When we first met 64-year-old Valerie Cole in 2007, she made $87,000 a year as an executive secretary for a hedge fund. Unfortunately, she was the unlucky recipient of an IRS levy notice. The IRS was seeking $945,000 for unpaid employee taxes. How could this be possible without her actively avoiding her taxes for 40+ years?
Taken for a ride by a charismatic narcissist
Several years before, Valerie's friend Harland had convinced her to invest $1.2 million in his business, which we'll refer to as "Payroll Concepts," a payroll services firm. Harland suggested that Valerie also work at Payroll Concepts. The company added new clients, but still required additional infusions of cash to cover expenses. Over the course of six months, Valerie invested an additional $450,000 of her own money into the business and became the major shareholder of the company.
Payroll Concepts was still not making any profits when Valerie received a notice from the IRS stating that the company was deficient in its 941 payroll deposits. She had written out the payroll deposit checks herself and had personally given them to Harland to sign. She looked up the bank reconciliations and saw that the checks were cashed. She called the IRS to correct their error, but the agent insisted they did not receive any money. When Valerie received the check copies from the bank, she discovered Harland had cashed the checks himself and had embezzled the funds.
Valerie confronted Harland, who told her that he just needed to pay back some personal loans and the money would be paid back in full before the IRS would do anything about it. Harland then told Valerie that he hired an attorney to handle this matter and that if she got any correspondence from the IRS, she should forward all of it to his attorney.
She recalls one day going to visit the IRS. She told the agent that she was the majority shareholder and yes, she did have signatory authority. Valerie later found out that this particular visit was actually a 4180 interview where the IRS revenue officer was bound to assess the trust fund penalty against any person who was willful and responsible.
Had Valerie hired us for the trust fund interview there would be no way she would have been assessed the penalty. Embezzlement by another person is a reasonable cause not to be assessed the penalty. We would have proven that the person the IRS should go after was Harland and Harland alone.
But, she didn't have her guard up. Both she and Harland were represented by the same attorney (a total conflict of interest that would be actionable; yet this attorney became judgment-proof,) who had signed the Form 4180.
Valerie didn't think much of it. She assumed that Harland or the business was primarily responsible and the IRS would try to get money out of the business, which she actually thought was still viable.
But that's not how trust assessments work. The IRS will assess the trust fund penalty against as many people as possible. Not only that, but they'll collect the money from as many steams of revenue as possible until the liability is paid in full.
Undoing the damage
The business failed. Valerie lost her entire investment. This all happened about the same time that she took a job as an Executive Secretary in Greenwich, Connecticut.
A routine credit check revealed the IRS had imposed a $945,000 federal tax lien against her. She hired a national 'tax resolution' firm (one that frequently advertises on television). They charged her $10,000, told her she didn't qualify for the Offer in Compromise program, and then failed to resolve her tax problems.
Valerie came to us anxious and distraught. We investigated her case and determined she was, in fact, not really in a great position to file an Offer in Compromise. She still had equity in her home, and had some investments to her name.
We first thought, based on the nature of assessment, that Valerie should have not been assessed the Trust Fund to begin with. We asked ourselves if we could use something known as a Claim for Refund. But, without all of the documentation from her interactions with the IRS, we didn't know if we had grounds. So, we requested all of the case notes from the IRS Revenue Officers assigned to the Payroll Concepts case. After a few months went by, we finally received them.
We saw, in Valerie's handwriting, that she had signed statements such as the following: "I acknowledge I was willful and responsible and agree to repay the IRS."
Well, there you have it; it was an admission by Valerie that she should be held liable.
Valerie could hardly believe it until we showed her a copy. She did not recall ever signing that document, but she admitted that Harland and his attorney had her pretty confused and it definitely was her handwriting. We tried to get the IRS to see it our way, but they refused.
Final options for settling Trust Fund taxes
If Valerie's financial condition allowed for bankruptcy, it still wouldn't have been an option. The assessments for Trust Fund Recovery Penalty are not capable of being removed through filing for bankruptcy.
The good news is that by the time we reached this point, the IRS only had 4 years left to collect this money from Valerie. Since that was the situation, the worst case we were looking at was them taking $1,800 a month for the next 4 years.
It would be a huge amount in savings, but it would still be a strain on Valerie. We decided to make one final appeal, mentioning the nature of this assessment and the fact that Valerie was not the young woman she once was. Eventually, we got the IRS to agree to a payment of $400 a month. The amount was definitely bearable for Valerie, and she was free of all the worry, anxiety, and confusion that she had been living with.
UPDATE: In January, the Collection Date — the CSED — ran out on Valerie. We mailed the account transcripts to her to prove it. She said, "I am just relieved this is over." She also mentioned she saw that Harland was arrested in Florida the year prior.
On a happier note, Valerie told us the great news that she will be marrying a client of the hedge fund that she took the executive secretary position with. We wish her nothing but the best and the brightest (and happiest) future there is.
* * *
Names and certain facts have been changed to protect the identities of clients. These stories aren’t intended to be a promise of how your case will turn out. All cases are different and, outside of tax or federal court, approval of the final resolution is up to the IRS.