Let’s talk today about IRS payment plans. More
specifically, let’s talk about common paperwork in requesting a payment plan.
A common one is Form 433-A, and it is used by W-2
workers and self-employeds.
The IRS is trying to figure out how much you earn, own, and owe.
There are questions about whether you (or your spouse)
own a business, are a beneficiary of a trust or have gifted property worth more
than $10,000 over the last 10 years. Yes, they wanna know stuff.
You will have to list your bank accounts, as well as
other investments, real estate and other assets.
You will have to provide an accounting of your monthly income and expenses.
There is also expanded disclosure if you are self-employed (that is, a sole proprietor).
There are other ways to own a business than as a proprietor (for example, a shareholder in a C corporation). The IRS will want to know about that, too.
Part of tax practice is avoiding this series, if possible. For example, if you have personal tax debt of $50,000 or less, you can bypass the 433 series and request a “streamlined” payment plan. You are still entering into a contract with the IRS (you must stay current with your filings, make all payments as required, and so on), but in exchange the IRS lifts some of the paperwork requirements. Sometimes advisors recommend hybrid arrangements (taking out a second mortgage, for example), leaving the IRS debt at $50 grand or less. And sometimes you are simply into the IRS for more than $50 grand, leaving no choice but to run the 433 gauntlet. This can be a rude awakening, as the IRS uses standards for certain expense categories (for example, housing and utilities). You might google that you can request an increase from these standards. You can request; don’t expect to receive, though. Barring significant factors (think care for chronic medical conditions), it is unlikely to happen. Depending on the numbers, you might be forced to downgrade a vehicle or pull the kids from a private school. This is not a friendly loan.
And you do not want to be … sly … when running the 433
hurdles.
Let’s look at someone who was too clever by half.
Kevin Crandell is a medical doctor. He contracted with
two hospitals, one in Mississippi and another in Alabama, for $30 to $40 grand
per month.
From 2006 through 2012 he did not file returns or pay
taxes.
The IRS started garnishing his wages in 2010.
COMMENT: I find it remarkable that he still did not file or pay even when garnished.
The doctor racked up close to a million dollars in
taxes, penalties, and interest.
Somewhere in there he formed a couple of corporations.
He used one to receive monies earned as a contractor. The second appeared to serve
as asset protection.
He finally hired someone (Blue Tax) to help out with tax returns and attendant debt.
Blue Tax drafted a 433. The first draft showed Crandell’s
salary as $17 grand per month (I don’t know where the rest of the money
went either). The doctor howled that the number was much too high and should be
closer to $12 grand.
Oh, the 433 also left out bank accounts for those two
corporations (which he controlled). And a $50,000 gun collection. And the
$40 grand he drew from the corporations shortly after submitting a 433 stating
that his salary was around $12 grand.
Doc, you have to know when to stop. Lying, and then
lying about the lying is called something in tax.
Crandell was indicted for fraud.
That pattern of non-file and non-pay looked bad now.
That “creative” 433 also gleamed like a badge of fraud, leaving off income,
assets and so on.
Crandell argued that he relied on Blue Tax.
It is a good argument - an excellent argument, in fact
- except that he did not fully disclose to Blue Tax. If you want to show
reliance on an advisor, you have to … you know … actually rely on the advisor.
Crandell was convicted
for tax evasion.
Our case this time was US v Crandell, 2023 PTC
178 (5th Cir. 2023).
