IRS: They Can’t Talk, But They’ll Take Your Money

Updated January 27, 2022

The IRS is a hot mess. Not that anyone needed confirmation, but the Taxpayer Advocate just released her annual report in January, which confirms what we already knew. Since FY 2010, the IRS’s budget has been reduced by nearly 20 percent after adjusting for inflation and its staff cut by 17 percent over the same time. As a result, the Advocate concluded, “the IRS cannot provide top quality service or enforce the law with fairness to all.” In short, if you need something from the IRS, it’s unlikely you’ll receive it directly from the IRS because it is:

  • Way behind in its paperwork. They finished the 2021 filing season with a backlog of 35.3 million returns (7 million business, the rest personal) that must be processed manually. As of December 15, the IRS reported it had 2.8 million unprocessed Forms 941 withholding returns, along with another 427,000 Forms 941-X amended returns.
  • Not answering the phone. Only 1 in 9 phone calls to the IRS is answered, with hold times reportedly averaging about 23 minutes (but everyone knows it’s closer to an hour on hold, and you likely get disconnected).
  • Taking six months to process written correspondence, despite automated procedures that move forward with collection after 60 days when there’s no processed response.
  • Still aggressively collecting money. Despite (or maybe because of?) the poor customer service, the IRS was still able to collect $4.1 trillion on a budget of about $11.9 billion, an average return on investment of about 345:1

Can I get a business loan?

You may be asking yourself – why should I care about the IRS? Well, if your business is in good shape with the IRS, there’s probably nothing to worry about. But an IRS liability is a huge problem when you are trying to get a loan (or keep your current funding). Lenders, whether it’s a line of credit or funding against accounts receivable, typically stop funding within 45 days after the IRS files a federal tax lien. However, if you need something from the IRS – a installment agreement, refund, etc. – you are unlikely to get what you need, especially in a timely manner, without some outside help.

Tax Resolution and Lien Subordination

Fortunately, there’s a solution – an installment agreement and subordination of federal tax lien. With an affordable repayment arrangement in place, the IRS cannot take your bank accounts or receivables. A subordination of federal tax lien, which requires an installment agreement, addresses your lender’s priority concerns. But time is of the essence. Once the IRS files its lien, its secured interest takes priority over your lender’s 45 days later. The window for (a) resolving the IRS issue while (b) addressing your lender’s concerns was tight prior to the pandemic. That window is much smaller now that the IRS isn’t answering the phone or processing correspondence in a timely manner.

Practice Pointers

  • Be proactive. If you wait for an IRS response, there’s a good chance that they’ll shoot first and ask questions later (the IRS can move forward with collection while you or they are sitting on unopened mail).
  • Know why lenders care. When you have a limited amount of time to address a situation, it’s important to know specifically what your lender will require. Our short video can explain.
  • Know your options. Typically (not always), the best option is an AFFORDABLE installment agreement (even if you are not working with a lender), combined with a subordination of federal tax lien (assuming you are using your receivables as collateral for a loan). Our short video can explain.
  • Work with an experienced and knowledgeable representative. You really want to work with someone who specializes in these issues, not someone who deals with the IRS once or twice a year and doesn’t understand your lender’s concerns (like a local accountant). We can help.

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