and maintain compliance. However, this deferment means they will now have to start paying 50 percent of the prior year’s taxes in 2021 and pay the balance in 2022. Once the penalties, including failure to file, deposit, and pay, start piling up with interest, it becomes very difficult for these businesses to catch up on their back taxes.
This leads to cash flow problems and bankruptcies, which create an increased demand for compliance work, as well as increased demand for representation due to trust fund recovery penalties for personal responsibility.
For example, when a bookkeeper has signature authority, they may be held liable by the IRS for the owner’s unpaid trust funds from payroll taxes. That bookkeeper will require representation to help navigate the appeals process to prove they are not responsible for the debt.
Payroll taxes are a very serious area and the demand for assistance and representation will continue to increase.
There are more than 7 million non-filers in the United States. With improved technology, the government had already started identifying and suing these taxpayers before the pandemic hit.
When the pandemic hit and the Cares Act created economic impact payments, those 7 million people were allowed to collect the payment. Now that they have submitted their information and collected the economic impact payment, the IRS will begin pursuing them for their previous tax returns. With multiple years of returns unsubmitted, 7 million people will find themselves buried in penalties and will end up in the collection division inventory, which is where they will need your help.
It’s not just tax resolution services that these clients will need help on. A typical engagement will include bookkeeping catch-up, prior years’ returns, sales tax problems, and payroll tax problems as well as resolving federal and state debt. All of these services add up to a nice sum per client.
3) Tax Debt Collection
There were more than 15 million taxpayers in the collection division inventory at the end of 2019. Add them to the 7 million non-filers, and that’s a total of 22 million people who were already targets of government collections.
That number will explode with the fallout from Coronavirus.
The pandemic will cause an increase to an already high number of missed returns and compliance issues, which will cause an increase in the demand for accounting work and representation. State and federal requirements will therefore increase your revenue per case.
These services include negotiating offers-in-compromise, installment sales, and tax representation services along these lines.
4) Divorce and the Innocent Spouse
With the Coronavirus pandemic bringing lockdowns, business failures, and extreme financial pressures, a large increase in divorce rates is in the near future. With state courts currently closed, many couples will continue to file joint returns, which bring joint liability and throw out any chance of seeking innocent spouse relief.
Without thinking through the circumstances and options (i.e. separate property state vs. community property, married filing jointly vs. married filing separately) many people will dig themselves a hole in the pursuit of saving money in the short term. This will create an increased demand for help with returns accounting, reconstruction, divorce-related services, valuation issues, and representation for the innocent spouse.
The IRS is continuing to conduct audits through an automated process. More than 75 percent of audits today are done through correspondence.
With the decrease of in-person auditors, there is an increased demand for trained representatives who know what they are doing. People will require the help of someone who knows how to reopen bad assessments and who thoroughly understands the tax and audit systems.
It’s interesting that many firms focus on IRS audits in tax resolution while ignoring the other more lucrative areas. While there is still demand in this area, there is far more demand in the other five areas mentioned in this article.
6) Appeals – Reopening Closed Assessments
More people than ever will need a qualified representative that understands the appeal process and can reopen assessments to navigate the process correctly. Due to the automation of auditors, there are numerous clients who don’t understand why they owe money, where the amount came from, and how to find someone with the answers they require.
In regards to joint assessments, many will require help with audit reconsideration services, qualified amended returns, refunds, and innocent spouse claims.
Where the Money Is
While there is less and less money in 1040 work each year, there is more and more money in tax resolution work every year, and this trend will continue in the future.