According to statistics released by the IRS, over 14 million people owe back taxes as of 2019. And that's not even including back amounts owed to the state Departments of Revenue!
If you are a real estate agent with a back IRS and / or state tax problem, no doubt you have heard the ads on TV and radio blaring all day long, offering tax relief.
It's important to realize, though, that even though real estate agents with back IRS problems are among those 14 million people, the issues that they face are actually quite different from the issues that face the vast majority of those with back taxes.
The average IRS problem tends to be something relatively light. Maybe the taxpayer owes $10,000 to $20,000 to the IRS, and another $3,000 to $5,000 to the state. Further, most people who have IRS problems tend to have income that is on the lower side...maybe $50,000 to $60,000 annually.
In these types of cases, there are typically very straightforward solutions to the issue. If the amount owed is small, typically a call to the IRS can resolve the issue. Further, if the taxpayer's income is low, the taxpayer tends to qualify for various types of IRS relief that are designed for those with low incomes.
Real estate agents, on the other hand, tend to be in the exact opposite situation.
For one, the amount that they owe to the IRS tends to be fairly high. Most of our clients have balances due to the IRS of at least $50,000...if not substantially more. As you can imagine, when the balance due to the IRS starts to become large, the difficulty in resolving the issue increases exponentially.
Additionally, most real estate agents who have severe back IRS issues tend to have fairly high incomes, usually at or around $100,000 per year.
So a client of our might make $100,000 per year, but owe the IRS $150,000.
Clearly, the normal, basic types of relief available to those who owe a small amount of money don't apply. And the types of relief available to those with extremely low incomes do not apply either.
So what does this mean to you?
It means that if you are a real estate agent with a severe back IRS problem, you are required to negotiate each and every little thing in the resolution of your IRS issue. Out of the chute, the IRS is going to believe that you have a HUGE ability to pay them substantial amounts of money.
In reality, of course, real estate closings are erratic and uncertain, cash flow is unpredictable, and even though you made "a lot" of money, the actual balance you might have in the bank does not reflect that.
Therefore, you need to get deep into the weeds and negotiate each and every little thing with them, so that you can get a fair, workable outcome.