When Clients Owe the IRS: Tax Resolution Strategies for CPAs

Sufyan:

Hello everyone, and welcome to another exciting episode of the CPA talk series. Today we are talking about a part of the profession that many CPS come across, but not everyone specializes in, and that’s tax resolution. Most firms handle compliance work every day, but when IRS notices collections or unresolved tax debt enter the picture. The conversation quickly shifts from technical work to client reassurance strategy and sometimes crisis management as well. And that’s why I’m really excited to have Rachel Gibbs with us today. Rachel is an enrolled agent and entropy fellow and the founder of the Trifecta Tax Relief. She works closely with both taxpayers and CPA firms to navigate complex IRS situations while helping clients move forward with confidence. Rachel, welcome to the show. It’s great to have you here.

Rachel:

Thank you for having me. I’m excited to be here. Great introduction, by the way.

Sufyan:

Thank you. Our research team is pretty good with research about the guests. All right, well, I always like to begin with the journey, you know, behind the expertise that, our guest, carries. And I would love to start this discussion on the same note. So what first, drew you into tax resolution work? And how did the path eventually lead to building Trafecta Tax Relief? Can throw some light on this.

Rachel:

Oh, well, that’s a very unique story. So, I have to say this. My father is a CPA. He was a corporate CPA. He’s retired now. And early on, I did not want to fall in that path. You know, the whole idea of, you know, being this legacy, CPA being this legacy, you know, accountant, I didn’t initially want to do that.

It took having a family, a family member who had some extreme tax issues that couldn’t get resolved. They got levied from IRS in the state. And I was younger. It was in my early 20s and we had to hire a tax attorney. Well, the tax attorney messed the whole thing up. They put them on a full pay IRS. Yeah. The family owed like $200,000. It was over years. They were trusted. They were a truck driver and, you know, owner operator. And so the tax attorney set them up for a full pay. What that means is they had to pay the full 200,000 principal plus the interest, plus the penalties.

So I said, well, why? Why would the tax attorney do that? So my involvement with that particular case led me into this. You know what? I need to be helping people. Is there a way for me to help others without being a tax attorney? So then I started doing some research. I said, well, CPAs normally don’t do this work and well, I don’t want to take the four part rigorous exam.

So I decided, hey, I would use my degrees that I already have and I would study to become an enrolled agent, which are federal tax practitioners. And being an enrolled agent, I would have the same representation rights as a CPA and a tax attorney. So basically I can do that tax representation work, tech tax resolution work without having to go back to school without spending years of study. So and that’s what I did.

Sufyan:

Okay. Wonderful that, that background really helps, set the stage because many, you know, CPAs don’t plan to work in tax resolution. but they often find themselves dealing with these situations, through their clients. so from your experience, what are some of the biggest misconception CPAs or clients have when dealing with IRS collection or tax debt? And more importantly, where do things usually start, you know, to go a little off track?

Rachel:

I just want to say this a lot of CPAs don’t believe in the work that we do. They will simply tell their clients, call the IRS and just get on a payment plan. Sometimes that’s a lot of times that’s not the answer. We need to pull tax transcripts. We need to pull wage transcripts. We need to look at all the areas of opportunity with that taxpayer. Just telling them to call, that’s not going to get them all of that information.

The first resort should be, you know, reaching out to someone like us or somebody that specializes. Some CPAs do specialize. Very few do in tax resolution. So the misconception is they the taxpayer can just call and do this themselves.

I’ve seen many cases where they try to do that, and they end up with wage garnishment. They end up with bank account levies because they don’t know what to do. So it’s this concept of, oh, taxpayer can just call everything, all will be well, IRS will put you on an installment agreement. Yeah, they will, but you’ll end up paying payments that you can’t even afford to pay for 72 months, compared to when somebody like me calls. We’re looking at all the data, all the tax data. We’re looking for all the windows of opportunity. So that’s what I would say is a misconception.

Sufyan:

Right. And, I mean, beyond the technical side, one challenge I hear from owners all the time is how to communicate these situations to the client. You know, I mean, it’s very easy to tell them, call the IRS and, you know, get on a payment plan. But when a client moves from a routine tax work into a resolution situation, how can CPAs communicate that shift in a way that maintains trust and confidence? Both?

Rachel:

I think that begins with the CPA having knowledge of the tax representation piece or the tax resolution piece. If they’re not familiar with that, they don’t know what to tell their client.

So I think communication starts before they even talk to the client. I recommend CPAs take at least one webinar, one class on what tax representation is. It doesn’t mean that they have to do it, but at least they will be knowledgeable of what it is and what that conversation looks like.

Hey, we see that you have a $50,000 balance. Are you able to pay this in full? Ans the taxpayer says – no, I can’t afford that. Now, you know, the reality of it is a lot of times that comes from the lack of withholdings that comes from the failure to pay quarterly tax. We don’t know what caused the taxpayers to owe the balance, but the CPA must be knowledgeable on okay, they owe this huge balance. They can’t afford to pay it. Now what?

Now, what may mean that, hey, we have some partnered enrolled agents who specialize in this. I want you to have a conversation with them. I think that’s a more reasonable conversation to a CPA who does not do this type of work.

Sufyan:

Isn’t it also important to know how to say things? I mean, a master class for all the, sales professionals listening to this podcast. You know, ‘Yes’ is the best way to say no – it is what I have learned over the period of time that whenever there is a request from any of our prospect or client, and the definite answer is an obvious, no, that we cannot, you know, do this or something like that, I would first say, yes, you are right. This is how it needs to be. But unfortunately, or because of so-and-so reasons, we cannot do that.

So, I think it’s also equally important to emphasize, apart from what to say and what to communicate, but also how to communicate.

Rachel:

Right. And they can let them know. I think with that, how they talk to the client, they let them know, hey they can even say we have a specialized division that handles this. And that specialized division could be an outsider like myself who they’ve contracted to handle these types of cases.

To keep that client in-house. I don’t want the tax prep. I don’t want the, you know, I don’t want the bookkeeping. I don’t want that. I want to do the resolution piece. They can keep that client in the house by simply saying, hey, we have someone on staff that can assist you with this. Let me get their calendar or something. You know, something close along the lines that I think would be helpful as well, because some taxpayers may not want to be pushed onto someone else, an outsider. So giving them that idea of, hey, we have somebody in the house that can help you with this helps as well.

Sufyan:

So I’ve been talking about your practice. Do you partner with CPA firms and become an extended arm of their practice?

Rachel:

Yeah, we have our marketing set up for those referral partners. There is a revenue share. However, with CPAs, there are limitations around, you know, referral fees, finders fees. So they we have to make sure they, they get the proper guidance from their state that they’re licensed with to see what that profit share looks like, if they just want to, you know, pay us directly to do the work, they can do that as well.

If they say, hey, we’ll pay you X amount of dollars per hour per case, they can do that as well. But the reality of it is if a taxpayer gets a notice, they’re not coming to me first. Now they might if they see this podcast.

If a taxpayer gets a notice, the first person they’re going to is the person that prepared their taxes. So what we want to do is to partner with those people. Say for example, a client comes to you and say, hey, I have this notice. I have this intent to levy notice, what do I do with it? And you’re like, I don’t know what to do with it. Or, you know, you might not say that, but you’re thinking like, I don’t know what to do with this, but then, you know, you have this partner. Oh, yeah. Rachel, Trifecta Tax Relief can assist with this. She’s well versed in this. And they form that communication to where they get me in front of the client and let me take care of that.

Sufyan:

This also ties into something many firms are navigating right now. And that is nothing but capacity related issues, right? So between deadlines, advisory work, and unexpected client issues, it’s becoming harder to do everything internally. And I think one shouldn’t be doing everything internally is because if you are the business owner, if you are a CPA, practice owner and accounting company owner, you have better things to take care of.

I think they should be focusing more on building the client relationship, doing more of the advisory work, you know, connecting with industry peers and understand the industry level trends, etc. So from your perspective, how should firms think about what work truly needs to stay in-house versus what can be delegated or handled through collaboration with more complex cases that come up?

Rachel:

Each firm needs to focus and hone in on what they’re good at, where their knowledge base is.

For example, I don’t do corporate returns. I’m not going to take the time to learn how to do them because, well, an S Corp is different than a corporate, you know, corporate return, you know, partnerships, all those they all are taxed differently. Bases is different. Look I’m talking to the CPAs, now talking about bases. Everything is different.

But I know with individual taxation it pretty much stays the same. I mean, there are a few adjustments, but a 1040 return is a 1040 return, I know it. Line for line. I can analyze it and go through it, line for line.

So I’m not going to take resources which could be time, money and energy to rush and learn a thing when I am a master of something else. If you are a CPA and you’re a master of corporate taxation, you’re a master at bookkeeping and accounting and financial statements. Stay focused on that, and have your staff keep that in-house. That’s your meat. Let the potatoes go to somebody else. Before you make mistakes because trying to and I know this from experience, trying to rush and learn and catch up in areas that you, you’re a novice in will cost you and your clients more than contacting an outside master, right?

Sufyan:

Right. In both the sense, it’s going to cost them more in many other factors as well. Not necessarily, monetary benefit or monetary expenses side, but otherwise as well.

So let’s say for an example, if there is a senior staff member, working for a CPA, a CPA practice, working as a manager and managing multiple clients, but if he is also supposed to do the basic cleanup of the books, he probably will find it repetitive in nature. He will get bored out of it, he will start looking out for options. And then you and I mean that CPA practice owner ends up, you know, hiring someone new. Invest a lot of time and money in doing hiring, training etc.

So, it’s not only that monetary benefit that you get when you outsource but you get expertise help and you are able to utilize the resources in a better way.

Rachel:

Right. And they still can advertise, like a lot of people say, well, can I advertise the service? Sure. But just let them know that the individual that they make connections with might not be actually doing the work.

Just let them know that, you know, because my firm does this. I tell people, yes, we can help with corporate returns. I’m just not the person doing them. I have partners that do that. I don’t like bookkeeping, so I don’t do bookkeeping. I have partners that do that.

When it comes to somebody under audit and I have to go, you know, visit with the revenue officer, I can do that in my sleep. I’m not nervous about that. I’m comfortable with that. A lot of CPAs, they don’t even want to do that. They don’t want to sit before an auditor or a revenue officer.

You know, their client. You know, they know their client is under audit and they mess something up, but they don’t have receipts. And, you know, they’re like, I don’t want to do that. They don’t want to sit on the phone with the IRS. Meanwhile, I get a kick out of doing that every day. Matter of fact, once I got out of this podcast, I have to call the IRS about some things, I enjoy exercising that, and I enjoy advocating for my clients in that perspective.

Some people, they just want to do the returns. They’re all about the numbers. So in that case, they need to stick to that and just bring somebody else on their team to assist with the other stuff. Right. And I’m glad you mentioned that. They just need to inform their end clients that, it’s going to be done, but it’s going to be done by someone else that they know, or they have the partnership with.

Sufyan:

This principle also applies when CPAs outsource work to an offshore service provider such as Datamatics Business Solutions. Many CPA firms rely on outsourcing partners for back-office support, including tax preparation and accounting services. In such cases, CPAs should inform their clients that certain work may be performed by an external service provider.

Let’s also talk about Form 7216. This form is required when a tax professional needs consent from a taxpayer to disclose or use their tax return information to a third party. In practice, this often comes into play when Form 1040 preparation work is outsourced, especially to an offshore provider.

For other services such as bookkeeping, business tax preparation, client accounting services, audit support, or CFO-level advisory work, the rules can differ depending on whether taxpayer information is being disclosed. While it may not always legally require a Form 7216 consent, it is widely considered best practice to inform clients and obtain transparency around outsourcing arrangements.

The reality today is that outsourcing is no longer unfamiliar territory. Many global organizations—including companies like AT&T, DirecTV, Dish Network, Bank of America, and American Express—have long relied on outsourced teams around the world. Customer service, technology support, and operational processes are frequently delivered from countries such as India, the Philippines, Bangladesh, and increasingly parts of Africa.

I want to add on as well a lot of tax software. Now, a lot of tax software as well, require 7216 as well just to be able to use different third party. Do use different third party software?

Rachel:

So I that’s part of my process. We just automatically get that, in the organizers and the intake clients automatically sign it, whether we use it or not. We go ahead and just get them to give us their authorization. So it makes things a lot smoother.

So they can’t say, oh, well, you disclose my information to this third party, even though it’s one of my softwares that we use. But they didn’t know it. They may have gotten an email or text message, even from our tax prep software or our tax resolution case management software. If they were not informed that we use that and we’re using their personal data, there could be some trouble there.

Sufyan:

Got it. Okay. Yeah, but like I said, it’s always a good practice to let them know in advance before they get to know this through a software notification or something. Right.

Exactly. When a firm decides to collaborate, whether that’s a tax resolution specialist like you or outsource support team like us. you know, the structure and accountability become very important. So what best practices have you seen that help ensure, strong communication, client protection and, successful outcomes when CPAs work alongside external, specialist and support teams?

Rachel:

Well, one thing is the best practice updates, whether that’s weekly updates, whether that, you know, on a zoom call, if that’s an email. also adding that firm like for me example, I have a portal, I have a secure portal, adding in the CPA firm where they can see the status of the project with that client.

I think that helps, keep them abreast, let them know that their clients are being taken care of, and also letting them know that the data is secure.

So I think that alleviates a lot of stress because a lot of times when you outsource, if you’re not in constant communication in some form, you don’t know what’s being done and what’s not being done. You don’t need if you don’t know if there’s more input needed, you don’t know if there’s improvements that are needed.

So you have to establish a routine line of communication, even if it’s a ten-minute conversation with weekly updates like, hey, we have client ABC, this is what’s going on. We talked to the IRS, we’ve talked to the state tax authorities. This is what’s going on.

Just making sure that they know. So if the client goes to them directly because remember- they have the real rapport! We might have some, but they’re the firm that the client normally works with. So that way if the client reaches out to them and say, hey, what’s going on with my case, you can give them a nice little summary and an update letting them know what’s going on.

Sufyan:

Got it. You mentioned data security. So with us, we have some internal protocols and processes that we use, and we are obviously certified on different platforms. That includes ISO certification. ISO 27001 for information security. We are AICPA SOC compliant. We are GDPR compliant.

And we have, you know, enforced those policies, which are stringent in nature in our overall ecosystem. For the tax work or bookkeeping or anything of that sort. is there any, protocol? Is there any certification that a tax resolution expert is also supposed to have?

Rachel:

There isn’t a single governing body that directly oversees everything we do in that regard. However, the IRS does require us to maintain a written data security plan. We submit that to the IRS each year when we renew our PTIN.

We also maintain CAF numbers, and during renewals we’re required to provide certain documentation to the IRS. While I’m not a CPA and therefore don’t fall under the same professional governance that CPAs do, we still follow strict data security practices.

For example, we maintain a comprehensive security plan that outlines how client data is stored, accessed, and ultimately disposed of. If a firm asks to review it, we’re able to provide full documentation showing exactly how we protect and manage sensitive information.

And we’re flexible. Speaking for myself, if a CPA firm or partner requires additional security measures or compliance standards for working together, most of us are willing to implement them. We understand how important data protection is in this profession.

Sufyan:

Got it. Got it. Well, some exciting topics, obviously. But, as a last note, if you could give, CPAs or for that matter, all the listeners, one simple piece of advice, when dealing with clients under IRS pressure, what would that be?

Rachel:

To reassure them that whatever tax problem they have, it can be resolved. There is resolution in all tax cases. That just means that a client are in financial hardship. They just can’t pay it.

Whether that’s, you know, settling. I can’t talk settling it for less. They can do that. They can get an installment agreement if they’re, you know, based on the statute of limitation for collections, which is you know, we look at those dates to see when the date expires.

Typically, the date expires ten years after the assessment with the IRS. With the state, it may be completely different depending on the state. But yet with the IRS they have ten years to collect from the assessment date.

So okay. So you know, that’s why it’s important to pull those transcripts and analyze the transcripts. That’s the first thing that we do. But there can be a lot of opportunity just looking at the transcript, because you may notice that, hey, a lot of these debts are getting ready to expire, or they are expired.

You call it in, say, hey, you know what? This shouldn’t even be in collections anymore. This is the statute of limitation. And it falls off. So that happens to people every day. They don’t know it. They don’t know to go ask for it. They don’t know how to look for it. They don’t know how to do those things. But that’s what we do.

So that’s why I can say no matter the tax situation, it can be resolved.

Sufyan:

Well, thank you so much for such a wonderful advice and to the point. And overall, Rachel, thank you so much for being a part of this podcast. This has been a really practical and insightful conversation. and you have shared perspectives that I think many CPAs will find immediately useful, especially when, you know, navigating sensitive client situation.

We will include, Rachel’s details in the show notes so you can learn more about her work at Trifecta Tax Relief. And as always, thank you for tuning in to the CPA talk series.

If you find today’s discussion helpful, please subscribe, share it with your peers and we’ll see you in the next episode. Thank you.